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Conventional Loan 2026: Requirements and PMI Guide
Conventional: 3% down (first-time, HomeReady/Home Possible); 5% standard; 20% = no PMI. Credit score impact: 620 vs 760 = $74,000 extra interest on $400K loan over 30 years. PMI: removable at 80% LTV (request) or 78% (automatic); unlike FHA MIP which is permanent. 2026 conforming limit: $806,500 standard; up to $1,209,750 high-cost. Investment: 15% down (1-unit), 25% (2-4 units); up to 10 financed properties personal name. Own Luxury Homes® 12-Point Agent Integrity Audit™ — credit score vs rate cost shown clearly.
Conventional Loan Guide 2026: Requirements, PMI, and Why 20% Down Is Not Required
Conventional loans — those not backed by a government agency — are the most flexible mortgage type in terms of property use, loan size, and structure. They also reward credit quality more directly than any government program: the difference between a 620 and 760 credit score is approximately $74,000 in total interest on a $400,000 loan. This guide covers conventional loan requirements, how PMI works and when it disappears, and the specific credit tiers where rates improve.
Conventional Loan Requirements 2026
| Requirement | Standard | Notes |
|---|---|---|
| Minimum credit score | 620 (most lenders); 640+ preferred | Rates improve significantly at 680, 720, 740; above 760 sees minimal additional improvement |
| Minimum down payment | 3% (first-time buyers via Fannie Mae HomeReady/Freddie Mac Home Possible); 5% standard | Down payment assistance programs can be combined |
| Maximum debt-to-income | 45% standard; up to 50% with strong compensating factors | Stricter than FHA; compensating factors include reserves and high credit score |
| Income documentation | W-2 borrowers: 2 years; self-employed: 2 years of returns | Self-employed qualifying income = net income on tax returns; deductions hurt qualifying |
| Loan limits | $806,500 (standard); up to $1,209,750 (high-cost areas) | Above these limits = jumbo loan; different underwriting |
| Property types | Primary, second home, and investment (different rates and down payment requirements) | Investment properties require 15–25% down; higher rates |
The Credit Score Rate Table: What Each 20-Point Band Costs You
| Credit Score Range | Approximate Rate Premium vs 760+ | Monthly Payment Difference ($400K) | Total Interest Difference (30yr) | ||||||
|---|---|---|---|---|---|---|---|---|---|
| 760+ | Baseline (best rate) | Baseline | Baseline — ~$74,000 saved vs 620–639 | ||||||
| 740–759 | +0.125% | +$29/mo | +~$10,440 | ||||||
| 720–739 | +0.25% | +$58/mo | +~$20,880 | ||||||
| 700–719 | +0.50% | +$116/mo | +~$41,760 | ||||||
| 680–699 | +0.75% | +$175/mo | +~$63,000 | ||||||
| 660–679 | +1.0% | +$234/mo | +~$84,240 | ||||||
| 640–659 | +1.5% | +$352/mo | +~$126,720 | ||||||
| 620–639 | +2.0% | +$470/mo | +~$169,200 — this is the cost of poor credit | ||||||
| Source: Optimal Blue rate data; approximate figures illustrating the compound effect of credit score on conventional loan cost over 30 years on a $400,000 loan. At 6.5% baseline. Actual rate premiums vary by lender and market conditions. | |||||||||
PMI on Conventional Loans: The Rules and How to Remove It
What Conventional PMI Is
Private mortgage insurance required on conventional loans with less than 20% down. PMI rate: 0.2%–2.0% of loan amount annually, depending on credit score and LTV. Most borrowers pay 0.4%–0.8%. On a $380,000 loan (5% down on $400K): ~$0.5% = $158/month. Unlike FHA MIP, conventional PMI is NOT permanent.
| PMI Removal Method | How It Works | Requirement |
|---|---|---|
| Automatic cancellation (HPA) | Lender must cancel PMI when balance reaches 78% of ORIGINAL purchase price based on amortization schedule | Automatic; no request needed; typically 9–12 years on 30-yr loan at standard payments |
| Borrower-requested cancellation (HPA) | Request cancellation when balance reaches 80% of original purchase price | Must be current on payments; lender may require appraisal; loan must be 2+ years old for some lenders |
| New appraisal based on appreciated value | If home has appreciated significantly, order a new appraisal; if current LTV is under 80%, request PMI removal | Most lenders require loan to be at least 2 years old; appraisal cost $500–$800 |
| Refinance | Refinance when you have 20%+ equity; new loan has no PMI | Full refinance costs (2–5%); only makes sense if rate also improves or significantly reduces total cost |
| Piggyback loan (80-10-10) | Take a second mortgage for 10% of purchase price; primary loan at 80% LTV; no PMI | Second mortgage has its own rate (typically higher); compare total cost vs PMI |
Conventional Loan Down Payment Options
| Down Payment | LTV | PMI Required? | Best For |
|---|---|---|---|
| 3% (first-time buyers) | 97% | Yes | Qualified first-time buyers with 620+ credit; HomeReady or Home Possible programs |
| 5% | 95% | Yes | Most primary residence buyers; standard conventional entry |
| 10% | 90% | Yes (lower PMI) | Reduces PMI cost; reaches 80% faster; jumbo may not require more |
| 20% | 80% | No | Eliminates PMI entirely; best rates; worth saving for if you have time |
| 25–30%+ | <75% LTV | No | Investment properties; second homes; ultra-low LTV improves rate |
Conventional Loan for Investment Property: The Different Rules
| Property Type | Minimum Down | Rate Premium vs Primary | Max Properties Financed | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Primary residence | 3–5% | Baseline | N/A | ||||||
| Second home / vacation | 10% | +0.25–0.5% | Counted against overall portfolio | ||||||
| Investment (1 unit) | 15% | +0.75–1.5% | Up to 10 financed properties in personal name (Fannie) | ||||||
| Investment (2–4 units) | 25% | +1.0–2.0% | Same 10-property limit | ||||||
| Conventional allows up to 10 financed investment properties per borrower in personal name (Fannie Mae). Above 10: DSCR loans or portfolio loans required. | |||||||||
“The conventional loan conversation I have with buyers always starts with the credit score. If your score is 720 or above, conventional is almost always your best non-VA option. If your score is 680–719, we compare conventional PMI vs FHA MIP carefully (PMI disappears; MIP doesn't). The buyers who benefit most from spending 6 months improving their credit before buying are the ones at 660–679 who are about to take a conventional loan: crossing from 679 to 680 saves over $60,000 in interest over 30 years and shortens the PMI period. Six months is worth it.”
— Ryan Brown, Principal Broker & CEO, Own Luxury Homes®
What is a conventional loan?
A mortgage not backed by a government agency (FHA, VA, or USDA). Conforming conventional loans follow Fannie Mae or Freddie Mac guidelines and have loan limits ($806,500 for most counties in 2026). Conventional loans allow primary, second home, and investment property financing — more versatile than government programs. PMI required if <20% down; removable when 80% LTV is reached.
What credit score do I need for a conventional loan?
Minimum 620 for most lenders; 640+ preferred. But the real answer: your rate changes dramatically by credit band. The difference between 620 and 760 is approximately $74,000 in total interest on a $400,000 loan over 30 years. If your score is between 640 and 679, spending 3–6 months improving before applying can save more than any other financial decision you make.
How do I remove PMI from my conventional loan?
Four methods: (1) automatic at 78% LTV (HPA requires this), (2) request removal at 80% LTV based on original purchase price, (3) request removal based on appreciated value with a new appraisal (2+ years), (4) refinance when you have 20%+ equity. Track your balance vs original purchase price; request when you hit 80%.
Own Luxury Homes® — no lender; the rate impact of credit score named clearly. 12-Point Agent Integrity Audit™. Talk to a specialist ›
"The introduction Own Luxury Homes® makes is to a specialist with documented closing history in your specific market — not the county, not the metro, the submarket you're actually selling or buying in. That's the standard we verify before your name goes anywhere."
— Ryan Brown, Principal Broker & CEO, Own Luxury Homes® (FL License BK3626873)