Conventional Loans

What Is a Conventional Loan?

A conventional loan is a mortgage that isn’t backed by a federal government agency.

Unlike FHA, VA, or USDA loans, conventional mortgages are offered by private lenders and follow guidelines set by Fannie Mae and Freddie Mac. Because there’s no government insurance protecting the lender, conventional loans typically require stronger credit and higher down payments - but they also come with significant advantages, including lower long-term costs and more flexibility.

If you have solid credit and some savings, a conventional loan is often the most cost-effective path to homeownership. For more, see our First-Time Homebuyer Guide.

Cole is personally licensed in Florida and North Carolina (NMLS# 1905939) and works with buyers and their agents in both states through Mpire Financial Group LLC DBA Mpire Financial, NMLS #2108504. Buying in Florida or North Carolina? Book a free consultation with Cole or take the 2-minute quiz to compare conventional and FHA for your purchase.

Conventional Loan Requirements

To qualify for a conventional loan, you’ll need to meet requirements in four main areas: credit score, down payment, debt-to-income ratio, and employment history. Here’s the short version. For the full 2026 checklist, see Conventional Loan Requirements in Florida & North Carolina.

Credit score: Fannie Mae’s minimum for manually underwritten fixed-rate loans is 620. Loans approved through Desktop Underwriter don’t have a set minimum score, but many lenders still require 620 or higher. Higher scores usually get better pricing, because Fannie Mae prices loans partly by credit score.

Down payment: As little as 3% on eligible purchases. That includes Fannie Mae’s HomeReady and Freddie Mac’s Home Possible, which limit income to 80% of the area median, and standard conventional loans where at least one buyer is a first-time homebuyer. The traditional 20% down eliminates the need for private mortgage insurance (PMI), but many buyers put down less.

Debt-to-income ratio (DTI): For manually underwritten loans, Fannie Mae caps your total monthly debts (including the new mortgage payment) at 36% of your stable monthly income, or up to 45% if you meet its credit score and reserves requirements. Loans approved through Desktop Underwriter can go up to 50%.

Employment: Two years of consistent employment history, though it doesn’t have to be at the same job. Self-employed borrowers usually need two years of tax returns. If your tax returns don’t reflect your actual income due to business deductions, a bank statement loan or other Non-QM loan may be a better fit.

How PMI Works on Conventional Loans

If you put less than 20% down, you’ll usually pay private mortgage insurance (PMI). Unlike FHA’s mortgage insurance, conventional PMI can be cancelled.

On a primary residence, the federal Homeowners Protection Act lets you ask your servicer in writing to cancel PMI once your balance is scheduled to reach 80% of your home’s original value, or reaches it sooner through extra payments. You need to be current, have a good payment history, and show the home hasn’t lost value. If you don’t ask, your servicer generally must end PMI automatically when your balance is scheduled to reach 78% of the original value, as long as you’re current (CFPB). “Original value” usually means the lower of your purchase price or the appraised value when you bought. This is one of the biggest advantages conventional loans have over FHA loans, which require mortgage insurance for the life of the loan if you put less than 10% down (HUD Mortgagee Letter 2023-05).

Your PMI cost depends on your credit score, down payment, and loan amount. Your Loan Estimate shows the actual premium for your loan.

Conventional vs. FHA: Which Is Better?

The right choice depends on your credit score, down payment, and how long you plan to stay in the home.

Feature	Conventional	FHA
Min. Credit Score	620	580 (3.5% down)
Min. Down Payment	3%	3.5%
Mortgage Insurance	PMI (can be cancelled at 80% of original value)	MIP (usually permanent)
Loan Limits (2026)	$832,750 (baseline)	$541,287 (floor)
Property Types	Primary, second homes, investment	Primary residence only
Seller Concessions	Up to 3%, 6%, or 9% depending on LTV (2% for investment properties)	Up to 6%

Choose conventional if: Your credit score is 680+ and you can put at least 5% down. You’ll likely get a better rate and save significantly on mortgage insurance over time.

Choose FHA if: Your credit is below 680 or you have limited savings. The slightly higher mortgage insurance cost is worth the easier qualification.

For a deeper side-by-side, see FHA vs Conventional in Florida & North Carolina. Not sure which is right for you? Take the 2-minute quiz or book a free consultation.

Conforming vs. Non-Conforming (Jumbo) Loans

Conventional loans come in two flavors based on the loan amount.

Conforming loans fall within the limits set by the Federal Housing Finance Agency (FHFA). For 2026, the standard limit is $832,750 in most areas, and up to $1,249,125 in high-cost markets (FHFA). In Florida and North Carolina, every county uses the $832,750 one-unit limit except Monroe County (the Florida Keys), where it is $990,150. These loans follow Fannie Mae/Freddie Mac guidelines.

Non-conforming (jumbo) loans exceed those limits. If you’re purchasing a higher-priced home in areas like South Florida or parts of the Triangle region in North Carolina, you may need a jumbo loan with different qualification requirements. For amounts above the conforming limit, see Jumbo Loans.

The Conventional Loan Process

Here’s what to expect from application to closing:

Step 1 - Pre-approval. We review your credit, income, assets, and debts to determine how much you qualify for. This typically takes 1-2 business days and gives you a pre-approval letter to shop with confidence.

Step 2 - Home search and offer. With your pre-approval in hand, you find a home and make an offer. Your agent handles negotiations.

Step 3 - Loan processing. Once your offer is accepted, we collect documentation (pay stubs, tax returns, bank statements) and order the appraisal. This phase takes 2-3 weeks.

Step 4 - Underwriting. The underwriter reviews everything and may ask for additional documentation. Typical turnaround is 1-2 weeks.

Step 5 - Closing. You sign the final paperwork, wire your down payment and closing costs, and get the keys. Total timeline from application to closing: 30-45 days on average.

Not sure how much home you can afford? Use our affordability calculator.