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Conventional Mortgage loans
A conventional mortgage loan, or a "conforming" loan, is any home loan guaranteed by a private lender or a Government-Sponsored Enterprise (GSE) like Fannie Mae and Freddie Mac.
Conventional loans can finance a primary residence, second home, or rental property and can be issued by a bank, credit union, or private Lender.
Conventional loans are best for borrowers with good credit and an adequate down payment, which could be as little as 3% of the purchase price. Conventional loans can be either fixed rate or adjustable rate.
Conventional loan credit score Requirement: Conventional lenders typically require at least a 620 credit score for approval.
Conventional loan down payment: Conventional loans are available with down payments as low as 3%, though some loan programs may come with income limits. For example, the Fannie Mae "Home Ready" and Freddie Mac "Home Possible" programs have a minimum 3% down payment. Still, they are only available to low- and moderate-income borrowers. You can make a higher down payment if you're earning a comfortable income.
Conventional income and debt requirements: Conventional lender guidelines set the DTI ratio maximum at 45%, with possible exceptions for those with mortgage reserves and higher credit scores. As of Aug. 1, 2023, you'll also pay a fee at closing if your DTI is over 40%.
The "Home Ready" and "Home Possible" programs permit a portion of "border" income if you can document rental income from someone who has lived with you for a full year. Income limits apply to the "Home Ready" and "Home Possible" programs.
Conventional loan waiting periods after Bankruptcy and Foreclosure: You'll need two to four years to apply for conventional financing after bankruptcy and up to seven years after foreclosure.
Conventional loan limits.
For 2026, these limits range from $832,750 in low-cost areas to
$1,249,125 for a single-family home in the most expensive parts of the
country.
Low-Cost Areas and
Multi-Unit Properties (in Texas and many other states/Counties)
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One-Unit
Properties:
$832,750
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Two-Unit
Properties:
$1,066,250
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Three-Unit
Properties:
$1,288,800
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Four-Unit
Properties:
$1,601,750
High-Cost Areas and Multi-Unit Properties (California, Alaska, Hawaii,
etc. Click the link below to see all states)
https://www.fhfa.gov/data/dashboard/conforming-loan-limit-values-map
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One-Unit
Properties:
$1,249,125
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Two-Unit
Properties:
$1,599,375
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Three-Unit
Properties:
$1,933,200
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Four-Unit
Properties:
$2,402,625
Conventional mortgage insurance: Private mortgage insurance (PMI) is required on conventional mortgages if you make less than a 20% down payment. Annual PMI premiums typically cost between 0.15% and 1.95% of your loan amount, depending on your credit score and down payment. Expect to pay around $30 to $70 monthly for every $100,000 you borrow. You can cancel your PMI once you prove you have 20% equity in your home.
Conventional loan appraisal requirements: Conventional appraisers focus on estimating a home's value based on its features compared to recent home sales in similar or close areas. You'll typically pay between $400 and $700 for a conventional appraisal unless you're eligible for a
property inspection waiver or an alternative valuation method. Some lenders may offer an appraisal waiver if you make a large down payment (at least 20%).
Conventional interest rates
Although FHA interest rates tend to be lower than conventional rates, the higher cost of FHA mortgage insurance may push an FHA loan's annual percentage rate (APR) higher than a similar conventional loan.
APR measures the total cost of borrowing a mortgage, including origination fees, Lender fees, Lender's underwriting fees, Processing fees, discount points, mortgage insurance, and other costs.
A conventional loan makes more sense if:
- You have at least a 620 credit score
- You have a stable income and qualify on your own
- You need to borrow more than FHA loan limits allow
- You're buying a second home or investment property
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