Conventional Home Loans
By Steven Parangi | Updated: May 8, 2026
Conventional loans are the most common type of mortgage in the United States. A conventional loan is a mortgage that is not guaranteed or insured by any government agency. Instead, it follows the guidelines set by Fannie Mae and Freddie Mac, two government sponsored enterprises (GSEs) that work to stimulate the U.S. housing market. Conventional loans are offered by private lenders such as banks, credit unions and mortgage brokers like Alpine Mortgage. Conventional loans that fall within the loan amount limits established by Fannie Mae and Freddie Mac are called conforming loans. If the loan amount exceeds the conforming loan limit, the loan is called a jumbo loan.
Recent changes from the Federal Housing Finance Agency (FHFA) have made conventional loans accessible to more borrowers than ever before. As of November 2025, Fannie Mae eliminated its minimum credit score requirement, opening the door to qualified borrowers below the long standing 620 threshold. As of April 22, 2026, Fannie Mae and Freddie Mac also began accepting the VantageScore 4.0 credit scoring model alongside traditional FICO scores. These changes mean more borrowers can now qualify for conventional financing.
What's New in 2026: Major Changes to Conventional Loan Qualification
The biggest changes to conventional loan underwriting in decades happened in late 2025 and early 2026. Two major announcements from Fannie Mae, Freddie Mac and the FHFA are expanding access to conventional financing for borrowers who previously didn't qualify.
Sub 620 Credit Scores Now Possible for Conventional Loans
On November 15, 2025, Fannie Mae eliminated its long standing minimum 620 credit score requirement in its Selling Guide. Borrowers with credit scores below 620 may now qualify for conventional loans through Fannie Mae's automated underwriting system, Deskop Underwriter, provided their overall risk profile meets Fannie Mae's standards.
This represents the first time in decades that conventional financing has been available to borrowers with credit scores below 620. Approval depends on compensating factors such as larger down payments, strong income documentation, low debt-to-income ratios and significant cash reserves. Alpine Mortgage is now accepting conventional loan applications from borrowers with credit scores below 620. Contact us to learn more.
VantageScore 4.0 Now Accepted on Conventional Loans
On April 22, 2026, Fannie Mae and Freddie Mac announced acceptance of the VantageScore 4.0 credit scoring model alongside traditional FICO scores. VantageScore 4.0 incorporates alternative data including on time rent payments, utility payments and telecom bill payments to assess credit risk. For borrowers with limited traditional credit history, especially first-time homebuyers and renters with strong rent payment records, VantageScore 4.0 can result in higher credit scores than legacy FICO models.
Alpine Mortgage can pull both FICO scores and VantageScore 4.0 on conventional loan applications and uses the higher of the two scores to qualify borrowers. This dual scoring approach maximizes your qualification potential and can result in better loan pricing, more favorable terms or approval where a single legacy FICO score might not have qualified you. Learn more about VantageScore 4.0 and the new mortgage credit score changes.
Source: Fannie Mae Selling Guide Announcement SEL-2026-04 and Freddie Mac Bulletin 2026-D, both effective April 22, 2026.
Types of Conventional Loans
Fixed Rate Mortgages
Fixed rate mortgages have an interest rate that stays the same for the entire loan term, typically ranging from 15 to 30 years. Fixed rate mortgages offer predictable monthly payments and are ideal for borrowers who plan to stay in their home for a long time or want long term payment stability.
Adjustable Rate Mortgages (ARMs)
ARMs begin with a fixed interest rate for a set period (usually 5, 7, or 10 years), after which the rate adjusts annually based on market conditions. ARMs typically have lower starting rates than fixed rate mortgages and are well-suited for borrowers who plan to move or refinance before the fixed rate period ends.
Conventional Purchase and Refinance Options
Conventional loans are used for the purchase of homes and for several refinancing options. Here's an overview of conventional purchase and refinance options for different needs:
Conventional Purchase Loans
Conventional purchase loans allow you to put down as little as 3% down. If you put less than 20% down, you will need to pay private mortgage insurance (PMI) until you reach 20% equity. You can choose between a fixed rate mortgage or an adjustable rate mortgage. Conventional purchase loans can be used to finance primary residences, second homes, and investment properties.
Conventional Refinance Loans
A conventional refinance loan provides a way to replace an existing mortgage with a new one, typically to reduce interest rates, lower monthly payments, or tap into home equity. Here are common types of conventional refinance loans:
Rate-and-Term Refinance (Limited Cash Out). The most straightforward type, this involves refinancing the remaining balance for a lower interest rate or a different loan term. It's a great way to reduce monthly payments or change the length of your mortgage. You can also finance the closing costs into the new loan.
Cash Out Refinance. This option allows homeowners to refinance their mortgage for more than they owe and take the difference in cash. It's useful for consolidating high-interest debt, home improvements, or other significant expenses.
Conventional Loan Requirements
The 2025 and 2026 changes have made conventional loan qualification more flexible than ever. Here's what borrowers need to know about current requirements:
Credit Score
As of November 2025, Fannie Mae eliminated its minimum credit score requirement. Borrowers with scores below 620 may now qualify based on overall risk profile through automated underwriting. Borrowers with 740+ credit scores qualify for the best available pricing. Both legacy FICO scores and the newer VantageScore 4.0 are now accepted.
Down Payment
Conventional loans can require as little as 3% down subject to certain restrictions. A 20% down payment eliminates the need for Private Mortgage Insurance (PMI). Down payments above 20% may also qualify for better pricing tiers.
Debt-to-Income Ratio
Conventional loans can accept a DTI ratio up to 50%, meaning your total monthly debt obligations including the new mortgage payment cannot exceed 50% of your gross monthly income.
Income Documentation
Borrowers must provide proof of stable income through documents like pay stubs, tax returns, W-2 forms and bank statements. Self employed borrowers typically need 2 years of personal and business tax returns.
Occupancy Types
Conventional loans can be used for primary residences, second homes (vacation homes) and investment properties. Each occupancy type has different down payment and pricing requirements, with primary residences offering the most favorable terms.
Property Types
Conventional loans can finance single family homes, multi-family properties up to 4 units, condominiums, planned unit developments (PUDs), manufactured homes, and cooperative apartments (co-ops). An appraisal is required to confirm the property's value supports the loan amount.
2026 Conventional Loan Limits by State
Conventional loan amounts are limited by the conforming loan limit set annually by FHFA. The 2026 standard limit for a 1-unit property is $832,750, with high-cost area limits up to $1,249,125 in counties with significantly higher home values. View the current loan limits for each state we lend in:
Benefits of a Conventional Loan
Flexibility in Property Use
Unlike government loans, conventional loans can finance primary residences, second homes, and investment properties. This flexibility makes them ideal for borrowers building real estate portfolios or buying vacation homes.
No Upfront Funding Fee
Unlike FHA and VA loans which charge upfront mortgage insurance premiums or funding fees, conventional loans don't require any upfront fees. This can save thousands of dollars at closing.
PMI Can Be Removed
Unlike FHA loans where mortgage insurance lasts for the life of the loan in most cases, conventional loan PMI can be removed once you reach 20% equity through appreciation or principal payments. This can significantly reduce your monthly payment.
Higher Loan Amounts
Conventional loans allow for higher borrowing amounts than FHA loans, especially in high cost areas. The 2026 high cost area limit of $1,209,750 makes conventional pricing available in expensive markets where FHA may not reach.
Conventional Renovation Loans
Conventional renovation loans are a type of financing that allows homebuyers or homeowners to purchase or refinance a property while including the costs of renovations and repairs in the loan amount. There are 2 types of conventional renovation options, the Fannie Mae Homestyle Renovation and the Freddie Mac ChoiceRenovation. These loans are different from regular conventional loans because they take into account the "after-improved" value of the property, which is the estimated value of the home after the planned renovations are completed. The funds can be used for a variety of projects, including structural repairs, updating kitchens or bathrooms, adding new rooms, and other home improvements. Conventional renovation loans provide a convenient way for borrowers to finance both the purchase or refinance of a property and the necessary renovations in a single loan, often with more favorable terms than other financing options.
Conventional vs Government Loans
While conventional loans offer many benefits, government-backed loans serve specific borrower needs. Here's a quick comparison:
| Loan Type | Min. Down | Min. Credit Score | Property Use | Mortgage Insurance |
|---|---|---|---|---|
| Conventional | 3-5% | No minimum (sub-620 possible) | Primary, 2nd home, investment | PMI removable at 20% equity |
| FHA | 3.5% | 580 (500 with 10% down) | Primary residence only | MIP for life of loan in most cases |
| VA | 0% | 580 typical | Primary residence only | No PMI; funding fee at closing |
| USDA | 0% | 640 typical | Rural primary residence only | Annual fee for life of loan |
How to Get Pre-Approved for a Conventional Loan
Getting pre-approved for a conventional home loan is quick and easy with our online Loan Application. After completing the application, you will receive instructions on how to upload your documents. For a list of documents that you will need to upload, see our Pre-Approval Document Checklist.
Alpine Mortgage provides conventional loans in California, Colorado, Connecticut, Florida, Georgia, New Jersey, New York, Ohio, Pennsylvania and Texas. Call us today at (201) 488-8809 to speak with one of our conventional mortgage loan specialists or have one of our conventional home loan specialists contact you.
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Steven Parangi is a licensed mortgage loan originator (NMLS #76024) and attorney with over 20 years of experience in residential home lending. As the founder of Alpine Mortgage, Steven works directly with borrowers to review their mortgage options and assist them throughout the home financing process. Content published on AlpineBanker.com is reviewed regularly by Steven to reflect current lending guidelines and market conditions.
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View our current Conventional Mortgage Rates
As of November 2025, Fannie Mae eliminated its minimum credit score requirement and the long-standing 620 floor no longer applies. Borrowers with scores below 620 may now qualify based on automated underwriting and overall risk profile, though approval often requires compensating factors like larger down payments or low debt-to-income ratios. Borrowers with 740+ credit scores still qualify for the best pricing tiers. As of April 22, 2026, both traditional FICO scores and the newer VantageScore 4.0 model are accepted.
A higher credit score can lead to better interest rates and loan terms. While the minimum required score for a conventional loan is usually 620, scores above 740 are likely to secure the most favorable rates.
VantageScore 4.0 is a credit scoring model jointly developed by the three major credit bureaus (Equifax, Experian, TransUnion). On April 22, 2026, Fannie Mae and Freddie Mac began accepting VantageScore 4.0 alongside traditional FICO scores. VantageScore 4.0 incorporates alternative data including on-time rent payments, utility bills and telecom payments. For first-time homebuyers and borrowers with limited traditional credit history, VantageScore 4.0 may produce higher credit scores than legacy FICO models, expanding access to conventional financing.
Yes, some lenders offer conventional loan programs tailored for first-time homebuyers that feature lower down payments and may include options like PMI discounts or reduced interest rates.
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