A conventional loan is a mortgage that no government agency insures. Most are written to Fannie Mae or Freddie Mac guidelines and have to stay at or under the conforming loan limit, which is $832,750 for a one-unit home in 2026 in most of the country, including all 83 Michigan counties. Qualified buyers can put as little as 3% down, and the private mortgage insurance attached to a low down payment terminates automatically once the loan balance is scheduled to reach 78% of the home’s original value.

That cancellation is the structural advantage conventional financing holds over FHA, and it is why almost every borrower with usable credit should price a conventional option before signing anything. Learn more about conventional loans, including what it actually takes to qualify, how the three different 3%-down programs differ, when mortgage insurance comes off, and where the 2026 limits hand you over to jumbo underwriting.

Key takeaways:

• The 2026 conforming limit is $832,750: That’s the one-unit baseline in most counties, up 3.26% from $806,500 in 2025, with a ceiling of $1,249,125 in designated high-cost areas.
• Three percent down is real: Conventional 97, HomeReady and Home Possible all reach 97% loan-to-value; standard conventional financing on a one-unit primary residence tops out at 95% LTV, or 5% down.
• Mortgage insurance ends: You can request PMI cancellation when the balance is scheduled to hit 80% of original value, and your servicer must terminate it at 78%. Something FHA’s annual premium does not do on most low-down-payment files.

What is a conventional loan?

A conventional loan is any mortgage not insured or guaranteed by FHA, the VA or USDA. The large majority are conforming loans, meaning they meet Fannie Mae or Freddie Mac’s underwriting rules and stay inside the annual loan limit, which lets the lender sell them to one of the two enterprises. Anything that breaks those rules, too large, unusual income, a property type the agencies won’t take, is a non-conforming loan priced by whoever is willing to hold it.

The practical difference from the government programs comes down to who absorbs the risk and what that costs you every month:

Program	Minimum down payment	Mortgage insurance	Does the insurance end?
Conventional	3% (5% standard)	Private mortgage insurance under 20% down	Yes at 80% / 78% of original value
FHA	3.5%	Upfront premium plus annual MIP	Only after 11 years, and only if you put 10% or more down
VA	0% with full entitlement	None, a one-time funding fee instead	Not applicable
USDA	0% in eligible rural areas	Upfront and annual guarantee fees	No

Conventional is the default program for a reason, but “default” is not the same as “best for you.” The broader loan types and programs pillar walks the full menu; this hub covers the conventional side in depth. Because Align Lending is a broker rather than a bank, we can price a conventional file and a government file side by side instead of steering you toward the one product on the shelf.

What do you need to qualify for a conventional loan?

Three numbers decide most conventional approvals: your credit score, your debt-to-income ratio and your down payment. The credit rule changed recently, and a lot of published advice hasn’t caught up.

• Credit score: Fannie Mae’s Selling Guide no longer imposes a minimum credit score on loan casefiles run through Desktop Underwriter, DU evaluates credit risk holistically instead. The 620 floor (640 for adjustable-rate loans) now applies to manually underwritten files. In practice most lenders still enforce a 620 overlay of their own, which is exactly why the answer varies by lender. See how your credit impacts buying a house for where your number lands.
• Debt-to-income ratio: The maximum allowable DTI for a DU loan casefile is 50%. Manually underwritten loans start at 36% and can stretch to 45% when credit score and reserve requirements are met. Our explainer on the debt-to-income (DTI) ratio shows the math and what actually moves it before an application.
• Documentation and reserves: Expect two years of income history, 60 days of asset statements and, on higher-risk files, several months of payments held in reserve after closing.

Agency guidelines move more often than borrowers expect, and lender overlays sit on top of them. Before you assume last year’s rule still applies, check the recent updates to conventional loan requirements.

How much do you have to put down on a conventional loan?

Three percent, if you fit one of three specific programs. Standard conventional financing on a one-unit primary residence maxes out at 95% loan-to-value, so 5% down is the ordinary floor. The 97% products are the exception, and each has its own gate.

Conventional 97

The standard 97% LTV option requires at least one borrower on the loan to be a first-time home buyer, defined as having held no ownership interest in a residential property during the three years before the purchase. It’s limited to one-unit principal residences on fixed-rate terms up to 30 years, adjustable-rate and high-balance loans are excluded, and homeownership education is required when all occupying borrowers are first-time buyers. The full walkthrough lives in what is a Conventional 97 loan.

HomeReady and Home Possible

Fannie Mae’s HomeReady and Freddie Mac’s Home Possible both reach 97% LTV with qualifying income capped at 80% of the area median income for the property’s location, and neither requires you to be a first-time buyer. The income cap buys you something concrete: mortgage insurance coverage at the 95.01% – 97% LTV tier drops to 25% under Fannie Mae’s HomeReady program versus 35% standard, which lowers the monthly premium. Compare HomeReady mortgages against Freddie Mac’s Home Possible loans before you pick, because one lender may price them very differently from the next.

Here’s the math on a $300,000 home in Waterford: 3% down is $9,000 and leaves a $291,000 loan; 5% down is $15,000; 20% down is $60,000 and eliminates PMI entirely.¹ The gap between the 3% and 20% answers is usually years of saving, which is the whole argument for the low-down-payment programs. On a principal residence the entire down payment can also come from a documented gift, so ask before you assume you’re short.

How does PMI work on a conventional loan?

Private mortgage insurance is required whenever you put down less than 20% on a conventional loan, and unlike FHA’s annual premium, it is temporary by federal law. Under the Homeowners Protection Act, you can ask your servicer to cancel PMI on the date your principal balance is scheduled to fall to 80% of the home’s original value, and the servicer must terminate it automatically at 78%. With a final backstop the month after you reach the midpoint of the amortization schedule, which is year 15 of a 30-year loan.

The premium is priced off your credit score, your loan-to-value ratio and the coverage the agency requires, so two borrowers buying the same house pay different amounts. The CFPB’s explainer on private mortgage insurance covers your rights, and our guide to mortgage insurance compares the conventional, FHA, VA and USDA structures.

Two things speed cancellation up. Extra principal payments pull the scheduled 80% date forward, and a new appraisal showing appreciation can support removal earlier under investor rules. If you’re carrying FHA insurance that will never fall off, refinancing to remove mortgage insurance by moving into a conventional loan is often the cleanest exit, and it’s a comparison worth running annually rather than once.

What are the 2026 conventional loan limits?

For 2026, the baseline conforming loan limit is $832,750 for a one-unit property in most of the country, a 3.26% increase over the 2025 limit of $806,500. Multi-unit baselines run $1,066,250 for two units, $1,288,800 for three and $1,601,750 for four. In designated high-cost counties, the one-unit ceiling rises to $1,249,125, which is 150% of the baseline; Alaska, Hawaii, Guam and the U.S. Virgin Islands use $1,249,125 as their baseline with a ceiling of $1,873,675.

Every one of Michigan’s 83 counties sits at the baseline. There are no high-cost designations in the state, so $832,750 is the number in Oakland County, Wayne County and the Upper Peninsula alike. You can confirm any county against FHFA’s conforming loan limit values, which are republished each November.

Cross your county’s limit and the loan stops being conforming. It becomes a jumbo or portfolio product priced by the lender’s own investors, generally requiring a larger down payment, stronger credit and documented reserves, see how to qualify for a jumbo loan. Broker access matters most here, because jumbo pricing varies far more between lenders than conforming pricing does.

Conventional loans beyond a primary residence

Conventional financing is the only program family that routinely covers second homes and rentals, and the down payment scales with occupancy. Maximum loan-to-value on a one-unit second home purchase is 90%, meaning 10% down. A one-unit investment property purchase caps at 85%, or 15% down. A cash-out refinance on a one-unit primary residence caps at 80% LTV.

• Second homes: Occupancy rules are enforced, not decorative. The property has to be suitable for year-round use and controlled by you rather than a management firm. Our guide to buying a second home covers the reserve and rental-use tests.
• Investment property: Rental income can help you qualify, but the 15% down floor and pricing adjustments are steeper than most first-time investors budget for. Start with buying a home as an investment property.
• Cash-out seasoning: Any existing first mortgage being paid off must be at least 12 months old, and at least one borrower must have been on title for six months before disbursement, with limited exceptions.
• Seller-paid costs: Interested party contributions are capped at 3% of the sales price above 90% LTV, 6% from 75.01% to 90%, and 9% at 75% or less, 2% flat on investment property. Ask for concessions inside those caps, because anything above them gets deducted from the sales price and re-runs your LTV.

FAQ: Conventional loans

Here are answers to common questions about conventional loans.

What credit score do you need for a conventional loan?

It depends on how the file is underwritten. Fannie Mae no longer sets a minimum credit score for loan casefiles run through Desktop Underwriter, while manually underwritten loans keep a 620 floor for fixed-rate mortgages and 640 for ARMs. Most lenders layer their own 620 overlay on top regardless, and your score still drives pricing and mortgage insurance cost. Compare where you stand in what’s a good credit score to buy a house.

Is a conventional loan better than an FHA loan?

It depends on your credit and how long you’ll keep the loan. Conventional usually wins for stronger credit because PMI is cancellable at 78% of original value, while FHA’s annual premium runs the full 30-year term on loans with less than 10% down and 11 years when you put 10% or more down. FHA tends to win on thinner credit files and higher debt ratios. Run both payments before deciding, our guide to choosing the right mortgage type frames the comparison.

Can you get a conventional loan with 3% down?

Yes, through three programs: Conventional 97, which requires at least one first-time buyer on the loan, and HomeReady or Home Possible, which cap qualifying income at 80% of area median income but have no first-time-buyer requirement. All three are limited to one-unit principal residences at 97% loan-to-value. Everyone else starts at 5% down. See the full menu in our guide to low-down-payment mortgages.

How much can a seller pay toward my closing costs on a conventional loan?

It depends on your down payment. Interested party contributions on a conventional loan are capped at 3% of the sales price when your loan-to-value is above 90%, 6% from 75.01% to 90% LTV, and 9% at 75% LTV or below, 2% flat on an investment property. Ask inside the cap, because anything over it gets subtracted from the sales price and re-runs your LTV. Our guide to seller-paid closing costs covers how to write the ask into the offer.

The bottom line on conventional loans

Conventional financing is the largest and most flexible corner of the mortgage market: 3% down through Conventional 97, HomeReady or Home Possible, 5% down as the standard floor, a 2026 conforming limit of $832,750 for a one-unit home in every Michigan county, and private mortgage insurance you can request off at 80% loan-to-value that must terminate at 78%. Fannie Mae has also stopped requiring a minimum credit score on Desktop Underwriter files, so the answer you got two years ago may not be today’s answer. Lender overlays on the same agency guideline still differ from one wholesale lender to the next.

If you’re ready to see what a conventional loan actually costs on 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 today.

This article is for informational purposes only and is not intended to provide legal, financial, or tax advice. Consult a qualified professional about your situation. Program terms, credit score minimums, loan limits, and down payment figures shown are illustrative, are not a rate quote or an offer of credit, and are subject to lender overlays, agency updates, and change. Align Lending works with FHA- and VA-approved lenders and is not acting on behalf of, endorsed by, or sponsored by FHA, HUD, the Department of Veterans Affairs, or USDA.

Footnotes

¹ Example figures 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. Your rate and terms will depend on your application and market conditions. Back to text