Conventional

Conventional Loans Explained: Rates, Down Payments and 2026 Requirements

A conventional loan is a mortgage funded by a private lender and underwritten to Fannie Mae or Freddie Mac guidelines, rather than insured by a government agency. For 2026, the baseline amount one of these loans reaches in most of the country before it needs a jumbo structure rose to $832,750, an increase of $26,250 over 2025, according to the Federal Housing Finance Agency's November 2025 announcement.

This is the headline figure, but it's only one piece. Conventional financing covers a 3% down first purchase as easily as a cash-out refinance on a paid-off house, with rules shifting by credit profile, down payment size and how the file gets underwritten. The Conventional Loan Program page on this site walks through the specific structures Wise Capital Mortgage originates. This article covers where conventional lending stands in 2026: loan limits, down payment minimums, credit conventions, and how conventional separates from FHA and VA financing.

What is a conventional loan?

A conventional loan is a mortgage not insured or guaranteed by a federal agency like the FHA, VA or USDA. Instead, Fannie Mae and Freddie Mac set the underwriting rules and purchase the loan from the originating lender after closing, which is why these mortgages are also called conforming loans once they fall under the 2026 loan limit.

Fannie Mae and Freddie Mac don't lend money directly. They buy loans from banks, credit unions and brokers like Wise Capital Mortgage after closing, bundle many of them together, and sell the resulting securities to investors. Lenders originate to Fannie Mae and Freddie Mac underwriting standards so the loan qualifies for the secondary market, since a loan a lender holds on its own books gets priced and underwritten differently.

A conventional loan staying under the conforming limit is a conforming loan. One priced above it needs jumbo financing, which carries its own credit, reserve and down payment requirements set independently by each lender. Most owner-occupied purchases in Austin and the surrounding Texas market fall well under the 2026 baseline, so jumbo terms rarely enter the conversation outside luxury price points.

How much do you need to put down on a conventional loan?

Conventional loans start at 3% down through programs like Conventional 97, HomeReady and Home Possible. Put down less than 20% and the loan carries private mortgage insurance until equity builds, while 20% down removes the insurance requirement entirely from day one.

Fannie Mae's Conventional 97 program allows a 3% down payment with no income cap, provided at least one borrower on the loan is a first-time buyer. HomeReady (Fannie Mae) and Home Possible (Freddie Mac) also start at 3% down, add an income limit tied to 80% of the area median income, and typically price mortgage insurance lower in exchange for the income restriction, according to current program summaries from themortgagereports.com.

Above those entry programs, 5%, 10% and 20% down are all standard, with pricing and mortgage insurance costs improving in steps as the down payment rises. A second home or investment property pushes the minimum higher than a primary residence does. For a side-by-side against FHA's 3.5% minimum, how conventional stacks up against FHA and the dedicated breakdown of FHA's 3.5% down against conventional's 3% option both go deeper than this overview needs to.

What credit score do you need to qualify?

Fannie Mae removed the hard 620 minimum from its automated underwriting system in November 2025, and Freddie Mac made a comparable change around the same time, so there's no longer one published floor covering every file. Manually underwritten conventional loans still require a 620 minimum, and most lenders continue treating the high 600s and above as the range where pricing improves.

Automated underwriting now weighs a fuller credit picture instead of rejecting a file purely for sitting below 620, according to reporting from Yahoo Finance (November 2025) and U.S. News & World Report. A lower score doesn't guarantee approval, and it still affects the rate and mortgage insurance cost attached to the loan, often substantially.

In practice, many lenders still underwrite toward a 620 floor as a working standard, since investor overlays and manual review requirements below this threshold add cost and friction most shops would rather avoid. Credit score, down payment and loan-to-value together drive pricing, which is why two borrowers financing the same amount regularly see different terms. Credit score requirements across loan types and the fuller qualification breakdown in conventional loan requirements for 2026 cover the credit and debt-to-income mechanics in more depth than fits here.

What's the 2026 conforming loan limit, and why does it matter?

The baseline 2026 conforming loan limit for a one-unit home is $832,750 in most counties, with a ceiling of $1,249,125 in officially designated high-cost areas, per the FHFA's November 25, 2025 announcement. Alaska, Hawaii, Guam and the U.S. Virgin Islands carry their own higher baseline of $1,249,125, with a ceiling of $1,873,675.

FHFA adjusts the limit every year based on national home price movement measured through its House Price Index, and the agency cited a 3.26% year-over-year increase in home values heading into the 2026 figure. Every Texas county, including Travis, Williamson and Hays, uses the standard baseline rather than the high-cost ceiling, so a conventional purchase up to $832,750 stays conforming almost anywhere in the Austin metro.

Staying under the limit matters because conforming loans typically price better and underwrite to standardized, widely available guidelines, while jumbo loans carry credit, reserve and appraisal requirements each lender sets on its own. A borrower financing above $832,750 on a single-unit Austin home in 2026 is working outside the conforming space and should ask a loan officer directly how jumbo terms differ before assuming conventional pricing applies.

How do conventional loan rates work?

Conventional rates aren't set by a government agency. They track pricing from Fannie Mae and Freddie Mac along with investor demand in the mortgage-backed securities market, and an individual rate depends on credit score, down payment, loan-to-value and property type.

Two borrowers closing the same week on the same loan amount regularly get different rates once credit score and down payment enter the picture. Loan-level pricing adjustments, the formal name for these rate changes, step the price up or down based on each risk factor rather than applying one flat rate to everyone who qualifies.

Because every file differs and rate quotes move daily with the broader bond market, the most useful exercise is running real numbers instead of reading a published average. The mortgage calculator on this site lets a borrower model payment, down payment and loan amount scenarios directly rather than relying on a generic example.

Conventional vs FHA vs VA: how do the programs compare?

Conventional loans require stronger credit than FHA but drop mortgage insurance once equity reaches 20%, while FHA keeps mortgage insurance for the life of most loans, and VA requires no down payment or monthly mortgage insurance for eligible veterans.

The right program depends on credit, available down payment funds, and whether military eligibility applies at all. How conventional stacks up against FHA covers the comparison in far more depth, including scenarios where FHA's lower credit threshold outweighs its ongoing mortgage insurance cost.

What does a conventional loan cost beyond the down payment?

Expect closing costs of roughly 2% to 5% of the loan amount, covering appraisal, title, underwriting and lender fees, plus private mortgage insurance if the down payment lands below 20%. None of these costs are unique to conventional financing, though PMI's cancellation rules are.

PMI on a conventional loan cancels automatically once the loan balance reaches 78% of the original home value, and a borrower has the option to request earlier cancellation at 80% once eligibility conditions are met. This differs from FHA mortgage insurance, which stays attached for the life of most loans originated today regardless of built-up equity.

[COMPLIANCE FLAG: verify the current PMI automatic-termination thresholds (78% automatic, 80% borrower-requested) against active investor and servicer guidelines before publishing, since these figures derive from the Homeowners Protection Act and should be confirmed current at time of publish.]

Closing costs, rate-dependent pricing and mortgage insurance all move together, so the cleanest way to see a real scenario is to model one directly. The mortgage calculator handles this side of it, and a conversation with a loan officer fills in the rest.

What does a lender look for on a conventional file?

A conventional underwriter documents income, assets, debt-to-income ratio, credit history and the source of the down payment. Standard guidelines generally cap total debt around 45% to 50% of gross monthly income, though automated underwriting sometimes allows higher ratios when compensating factors like reserves or a larger down payment are present.

Documentation typically includes two years of tax returns or W-2s for most borrowers, recent pay stubs, two months of bank statements, and a letter explaining any large, unexplained deposits. Self-employed borrowers and those with variable income face additional documentation, usually two years of business returns and sometimes a profit-and-loss statement.

Down payment funds need to be sourced and, if moved recently, seasoned in an account rather than appearing days before closing. Gift funds from a family member are allowed on conventional loans under documented guidelines, though the rules differ slightly by program and loan-to-value. For the full breakdown of qualification mechanics, from debt-to-income limits to reserve requirements, conventional loan requirements for 2026 covers it directly.

Deciding who originates a loan this size is worth the same attention as the loan terms themselves. More about Wise Capital Mortgage and the licensing behind it is available for anyone comparing brokers before moving forward.

Frequently asked questions

Is a conventional loan better than an FHA loan? Neither program wins in every situation. Conventional loans typically require stronger credit and reward a bigger down payment with lower mortgage insurance costs, while FHA accepts lower credit scores and a smaller down payment but keeps mortgage insurance attached for the life of most loans.

What credit score do I need for a conventional loan? Fannie Mae and Freddie Mac removed the fixed 620 minimum from automated underwriting in late 2025, though manually underwritten loans still require 620 and most lenders continue pricing and approving around this level in practice.

How much down payment does a conventional loan require? 3% is the minimum through programs like Conventional 97, HomeReady and Home Possible. Putting down less than 20% adds private mortgage insurance until the loan reaches 78% to 80% of the home's original value.

What is the 2026 conforming loan limit? $832,750 for a one-unit home in most U.S. counties, including all of Texas, with a $1,249,125 ceiling in officially designated high-cost areas.

Do conventional loans require private mortgage insurance? Only when the down payment is below 20%. PMI cancels automatically at 78% of the original home value, and a borrower has the option to request earlier cancellation at 80% once eligibility conditions are met.

Is a conventional loan available for a second home or investment property? Both are allowed, though down payment minimums rise above the 3% primary-residence figure, commonly to 10% or more for a second home and 15% to 25% for an investment property, with pricing adjusted for the added risk.

What's the difference between a conventional loan and a conforming loan? A conventional loan is any mortgage not insured by a government agency. A conforming loan is a conventional loan staying under the FHFA's loan limit for the year it closes, $832,750 for a one-unit home in 2026. Conventional loans above this limit are called jumbo loans instead.

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Educational content, not a commitment to lend or an offer of credit. Program parameters vary by lender and change over time. Figures are illustrative and current as of the article’s publish date; confirm current terms before relying on them.