A conventional loan is originated in the private sector and is not insured by the government. Conventional loans are more difficult to qualify for than government-insured loans because they pose a greater risk to the lender. A credit score of 620 and a debt-to-income ratio of 50% or less is generally required, but requirements do fluctuate. Most homebuyers that can meet these credit requirements opt for conventional loan products because they offer very competitive interest rates. Another perk is being able to avoid private mortgage insurance with a 20% down payment.
Conforming conventional mortgages are originated according to certain guidelines so that they can be purchased by Government Sponsored Enterprises (GSEs) such as
Fannie Mae or
Freddie Mac in the secondary mortgage market. Selling off existing mortgages allows lenders to maintain sufficient liquidity to keep lending to new homebuyers. However, since the risk of default is being passed on, GSEs put forth credit requirements, down payment minimums, property condition guidelines, and loan limits to minimize this risk. The 2026 loan limit for conforming loans is $832,750. For areas with a higher cost of living, the limit is up to $1,249,125. If you want to purchase a home that exceeds this limit, you would need to apply for a non-conforming
jumbo loan.
