The 20% Down Myth. The PMI Truth. The Program Most People Misunderstand.
You don't need 20% down for a conventional loan — 3% is often enough. And PMI isn't a life sentence — it drops off. Most of what people "know" about conventional loans is outdated or wrong. Here's what's actually true in 2026.
Quick Decision Snapshot
What "Conventional" Actually Means
A conventional loan is any mortgage not insured or guaranteed by a government agency (FHA, VA, USDA). Instead, conventional loans follow guidelines set by Fannie Mae and Freddie Mac — the two government-sponsored enterprises that buy the vast majority of conventional loans from lenders.
The 20% down myth: Somewhere along the way, "conventional loan" became synonymous with "20% down" in the public imagination. That's not been true for years. Conventional loans are available with as little as 3% down through programs like Fannie Mae's HomeReady, Freddie Mac's Home Possible, and standard Conventional 97. The trade-off for putting down less than 20% is Private Mortgage Insurance (PMI) — which is real, but it's also temporary and removable. That's the part most explanations leave out.
Conforming vs non-conforming: "Conventional" and "conforming" are related but not identical. A conforming loan meets Fannie Mae/Freddie Mac's size and guideline limits. A conventional loan that exceeds those size limits is called Jumbo — see my Jumbo loans page for that scenario. Most conventional loans are conforming.
The honest pitch for conventional: when your credit is strong and your down payment is reasonable, conventional is very often the lowest total-cost path to homeownership — cheaper than FHA over time, with PMI you can eliminate entirely.
When Conventional Wins — and When It Doesn't
I'm not going to tell you conventional is always the answer. Here's the honest breakdown of when it's the right call and when another program serves you better.
When These Apply to You
- Credit score 680+ — pricing gets meaningfully better, PMI costs drop
- 20% down available — skip PMI entirely, lowest total monthly cost of any program
- Buying a second home or investment property — FHA/VA/USDA don't allow this; conventional does (with adjusted terms)
- You want PMI to eventually disappear — unlike FHA MIP (often life-of-loan), conventional PMI is removable
- Higher loan amounts — conforming limits beat FHA county limits in many markets
- You plan to refinance out of FHA — once you have 20% equity, conventional refi eliminates MIP for good
When These Apply to You
- Credit below 620 — FHA's more flexible credit standards likely serve you better
- Little to no down payment and not eligible for VA/USDA — FHA's 3.5% down with lower credit thresholds may pencil out better
- High DTI with limited compensating factors — FHA and VA allow more flexibility here
- You're a Veteran — VA almost always beats conventional; see my VA loans page
- Property in a USDA-eligible area, income within limits — USDA's $0 down and lower annual fee may beat conventional PMI
- Recent bankruptcy or foreclosure — conventional seasoning requirements are often longer than FHA/VA
HomeReady, Home Possible, and Conventional 97 — The Three Low-Down Paths
"Conventional" isn't one loan — it's a family of products with different down payment minimums, income limits, and eligibility rules.
HomeReady
- 3% minimum down payment
- Income limited to 80% of Area Median Income
- Homeownership education course required
- Non-occupant co-borrower income allowed
- Reduced PMI rates compared to standard conventional
- Boarder income and rental income from accessory unit may count
Home Possible
- 3% minimum down payment
- Income limited to 80% of Area Median Income
- Homeownership education required for first-time buyers
- Flexible sources of funds for down payment (gifts, grants, DPA)
- Reduced PMI available
- Freddie Mac's direct counterpart to HomeReady — similar but not identical guidelines
Conventional 97
- 3% minimum down payment — same as HomeReady/Home Possible
- No income limit — available to any qualifying borrower regardless of earnings
- Must be a first-time homebuyer (no ownership in past 3 years) in most cases
- Standard PMI rates apply (not reduced like HomeReady/Home Possible)
- Best fit when you exceed HomeReady/Home Possible income limits but still want low down payment
Which one is right for you? If your household income is at or below 80% of your area's median income, HomeReady or Home Possible likely gets you a better PMI rate. If you're above that limit, Conventional 97 gives you the same 3% down payment without the income cap. I run all three against your actual numbers before recommending one — the "best" program depends entirely on your specific income, area, and credit profile.
PMI — What It Actually Costs and How It Goes Away
Private Mortgage Insurance protects the lender, not you, when your down payment is under 20%. It's real cost — but unlike FHA's MIP, it's temporary by law.
| Credit Score | Down Payment | Est. Annual PMI Rate | Monthly Cost (per $100K borrowed) |
|---|---|---|---|
| 760+ | 5% | ~0.35% | ~$29/mo |
| 740–759 | 5% | ~0.45% | ~$38/mo |
| 720–739 | 5% | ~0.55% | ~$46/mo |
| 700–719 | 5% | ~0.70% | ~$58/mo |
| 680–699 | 5% | ~0.90% | ~$75/mo |
| 660–679 | 5% | ~1.10% | ~$92/mo |
| 640–659 | 5% | ~1.40% | ~$117/mo |
Estimates only — actual PMI rates vary by insurer, LTV, loan term, and specific lender pricing. Rates generally improve with a higher down payment.
How PMI Goes Away
80% LTV — You Can Request Removal
Once your loan balance reaches 80% of the home's original value (or current value with a new appraisal, in some cases), you can submit a written request to your servicer to cancel PMI. You generally need to be current on payments and have a good payment history.
78% LTV — Automatic Termination
Under the Homeowners Protection Act, your servicer is legally required to automatically terminate PMI when your balance reaches 78% of the original value — as long as you're current on payments. You don't have to ask; it must happen.
Faster Removal With a New Appraisal
If your home's value has appreciated, you may be able to request PMI removal sooner than the amortization schedule would naturally get you to 80% LTV — using a current appraisal to demonstrate you've already crossed that threshold. This is one of the most underused strategies in a rising market.
The comparison that matters: FHA MIP, on a loan with less than 10% down, lasts for the entire life of the 30-year loan — it never goes away without refinancing out of FHA entirely. Conventional PMI is temporary by federal law. If you're deciding between FHA and conventional at a similar down payment and credit profile, this single difference is often the deciding factor over the long run.
Fannie Mae DU vs Freddie Mac LP — Why the Same File Can Get Different Answers
Not every conventional loan follows identical rules. Fannie Mae's Desktop Underwriter (DU) and Freddie Mac's Loan Product Advisor (LPA, formerly "LP") have different risk models — meaning the exact same borrower file can come back approved on one and not the other.
Desktop Underwriter (DU)
- Generally more flexible on higher DTI ratios with strong compensating factors
- HomeReady is Fannie Mae's low-down, income-limited program
- Different treatment of certain non-traditional credit and boarder income scenarios
- Common for lenders who primarily sell to Fannie Mae in the secondary market
Loan Product Advisor (LPA)
- Different automated risk assessment model than DU — same inputs can produce a different result
- Home Possible is Freddie Mac's parallel low-down, income-limited program
- Sometimes more favorable for certain self-employed income documentation scenarios
- Common for lenders who primarily sell to Freddie Mac in the secondary market
Why this matters to you: If your file gets run through DU and comes back with conditions you can't clear, that doesn't necessarily mean conventional financing is off the table. I've had files that didn't work through one automated engine come back clean through the other. Part of my job is knowing which engine gives your specific scenario the best shot — not just running one system and stopping there.
2026 Conforming Loan Limits
The Federal Housing Finance Agency (FHFA) sets conforming loan limits annually. Above these limits, a loan becomes Jumbo — different qualification standards apply.
| Property Type | Standard Limit (Most Counties) | High-Cost Area Limit |
|---|---|---|
| 1-Unit (Single Family) | ~$800,000+ | Up to ~$1.2M+ |
| 2-Unit (Duplex) | Higher baseline | Higher ceiling |
| 3-Unit (Triplex) | Higher baseline | Higher ceiling |
| 4-Unit (Fourplex) | Highest baseline | Highest ceiling |
Conforming loan limits are updated annually by FHFA and vary significantly by county — high-cost counties (parts of California, for example) have meaningfully higher limits than the baseline. I confirm the exact current limit for your specific county before we discuss your maximum loan amount — these figures shift year to year and I don't want to quote you a stale number.
→ FHFA Official Conforming Loan Limits by CountyConventional Payment & PMI Breakeven Calculator
See your real monthly payment, including PMI if applicable — and exactly when it disappears based on your amortization schedule.
Estimates only. PMI removal timeline based on standard amortization to 78% LTV — actual timing depends on payment history and any extra principal payments. For exact numbers on your file: 448-777-2126
Conventional Loans Across All 9 States
Conventional Loans in Louisiana
- Homestead exemption reduces taxable assessed value — factor into your real payment calculation
- Louisiana Housing Corporation offers down payment assistance that may stack with HomeReady/Home Possible — verify current compatibility
- Flood insurance is a major factor in many parishes — always confirm zone status before quoting a payment
- Strong market for conventional refinances out of FHA once 20% equity is reached
Conventional Loans in Mississippi
- Among the lowest property tax rates nationally — helps overall affordability
- Mississippi Home Corporation DPA programs may stack with HomeReady/Home Possible
- Affordable price points mean many buyers stay well under conforming limits
- Strong candidate market for HomeReady given income-limited eligibility in many counties
Conventional Loans in Tennessee
- No state income tax — favorable overall affordability profile
- THDA (Tennessee Housing Development Agency) DPA programs — verify current conventional compatibility
- Nashville price growth has pushed more buyers toward conventional over FHA to access higher loan limits
- Strong refinance market as FHA borrowers cross the 20% equity threshold
Conventional Loans in Missouri
- Affordable price points across most of the state keep buyers well under conforming limits
- MHDC (Missouri Housing Development Commission) DPA programs — verify compatibility
- Strong HomeReady/Home Possible candidate market given income limits and price points
- Property tax rates vary meaningfully by county — always confirm before quoting
Conventional Loans in North Carolina
- NC Home Advantage Mortgage (NCHFA) DPA — verify current compatibility with conventional programs
- Rising prices in the Triangle and Charlotte metro push more buyers to conventional's higher limits vs FHA
- Strong military population near Fort Liberty and Camp Lejeune — many compare conventional vs VA
- Growing refinance market as post-FHA-purchase equity builds
Conventional Loans in Texas
- Highest property taxes nationally — always factor accurate county rate into your payment calculation
- My First Texas Home and other TDHCA programs — verify compatibility with conventional financing
- Strong conventional market in DFW, Houston, Austin, San Antonio given diverse credit and income profiles
- Investment property conventional loans common in growing rental markets statewide
Conventional Loans in Florida
- Homestead exemption available for primary residences
- Insurance costs (wind/flood) can be substantial in coastal areas — always factor accurately into payment quotes
- Condo financing requires the building to meet Fannie Mae/Freddie Mac project eligibility standards — verify before offer
- Florida Housing (FHFC) DPA programs — verify current compatibility
Conventional Loans in Arizona
- HOME Plus Arizona DPA program — verify current conventional compatibility
- Strong Phoenix and Tucson conventional market given diverse buyer profiles
- Competitive markets favor conventional's typically faster close timelines vs. government-backed programs
- Investment property demand strong in Phoenix metro — conventional a common path for second-home/investment buyers
Conventional Loans in California
- High-cost county conforming limits are significantly elevated vs the national baseline — important for LA, Bay Area, San Diego buyers
- CalHFA MyHome Assistance may stack with HomeReady/Home Possible — verify current compatibility
- Prop 13 property tax structure — base rate applies at purchase, with limited annual increases thereafter
- Strong market for jumbo-adjacent conventional loans given high price points — confirm your county's exact conforming limit before assuming standard terms apply
Conventional vs FHA vs VA vs USDA
| Feature | ⭐ Conventional | FHA | VA | USDA |
|---|---|---|---|---|
| Down Payment | 3%–20% | 3.5% (580+) | $0 | $0 |
| Mortgage Insurance | PMI — removable | MIP — often life of loan | None | 0.35% annual fee |
| Credit Minimum | 620–640 typical | 580 (3.5% dn), 500 (10%) | No VA minimum | 640 GUS, lower manual |
| Upfront Fee | ✓ None | 1.75% UFMIP | 2.15%–3.30% | 1.0% |
| Investment Property | ✓ Allowed | ✗ Primary only | ✗ Primary only | ✗ Primary only |
| Property Location | Anywhere | Anywhere | Anywhere | USDA-eligible areas only |
| Income Limit | None (Conv 97) / 80% AMI (HomeReady) | None | None | 115% of AMI |
| Best For | Strong credit, flexible down payment | Lower credit, low down payment | Veterans — best overall value | Rural/suburban $0 down |
From First Call to Closing
Run Your Numbers — Compare Programs Honestly
Before we settle on conventional, I run your file against FHA and (if applicable) VA/USDA to see which actually costs less over your expected time in the home. If conventional wins, we move forward. If it doesn't, I tell you that.
Pre-Approval — Credit, Income, DU/LPA Run
I run your file through both Desktop Underwriter and Loan Product Advisor when it's close, so we know which engine gives you the strongest result before you make an offer.
Under Contract — Appraisal Ordered
Conventional appraisals are generally more straightforward than FHA/USDA since there's no separate minimum property requirement checklist beyond standard marketability and safety concerns.
Underwriting — Clean File, Fast Turn
Conventional underwriting is typically the fastest of all major loan types since there's no second government-agency approval step (unlike USDA). My average conventional close time from contract: 21–28 days.
Closing — And PMI Tracking Begins
At closing, I give you the exact schedule for when your PMI is eligible for removal — so you have that date in hand from day one, not something you have to figure out later.
What Conventional Buyers Say After We Close
"I assumed I needed 20% down. James ran HomeReady numbers for me at 3% down and showed me exactly when PMI would drop off. That math alone changed my whole plan."
"We refinanced out of FHA into conventional once we hit 20% equity. James tracked our PMI removal date from the day we closed originally — saved us real money."
"One lender ran my file through their system and said no. James ran it a different way and it came back clean. He explained exactly why the two systems saw my file differently."
Conventional Loan FAQ
Do I really need 20% down for a conventional loan?
How do I get PMI removed?
What credit score do I need for a conventional loan?
Can I buy an investment property with a conventional loan?
What's the difference between HomeReady and Conventional 97?
What is a conforming loan limit and why does it matter?
Can I use gift funds for my conventional down payment?
Is conventional or FHA better for me?
Do conventional loans require mortgage insurance if I put down 20%?
James Hair — Producing Branch Manager
