Conventional Loan

FAQs

What makes a loan 'conforming'?

A conforming loan meets the guidelines established by Fannie Mae and Freddie Mac, including loan size limits, borrower credit requirements, and underwriting standards. Conforming loans can be purchased by Fannie or Freddie in the secondary market, which gives lenders liquidity and allows them to offer competitive rates. Loans above the conforming limit are jumbo loans and are not eligible for Fannie/Freddie purchase.

What credit score is needed for a conventional loan?

Most conventional lenders require a minimum credit score of 620, though some programs allow scores as low as 580 with compensating factors. The best rates and terms are available to borrowers with scores of 740 or above. Unlike FHA loans, conventional underwriting uses a risk-based pricing model where higher scores produce meaningfully lower interest rates and PMI costs.

When does PMI end on a conventional loan?

Conventional PMI is governed by the Homeowners Protection Act. Borrowers can request cancellation when their loan balance reaches 80% of the original appraised value, and lenders must automatically terminate PMI when the balance reaches 78% of the original value (assuming the borrower is current on payments). FHA MIP, by contrast, typically persists for the life of the loan for low-down-payment borrowers.

What is the conforming loan limit?

Conforming loan limits are set annually by the Federal Housing Finance Agency (FHFA) based on home price indices. For 2025, the standard limit for single-family properties in most areas is $766,550, with higher limits in designated high-cost areas reaching up to $1,149,825. Loans above these limits require jumbo or portfolio lending outside Fannie/Freddie programs.

Related Terms

• FHA Loan

  A government-backed mortgage insured by the Federal Housing Administration, offering low down payments and flexible credit requirements for qualified borrowers.

• Jumbo Loan

  A mortgage exceeding Fannie/Freddie conforming limits, requiring stricter underwriting, larger down payments, and typically carrying higher rates.

• Private Mortgage Insurance (PMI)

  Insurance required on conventional loans when the down payment is below 20%, protecting the lender against default and cancellable when equity reaches 20%.

• Debt-to-Income Ratio (DTI)

  The percentage of a borrower's gross monthly income that goes toward debt payments, used by lenders to assess repayment capacity and maximum loan eligibility.

• Amortization

  The scheduled process of repaying a loan through regular payments, with each payment covering interest and a gradually increasing portion of principal.

• Fixed-Rate Mortgage

  A mortgage in which the interest rate remains constant for the entire loan term, producing stable monthly payments regardless of market rate changes.

• Adjustable-Rate Mortgage (ARM)

  A mortgage with an initial fixed-rate period followed by periodic rate adjustments tied to a benchmark index plus a lender margin, subject to rate caps.

Related Items

• Ralo

  Mortgage comparison and education platform for home buyers

• SecureLend Agents

  AI underwriting agents for VCs, lenders and insurers