What Are Conventional Home Loans?

Conventional home loans stand as the most popular mortgage option for homebuyers in the United States. These loans, offered by private lenders without government backing, provide a pathway to homeownership for many Americans. Understanding the intricacies of conventional mortgages such as their requirements and loan limits is important for potential homeowners seeking to make informed decisions about their financing options.

Conventional loans are mortgages that aren't guaranteed or insured by the federal government. Instead, they are available through and backed by private lenders, such as banks, credit unions, and online mortgage companies. These loans come in various forms such as fixed-rate and adjustable-rate options allowing borrowers to choose the best fit for their financial situation.

These loans are largely sought by:

Types of Conventional Loans

Interested in learning how a conventional loan can work for you? Contact us today to explore financing options tailored to your needs.

Requirements for Conventional Loan


Credit Scores

  • 620 and up credit scores
  • No major credit defaults in the last 4 years
  • No 30-day housing lates in last year
Income & Employment

  • 2 years verifiable recent employment
  • income verified by paystubs & tax returns
Down Payment & DTI

  • Minimum of 3% or 5%
  • 43-50 DTI and varies per lender
  • P.I.T.I reserves: 3-9 months

Property Type

  • Homes, condo, townhome
  • Multi-unit properties up to 4 units
  • Condos (at least 51% owner-occupied)

Note: These requirements apply to both purchase and most refinance transactions. A refinance with cash out is capped at 85 LTV and credit scores must be over 720. Guidelines above are subject to change.

Conventional Loan Limits for 2026


Conventional conforming loan limits are adjusted annually based on changes in average home prices. For 2026, the conforming loan limits are as follows:

Property Type Standard Limit High-Cost Area Limit
1 Unit $832,750 $1,249,125
2 Units $1,066,250 $1,599,375
3 Units $1,288,800 $1,933,200
4 Units $1,601,750 $2,402,625

These limits apply to most areas of the United States with higher loan limits in designated high-cost regions in California, Hawaii, Washington, Colorado and Northeastern U.S. counties.

Pros and Cons of Conventional Loans vs. FHA

Advantages

Conventional mortgages offer several benefits to qualified borrowers:

  1. Flexibility in loan terms and options
  2. No upfront mortgage insurance premium
  3. Ability to cancel PMI once 20% equity is reached
  4. Higher loan limits compared to some government-backed loans
  5. Faster approval process & closings

Challenges

While conventional loans offer numerous advantages, they also present certain downsides:

  1. Stricter credit requirements compared to FHA loans
  2. Higher interest rates for borrowers with low credit scores
  3. PMI requirement for down payments less than 20%
african american homeowners

The Future of Conventional Home Loans

Conventional loans remain a cornerstone of home financing with ongoing adjustments to loan limits and requirements to reflect changing market dynamics.

Prospective homebuyers should stay informed about these changes and work closely with trusted lenders to close on a home. Learning how they work helps borrowers to make sound financial decisions and achieve their homeownership goals.

Consulting with an experienced mortgage professional can provide valuable insight and guidance throughout the process. These experts can help you assess your financial situation, different loan options, and develop a strategy to close your loan. Take the first step towards homeownership today.


Still have questions about conventional financing? See below

What is the difference between a conventional conforming and conventional non-conforming loan?+
Conforming loans have specific loan limits set by the Federal Housing Finance Agency (FHFA). In 2026, the base conforming loan limit for 1 unit properties is $832,750 with higher limits in expensive housing markets such as California. A non-conforming loan is a jumbo loan which is not backd by the GSE's and therefore has slighly higher interest rates.
Can I buy down the interest rate?+
Yes, You may buy the interest rate down. One way is through a seller closing cost credit which is what some homebuilders do. This method has been used for decades.

Disclosure: Minimum loan amount is $200,000 for residential loans. Loan guidelines are subject to change per lender at any time until the loan is approved and the rate is locked. Borrowers must be approved by underwriting. Not all applicants will qualify.