Updates to conventional loan requirements: Limits, credit and down payment

Written by Samantha SheltonNMLS 1647301Updated November 2026

Conventional loan requirements changed in one large way for 2026 and two smaller ones. The Federal Housing Finance Agency raised the baseline conforming loan limit to $832,750 for a one-unit property, announced November 25, 2025, $26,250 more than the 2025 limit of $806,500, a 3.26% increase, and set the high-cost area ceiling at $1,249,125.

The qualifying rules largely held. What genuinely moved: on April 22, 2026, Fannie Mae and Freddie Mac began accepting a new generation of credit scoring models, and on March 18, 2026, both relaxed a homeowners insurance coverage requirement. Minimum credit scores, the 3%-down programs and debt-to-income limits did not change.

Learn which updates to conventional loan requirements are real, which only look like changes, and how to prepare your file. If you’re still comparing programs, start with our overview of loan types and programs.

Key takeaways:

• Loan limits rose 3.26%: The 2026 baseline conforming limit is $832,750 for a one-unit home, up $26,250 from 2025, with a $1,249,125 ceiling in designated high-cost counties.
• A new credit score model, but the same floors: Approved lenders could begin using VantageScore 4.0 as of April 22, 2026, while the minimum representative score for a manually underwritten fixed-rate loan stayed at 620.
• Down payment and DTI held steady: 3% down remains available through HomeReady, Home Possible and Conventional 97, and Desktop Underwriter still allows debt-to-income ratios up to 50%.

What is a conventional loan?

A conventional loan is a mortgage that isn’t insured or guaranteed by a government agency the way FHA, VA and USDA loans are.¹ Most conventional loans are conforming, meaning they meet the size limits and underwriting standards Fannie Mae and Freddie Mac set in order to buy them. Anything above your county’s limit is a jumbo loan with its own credit, reserve and down payment standards.

One correction worth making up front, because it circulates constantly: conventional loans are not a “no mortgage insurance” product. Private mortgage insurance applies whenever you put down less than 20%, and it comes off later. Under the Homeowners Protection Act, on a single-family principal residence closed on or after July 29, 1999, you can request cancellation once the balance reaches 80% of the home’s original value, and your servicer must automatically terminate it at 78%, or the month after the midpoint of the amortization schedule, whichever comes first. Our guide to conventional loans walks through how that plays out on a real payment.

What are the 2026 conforming loan limits?

The baseline is $832,750 for a one-unit property, up from $806,500 in 2025. FHFA sets these values each November under the Housing and Economic Recovery Act formula, which ties the limit to national home price movement, the 2026 increase of 3.26% follows the 5.2% increase that took effect for 2025.

The ceiling is simply 150% of the baseline, and it applies only in counties FHFA designates as high-cost. Limits rose in all but 32 U.S. counties or county equivalents for 2026. Alaska, Hawaii, Guam and the U.S. Virgin Islands run on separate statutory limits, with a $1,249,125 baseline of their own.

What the increase buys you in practice: $26,250 of extra conforming borrowing room on a one-unit home. Hypothetical example, not an offer: put 20% down and that supports a purchase price of roughly $1,040,900 before you cross into jumbo territory, compared with about $1,008,100 under the 2025 limit, a shift of about $32,800 in price.² For the large majority of buyers, who borrow nowhere near the cap, the limit change is irrelevant; it matters at the top of the market and on two- to four-unit properties, where the dollar increases are larger. You can look up any county’s figure in the FHFA conforming loan limit values.

How does FHFA decide which counties get a higher limit?

The rule is written into federal law. Under 12 U.S.C. 1717, the limit in a high-cost area is the lesser of 150 percent of the baseline or 115 percent of the area’s median house price, and the maximum limits are adjusted effective January 1 of each year. Per the FHFA announcement of November 25, 2025, a county gets a limit above the baseline only when 115 percent of its local median home value exceeds the baseline, and the 2026 baseline moved by the 3.26 percent that house prices rose, on average, between the third quarters of 2024 and 2025.

That timing tells you when the next number arrives. FHFA’s House Price Index release schedule lists the quarterly index for 2026Q3 on Tuesday, November 24, which is the third-quarter data the formula reads for the 2027 limit, and the statute makes a new limit effective January 1. FHFA posts every county’s figure in its full county loan limit list, and Align’s loan limits lookup shows the current conforming and FHA figures for every county in the six states where Align is licensed, along with where the 2027 limits stand.

Hypothetical example, not an offer: a buyer who needs a $840,000 loan on a one-unit home anywhere in Michigan in 2026 is $7,250 over the $832,750 baseline, so the loan is a jumbo unless a larger down payment brings it under the line. Our guide on how to qualify for a jumbo loan covers what changes on the other side of it.

What credit score do you need for a conventional loan in 2026?

620 is still the number, and it’s more specific than most articles admit. Fannie Mae’s minimum representative credit score is 620 for a manually underwritten fixed-rate loan and 640 for a manually underwritten adjustable-rate mortgage. For loan casefiles run through Desktop Underwriter, Fannie Mae’s Selling Guide states that a minimum credit score is not required, the automated risk assessment governs instead. None of those thresholds changed in 2026.

What did change is the scoring model. On April 22, 2026, FHFA announced that Fannie Mae and Freddie Mac would accept VantageScore 4.0 and FICO Score 10T, the first new mortgage credit score models in decades, advancing the Credit Score Competition Act of 2018. The detail matters more than the headline: Fannie Mae’s Selling Guide, effective that same date, says the classic FICO versions are still required, that VantageScore 4.0 is eligible for use by approved lenders, and that FICO Score 10T is still being implemented, with lenders to be advised when those loans can be delivered. So this is a widening of what lenders may use, not a replacement of what they must use.

Two things the table can’t show you. Mortgage insurance is priced by private insurers, not by Fannie Mae, so the same score produces different premiums at different lenders. And lenders apply overlays, their own requirements stacked on top of the agency minimum, which is why the same borrower gets different answers from different shops, especially after a recent bankruptcy or foreclosure. Our breakdown of what counts as a good credit score to buy a house covers how the tiers translate into monthly cost.

What changed for credit scores after the April rollout?

The rollout widened in the fall. According to Freddie Mac’s credit score models page, as of September 9, 2026 all Sellers may use VantageScore 4.0 when originating and selling eligible mortgages to the GSEs without prior written approval, and as of September 30, 2026 credit fees across Classic FICO and VantageScore 4.0 are aligned. In the limited rollout that came first, Orrick’s April 24, 2026 InfoBytes summary reported that approved lenders could choose between VantageScore 4.0 and Classic FICO through a tri-merge credit report, while lenders not participating had to keep using Classic FICO.

Fannie Mae’s Selling Guide section on credit scores names the three eligible versions: Equifax VantageScore 4.0, Experian VantageScore 4.0 and TransUnion VantageScore 4.0. The model matters because of what it reads. As WTOP reported on April 22, 2026, VantageScore 4.0 uses trended financial data that can give consumers credit for on-time rent payments. If rent is your strongest payment record, our guide to reporting rent for a credit boost explains how those payments reach a credit file.

The change was years in the making. Per the FHFA fact sheet on credit score models, Congress in 2018 required FHFA to create a process for validating and approving credit score models, the Enterprises had used Classic FICO for nearly 20 years as of 2022, and FHFA announced the validation and approval of FICO 10T and VantageScore 4.0 for Fannie Mae and Freddie Mac on October 24, 2022. The process is FHFA’s four-phase validation rule, published in the Federal Register on August 16, 2019, now at 12 CFR part 1254, which defines a credit score model as a statistical tool created by a third party to predict the likelihood of certain credit behaviors. For how scores move in practice, see credit repair strategies for home buyers and how your credit affects buying a house.

Did the 3% down payment rules change?

No. Three percent down remains the conventional floor, delivered through three programs that did not change for 2026.

• HomeReady: Fannie Mae’s low-down-payment program allows up to 97% LTV, but only through Desktop Underwriter, the maximum LTV drops to 95% on a manually underwritten one-unit principal residence. Qualifying income may not exceed 80% of the area median income for the property’s location. Homeownership education is required when all occupying borrowers are first-time buyers, and there is no universal first-time buyer requirement. See Fannie Mae HomeReady program details and our own guide to HomeReady mortgages.
• Home Possible: Freddie Mac’s counterpart allows a 3% down payment with flexible funding sources, a maximum 97% LTV on one-unit properties, and the same 80%-of-AMI income cap. The Freddie Mac Home Possible program details spell out the credit flexibilities and fee caps.
• Conventional 97: The catch-all name for 97% LTV conventional financing without the income cap the two affordable programs carry. Eligibility conditions differ from HomeReady and Home Possible; our guide to the Conventional 97 loan covers who qualifies.

The practical takeaway: the 3%-down door is an automated underwriting door. HomeReady’s 97% LTV requires a DU casefile, Home Possible runs through Loan Product Advisor, and a manually underwritten file is looking at 95%, not 97%. If you’re weighing how much to put down, low down payment mortgages compares the options side by side.

What is the maximum DTI on a conventional loan?

Fifty percent, when your loan is underwritten through Desktop Underwriter. Fannie Mae’s Selling Guide sets the maximum allowable DTI ratio at 50% for DU loan casefiles. Manual underwriting is stricter: the maximum total DTI ratio is 36% of stable monthly income, and it can be exceeded up to 45% only if the borrower meets the credit score and reserve requirements in the Eligibility Matrix.

You will see 43% quoted as a conventional cap all over the internet. It isn’t one. That figure comes from a general qualified mortgage threshold that was replaced by a price-based standard, and it was never the Fannie Mae or Freddie Mac limit. Use 50% via automated underwriting and 45% as the manual ceiling, and treat anything else you read as a lender overlay rather than an agency rule.

A few structural points that decide where you land:

• Automated versus manual is the whole ballgame: Hypothetical example, not an offer: the gap between a 50% DU approval and a 45% manual ceiling is five points of income on $7,000 of monthly income, $350 a month of additional debt capacity.
• Installment loans near the finish line matter most: Paying off a nearly retired installment debt is often the fastest way to move the ratio, check it before you shop.
• Compensating factors do real work: Cash reserves, a deep credit history and a lower loan-to-value ratio all feed the automated risk assessment that decides a borderline file.

Our walkthrough of the debt-to-income ratio and how it’s calculated shows which debts underwriters count and which they ignore.

What else changed in 2026: homeowners insurance coverage

The quietest update is the one most likely to touch your monthly payment. On March 18, 2026, FHFA announced that Fannie Mae and Freddie Mac will accept actual cash value coverage on roofs for single-family homes and condominiums, instead of requiring replacement cost value there. The rest of the dwelling still needs replacement cost coverage. FHFA also simplified the condo maximum per-unit deductible rule and withdrew a 2024 clarification affecting claims handling.

Why it belongs here: your insurance premium is part of your monthly housing payment, and that payment drives your debt-to-income ratio. A cheaper acceptable policy can decide a tight file, particularly on condos and older homes where roof coverage has been the sticking point. It cuts the other way too. Actual cash value pays depreciated value on a roof claim, so the cheaper premium buys less at claim time. A trade-off to make deliberately with your insurance agent, not a default to accept because the loan now allows it.

What changed for condo buyers in 2026?

The March insurance update carried condo rules with it. Orrick’s March 27, 2026 summary of the Fannie Mae and Freddie Mac changes reported a flat $50,000 maximum per-unit deductible, a higher minimum replacement reserve for condo projects, from 10 percent to 15 percent of annual budgeted assessment income, and the retirement of the 50 percent investment property concentration limit for established projects. Insurance Journal reported on March 20, 2026 that the insurance change reverses a requirement added in February 2024.

The 15 percent reserve is measured against the association’s own budget, so the budget and reserve figures are documents to request as soon as you have an accepted offer. The retired concentration limit means an established project is no longer screened out under that rule for its share of investor-owned units. Our guides to condominium financing, homeowners insurance deductibles and the pros and cons of buying a condo cover the rest of the review.

How to get your file ready under the updated requirements

Nothing in the 2026 updates changes the preparation work, the checklist that worked last year still works. Run it 60 to 90 days before you shop.

• Pull your credit and fix errors first: Because approved lenders may now use VantageScore 4.0 alongside classic FICO, the score a lender sees can differ from the one your credit app shows. Disputes take weeks to resolve, so start there rather than at application.
• Target the next tier, not perfection: Moving from 679 to 680, or 739 to 740, changes your pricing bracket. Paying down revolving balances is the fastest lever; opening new accounts before closing is the fastest way to undo it.
• Clear the small installment debts: Retiring a nearly finished car or personal loan can drop your ratio enough to matter, and it’s more effective than shaving a large balance slightly.
• Document reserves before you need them: Cash reserves are a compensating factor in automated underwriting, and seasoned funds in a statement beat a last-minute transfer you’ll have to source.
• Get the insurance quote early: With roof coverage rules loosened, quote both actual cash value and replacement cost so you know the spread before it hits your DTI.

Then compare offers. Agency minimums are floors, not ceilings, so the spread between lenders on the same file comes from overlays, and you only see it by putting quotes side by side. That’s the argument for working through a broker on a conventional loan rather than applying at one bank.

What could change next for conventional loans?

On October 22, 2026 the White House issued an executive order aimed at mortgage insurance and refinance title costs. As Orrick’s October 30, 2026 summary reported, the order directs the FHFA director, if the director determines that doing so serves the interests of the GSEs or FHFA and the public, to have Fannie Mae and Freddie Mac launch a mortgage insurance cancellation pilot that would apply only to loans made after it is established, using automated valuation models and other data to find borrowers who appear to meet equity and other cancellation requirements. It also points to accepting an FHFA-approved title risk assessment in place of a lender’s title insurance policy on eligible refinances, extending eligibility to refinances with loan-to-value ratios above the current 80 percent limit.

Nothing in the order changes a loan by itself: each step depends on a determination by the FHFA director, and the pilot would not reach loans made before it starts. The cancellation rights you already have are the ones in the Homeowners Protection Act, which for a borrower-requested cancellation also require a written request to the servicer and a good payment history. To see your own dates, try the PMI removal calculator; our guides to mortgage insurance, refinancing to remove mortgage insurance and why title insurance matters explain how each piece works.

What Michigan buyers should know

Michigan is a uniform-limit state, which simplifies this considerably.

• All 83 counties use the $832,750 baseline: FHFA’s 2026 county limit file assigns the baseline one-unit value to every Michigan county, from Wayne and Oakland to Keweenaw. Michigan has no high-cost designations, so the $1,249,125 ceiling never applies here, a Detroit-area buyer and an Upper Peninsula buyer cross into jumbo territory at the identical number.
• The multi-unit limits are where Michigan buyers actually feel it: A two-unit property conforms up to $1,066,250 and a four-unit up to $1,601,750 statewide, which puts most Michigan small multifamily purchases comfortably inside conventional financing rather than jumbo underwriting.
• Most Michigan files sit far below the cap: Hypothetical example, not an offer: on a $400,000 Waterford home with 3% down, the loan is $388,000, less than half the conforming limit. For the typical Michigan buyer, credit, DTI and down payment decide the outcome, not the limit.
• Down payment assistance layers onto these programs: Michigan buyers commonly pair a 3%-down conventional program with state or local down payment assistance, which gets structured at application rather than bolted on before closing. Ask while you’re still choosing a program.

How do Michigan state programs and property taxes fit a conventional loan?

Michigan’s housing agency sets its own bar. According to MSHDA’s MI Home Loan page, the state program requires a minimum credit score of 640, above the 620 manual floor in Fannie Mae’s Selling Guide, serves first-time buyers (no home owned in the previous three years) statewide and repeat buyers in targeted areas, and caps the sales price at $566,355 statewide after June 1, 2026. Its MI 10K DPA loan offers up to $10,000 statewide. Align’s down payment assistance page and our guide to first-time home buyer grants and programs compare the options.

Property tax is part of the housing payment underwriters count, and in Michigan it can rise the year after you buy. In Michigan, a home’s taxable value is capped while one owner holds it. The year after it sells, that cap comes off and taxable value resets to the state equalized value, which is half of the assessor’s estimate of market value, not automatically half of what you paid. The Michigan Department of Treasury’s transfer of ownership guidance says the uncapping happens in the calendar year following the transfer, and the rule itself is MCL 211.27a. The Michigan property tax calculator looks up the published millage for an address so you can plan for it.

For the roof coverage choice described above, Michigan’s insurance regulator is the Department of Insurance and Financial Services. According to its consumer page, DIFS answers consumer questions and investigates complaints about the companies it regulates, with call center specialists available Monday through Friday, 8 a.m. to 5 p.m., at 877-999-6442. Our guide to evaluating home insurance options lists what to compare between policies.

FAQ: Updates to conventional loan requirements

Here are answers to common questions about the 2026 updates to conventional loan requirements.

What is the conforming loan limit for 2026?

The baseline conforming loan limit is $832,750 for a one-unit property, up 3.26% from $806,500 in 2025, with a ceiling of $1,249,125 in designated high-cost counties. Limits are higher for two-, three- and four-unit properties, topping out at $1,601,750. Anything above your county’s limit is a jumbo loan, which carries its own credit, reserve and down payment standards. Our guide to conventional loans explains how the limit interacts with your down payment.

What credit score do I need for a conventional loan?

620 is the minimum representative score for a manually underwritten fixed-rate loan, and 640 for a manually underwritten ARM. Loans run through Desktop Underwriter have no stated minimum score; the automated risk assessment decides. In practice, pricing improves in tiers, and 740 or higher generally lands in the strongest pricing tier, with the smallest mortgage insurance cost. See what counts as a good credit score to buy a house for the tier math.

Can I get a conventional loan with 3% down?

Yes. Conventional 97, Fannie Mae HomeReady and Freddie Mac Home Possible all allow 3% down for qualified borrowers, with HomeReady and Home Possible adding an 80%-of-area-median-income cap and reduced mortgage insurance. HomeReady’s 97% LTV requires automated underwriting; manually underwritten files are capped at 95%. Below 20% down you’ll pay private mortgage insurance, which cancels at 80% equity on request. Compare the routes in low down payment mortgages.

What is the maximum debt-to-income ratio on a conventional loan?

50% for loans underwritten through Desktop Underwriter. Manually underwritten loans cap at 36%, stretchable to 45% when the borrower meets the credit score and reserve requirements in Fannie Mae’s Eligibility Matrix. The widely repeated 43% figure is not an agency limit. Paying off an installment loan with only a few payments left is often the fastest way to move the ratio, see how the debt-to-income ratio is calculated.

Is a conventional loan cheaper than an FHA loan?

Often, but not always. The CFPB’s guide to loan types describes conventional loans as the majority of loans, typically costing less than FHA loans but harder to get. Loan size differs too: HUD’s Mortgagee Letter 2025-23 sets the 2026 FHA one-unit floor at $541,287, 65 percent of the conforming limit. See our guide to FHA loan limits.

Who sets the rules for conventional loans?

Mostly Fannie Mae and Freddie Mac. According to the CFPB, the two companies guarantee most of the mortgages made in the U.S., are known together as the government sponsored enterprises, and have had their operations run by the U.S. government since late 2008. Our Fannie Mae updates and Freddie Mac updates guides track their changes.

How many conventional loans go to first-time buyers?

About half of recent purchase loans. The Urban Institute’s September 2026 Housing Finance at a Glance chartbook reported that in July 2026, 51.0 percent of GSE purchase originations were made to first-time homebuyers, compared with 52.5 percent of VA purchase originations. GSE loans are the ones sold to Fannie Mae and Freddie Mac. Our first-time home buyer guide covers where to start.

When does mortgage insurance come off a Home Possible loan?

It can be cancelled against the home’s appraised value. Freddie Mac’s Home Possible page says mortgage insurance on one-unit properties can be cancelled after the loan balance drops below 80 percent of the home’s appraised value and the cancellation criteria are met. The Homeowners Protection Act dates, by contrast, run on the original value. See Home Possible benefits and requirements.

What are the conforming loan limits in Alaska and Hawaii?

They have their own, higher limits. According to FHFA’s 2026 conforming loan limit announcement, Alaska, Hawaii, Guam and the U.S. Virgin Islands have a 2026 one-unit baseline of $1,249,125 and a one-unit ceiling of $1,873,675 in their high-cost areas. Align is not licensed in those places; its loan limits lookup covers the six states it serves.

The bottom line on 2026 conventional loan updates

The headline update to conventional loan requirements for 2026 is buying power, not eligibility. The baseline conforming loan limit rose 3.26% to $832,750 for a one-unit property, with a $1,249,125 high-cost ceiling and multi-unit limits up to $1,601,750, and every Michigan county uses the baseline. The qualifying rules held: 620 remains the manual-underwriting minimum credit score, 3% down is still available through HomeReady, Home Possible and Conventional 97, and debt-to-income still runs to 50% through automated underwriting. The two genuine changes, VantageScore 4.0 eligibility in April 2026 and looser roof coverage rules in March 2026, widen what lenders may do without changing what you must hit.

If you’re ready to see which lender’s overlays fit your file, talk to Align Lending. We’ll shop your scenario across our lender network and show you the numbers side by side. Call 248-506-5727 or start online.

Footnotes:

1. Align Lending is not acting on behalf of or at the direction of FHA or HUD. References to FHA, VA and USDA programs are for comparison only; those programs are administered by their respective agencies and their requirements are set and changed independently of conventional loan guidelines. Return to text.

2. Example figures in this article are hypothetical and for educational purposes only; they do not constitute an advertisement of credit terms or a rate quote under federal or state lending laws. The purchase-price figures shown assume a 20% down payment and ignore closing costs, mortgage insurance and any lender overlay. Your loan amount, rate and terms will depend on your application, your property and market conditions. Return to text.

Sources: 2026 baseline conforming loan limit value of $832,750 for one-unit properties, a 3.26% increase over the 2025 value of $806,500; high-cost area ceiling of $1,249,125; separate statutory limits for Alaska, Hawaii, Guam and the U.S. Virgin Islands; and limits increasing in all but 32 U.S. counties or county equivalents, Federal Housing Finance Agency news release, November 25, 2025. Two-, three- and four-unit limits for 2026 ($1,066,250, $1,288,800 and $1,601,750) and for 2025 ($1,032,650, $1,248,150 and $1,551,250), and the assignment of the baseline one-unit limit to all 83 Michigan counties, FHFA Full County Loan Limit List, HERA-based, calendar years 2025 and 2026. 2025 baseline of $806,500, ceiling of $1,209,750 and 5.2% increase over 2024, FHFA news release, November 26, 2024. Minimum representative credit score of 620 for manually underwritten fixed-rate loans and 640 for manually underwritten ARMs, and no minimum credit score for DU loan casefiles, Fannie Mae Selling Guide B3-5.1-01. Acceptable credit score models, including classic FICO versions currently required and VantageScore 4.0 eligible for use by approved lenders, with FICO Score 10T still being implemented, Fannie Mae Selling Guide B3-5.1-01, effective April 22, 2026. Fannie Mae and Freddie Mac acceptance of VantageScore 4.0 and FICO Score 10T and reference to the Credit Score Competition Act of 2018, FHFA news release, April 22, 2026. Acceptance of actual cash value roof coverage for single-family homes and condominiums, retention of replacement cost value on the remainder of the dwelling, simplification of the condo maximum per-unit deductible rule and withdrawal of a 2024 clarification, FHFA news release, March 18, 2026. Maximum total DTI ratio of 36% for manually underwritten loans, exceedable to 45% with the credit score and reserve requirements in the Eligibility Matrix, and maximum allowable DTI of 50% for DU loan casefiles, Fannie Mae Selling Guide B3-6-02. HomeReady qualifying income limit of 80% of area median income and homeownership education requirement when all occupying borrowers are first-time homebuyers, Fannie Mae Selling Guide B5-6-01. HomeReady maximum LTV of 95% for manually underwritten versus 97% for DU-underwritten one-unit principal residences, Fannie Mae Selling Guide B5-6-02. Home Possible 3% down payment, maximum 97% LTV for one-unit properties and 80%-of-AMI qualifying income limit, Freddie Mac Single-Family Seller/Servicer Guide Chapter 4501 and Freddie Mac Home Possible product page. Private mortgage insurance cancellation at 80% of original value on borrower request, automatic termination at 78%, termination the month after the midpoint of the amortization schedule, and applicability to single-family principal residences closed on or after July 29, 1999, Homeowners Protection Act; Consumer Financial Protection Bureau.

This article is for informational purposes only and is not intended to provide legal, financial, or tax advice. Loan limits, agency guidelines, credit score model availability and insurance requirements change and vary by county, property and program; confirm current figures with your lender and consult a qualified professional about your situation. Figures shown are illustrative, are not a rate quote or an offer of credit, and are subject to change. Align Lending is an independent Michigan mortgage broker, NMLS #2041154.

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