Conventional Loans

A conventional loan is simply a mortgage that is not insured or guaranteed by a government agency. There is no FHA behind it, no VA, no USDA. The lender takes the credit risk, and in most cases sells the loan to Fannie Mae or Freddie Mac.

That last part is where the word conforming comes from. To be sold to Fannie or Freddie, a loan has to conform to their rules — including a maximum loan amount that the Federal Housing Finance Agency resets every year. Stay at or under that amount and you are in conforming territory, where pricing is best and guidelines are most predictable. Go above it and you are in jumbo territory, which is a different underwriting conversation entirely.

For most borrowers with reasonable credit and some money down, conventional is the default. It carries no upfront funding fee, it covers primary homes, second homes and investment property, and its mortgage insurance is temporary rather than permanent.

The FHFA raised limits for 2026 after home prices rose 3.26% between the third quarters of 2024 and 2025. The baseline for a one-unit property went up $26,250, from $806,500 to $832,750.

That baseline is not the number most of our borrowers use. Los Angeles County is a designated high-cost area, which puts it at the ceiling — 150% of the baseline.

Down payment. Three percent is the floor on a one-unit primary residence for qualifying first-time buyers, which puts the maximum loan-to-value at 97%. Repeat buyers who fall outside the low-income programs are generally looking at 5%. Twenty percent is the number that matters for a different reason: it is where mortgage insurance stops being part of the picture at all.

Credit. Fannie Mae no longer enforces a hard minimum score in its automated underwriting system, which evaluates the whole file rather than one number. In practice most lenders keep their own overlay, and 620 remains the common floor. Files that have to be underwritten manually are held to a tighter standard — 680 once the loan-to-value passes 75%.

Debt-to-income. Automated underwriting will go up to 50% for a strong file. Manually underwritten loans generally cap nearer 45%. Reserves, credit depth and payment history all move that ceiling.

This is the part of conventional financing that is most often explained wrong, and it is worth getting right because it decides how long you pay an extra premium every month.

Under the federal Homeowners Protection Act, there are three separate ways private mortgage insurance ends:

You ask for it at 80%. Once the balance is scheduled to reach 80% of the original value, you can request cancellation in writing. The servicer has to grant it if you are current, there are no junior liens, and the property has not lost value.

It terminates automatically at 78%. No request needed. On the date the balance is scheduled to hit 78% of original value, the servicer must drop it, provided you are current on payments.

It ends at the halfway point regardless. If a slow-amortizing loan has not reached 78% by the midpoint of the amortization schedule — year 15 of a 30-year loan — the premium comes off the following month anyway.

The threshold is original value, not today's value.

That distinction catches people out. A home that appreciates sharply does not automatically shorten the PMI clock, because the statutory calculation runs off the purchase price or original appraised value, whichever was lower. Appreciation can still get you there sooner, but only through a route the law does not require: asking the servicer to consider a new appraisal under its own investor policy, or refinancing into a new loan whose original value is the current one.

It is also the single clearest advantage conventional holds over FHA. On most FHA loans taken out today, mortgage insurance stays for the life of the loan, and the only exit is a refinance.

Conventional is not automatically the right answer. VA is better where entitlement is available — no down payment and no mortgage insurance at all. FHA is more forgiving on credit and allows higher debt ratios, which matters when the file is tight.

Conventional wins on cost when credit is decent and there is money to put down: no upfront funding fee, mortgage insurance that ends, and eligibility for second homes and investment property that neither FHA nor VA offers. Our side-by-side comparison puts all three next to each other on the terms that actually differ.