Conventional Loans: The Most Common Path to Homeownership

Q: What's the difference between a conventional loan and a conforming loan?

A conforming loan meets Fannie Mae and Freddie Mac's guidelines including the loan limit. A conventional loan is any non-government-backed loan, including conforming loans and jumbo loans.

Q: When does PMI go away on a conventional loan?

PMI automatically cancels at 78% loan-to-value based on original purchase price, or can be requested at 80% loan-to-value.

A conventional loan is a mortgage not backed by a government agency — instead, it follows underwriting guidelines set by Fannie Mae and Freddie Mac, the two entities that buy most conventional loans on the secondary market. For borrowers with solid credit and at least a modest down payment, it's typically the most flexible and cost-effective loan option available.

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Conventional Loan Basics

Feature	Detail
Down Payment	As low as 3% for qualified first-time buyers; 5%+ typical otherwise
Minimum Credit Score	620, though 740+ gets the best pricing
Debt-to-Income Ratio	36-45% typical; up to 50% possible with strong compensating factors
Conforming Loan Limit (2026, Maricopa County)	$806,500
Mortgage Insurance	Required below 20% down (PMI); cancels once you reach 20-22% equity

Conventional vs. Conforming: Not Quite the Same Thing

These terms get used interchangeably, but they're not identical. A conforming loan meets Fannie Mae and Freddie Mac's specific guidelines, including the loan limit. A conventional loan is simply any non-government-backed loan — which includes conforming loans, but also includes jumbo loans that exceed the conforming limit. In other words: all conforming loans are conventional, but not all conventional loans are conforming.

Example: A $900,000 loan in Maricopa County is a conventional loan, but it's not a conforming loan, since it exceeds the $806,500 limit — it would be classified as a jumbo loan instead.

Why Conventional Loans Are So Common

Conventional financing remains the most widely used type of mortgage in the country, largely because the secondary market for these loans is large and liquid — lenders package conventional loans into mortgage-backed securities, which keeps capital flowing and rates competitive.

Conventional vs. FHA: Which Fits Better?

Factor	Conventional	FHA
Minimum Down Payment	3%	3.5%
Minimum Credit Score	620	580 (3.5% down) or 500 (10% down)
Mortgage Insurance	Cancels at 20-22% equity	Often required for the life of the loan if under 10% down
Best For	Good-to-excellent credit, steady income	Lower credit scores or smaller down payments

⚠️ Watch the Mortgage Insurance Difference: Conventional PMI cancels automatically once you reach 78% loan-to-value, or earlier if you request it at 80%. FHA mortgage insurance often lasts the life of the loan if your down payment was under 10% — a meaningful long-term cost difference even if FHA's upfront qualification is easier.

How Conventional Loans Are Underwritten

Conventional loans typically use fixed interest rates, meaning your rate stays constant for the life of the loan (adjustable-rate conventional options exist too, but fixed is far more common). Because there's no government guarantee, lenders apply stricter underwriting — closely reviewing credit history, income documentation, assets, and debt-to-income ratio to manage their own risk.

Frequently Asked Questions

What credit score do I need for a conventional loan? Most lenders require a minimum of 620, though scores of 740 or higher typically get the best available rates and pricing.

What's the difference between a conventional loan and a conforming loan? A conforming loan meets Fannie Mae and Freddie Mac's specific guidelines, including the loan limit. A conventional loan is any non-government-backed loan, which includes both conforming loans and jumbo loans that exceed the conforming limit.

How much down payment do I need for a conventional loan? Some programs allow as little as 3% down for qualified first-time buyers, though 5% or more is typical. Putting down 20% avoids private mortgage insurance entirely.

When does PMI go away on a conventional loan? PMI automatically cancels once you reach 78% loan-to-value based on your original purchase price, or you can request cancellation once you reach 80% loan-to-value.

Wondering If Conventional Is Right for You?

Let's compare your conventional options against FHA, VA, and other programs to find what actually fits your credit and down payment situation.

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