What is a Conventional Mortgage?

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Conventional mortgages are the most common type of home loan in the United States. Unlike FHA or VA loans, they are not backed by a government agency. Instead, they follow guidelines set by Fannie Mae and Freddie Mac, which is why they are often called "conforming" loans. Because lenders can sell these loans to Fannie Mae and Freddie Mac, they are widely available and offer competitive rates and terms.

2026 Conventional Loan Limits

For 2026, the Federal Housing Finance Agency (FHFA) has set the conforming loan limit for a single-family home at $832,750 in most counties across the country. In designated high-cost areas, the limit can go as high as $1,249,125. These limits are updated each year to keep pace with rising home values. For multi-unit properties, the 2026 limits are:

• 2-unit: $1,066,000
• 3-unit: $1,288,500
• 4-unit: $1,601,000

As long as your loan amount stays within these limits, it qualifies as a conforming conventional loan with access to the best available rates and terms.

Down Payment Options – As Low As 3%

One of the biggest myths about conventional loans is that you need 20% down. The truth is, you can buy a home with as little as 3% down through several programs offered by Fannie Mae and Freddie Mac. Putting 20% down does allow you to avoid Private Mortgage Insurance (PMI), but many buyers choose a lower down payment and cancel PMI later once they have built enough equity in the home.

Fannie Mae Loan Programs

HomeReady® – Designed for low-to-moderate income borrowers, HomeReady allows a down payment as low as 3%. Your household income must be at or below 80% of the area median income (AMI). HomeReady offers reduced mortgage insurance costs compared to standard conventional loans, and borrowers can use income from a household member or even a boarder to help qualify. Down payment funds can come from gifts, grants, or employer-assistance programs – there is no minimum contribution required from the borrower's own funds on a single-unit home.

Conventional 97 (97% LTV) – This program also requires just 3% down, but unlike HomeReady, there are no income limits. At least one borrower must be a first-time homebuyer, which Fannie Mae defines as someone who has not owned a home in the past three years. It is available for fixed-rate mortgages on single-unit primary residences. The entire down payment can come from gift funds, making it an excellent choice for first-time buyers who are ready for monthly payments but need help with upfront costs.

Freddie Mac Loan Programs

Home Possible® – Freddie Mac's affordable lending program mirrors many of the benefits of HomeReady. It offers a 3% down payment for borrowers earning at or below 80% of the area median income. Home Possible comes with reduced mortgage insurance requirements and flexible down payment sources including gifts, grants, and sweat equity. It is available for 1–4 unit primary residences, condos, and manufactured homes.

HomeOne® – Freddie Mac's counterpart to the Conventional 97 program, HomeOne requires just 3% down with no income limits. At least one borrower must be a first-time homebuyer. It is available for fixed-rate loans on single-unit primary residences. Like the Conventional 97, the entire down payment can come from gift funds or down payment assistance.

Private Mortgage Insurance (PMI)

If your down payment is less than 20%, you will pay PMI as part of your monthly mortgage payment. However, unlike FHA loans where mortgage insurance typically remains for the life of the loan, conventional loan PMI can be canceled. Once your loan balance reaches 80% of the home's original value, you can request removal of PMI. It is automatically removed when you reach 78% of the original value. This makes conventional loans an attractive long-term option even when starting with a smaller down payment.

Credit Score Update: No More Hard 620 Floor

As of November 2025, Fannie Mae removed the hard 620 minimum credit score requirement for loans processed through its Desktop Underwriter (DU) automated underwriting system. This means DU now evaluates your complete financial profile – income stability, assets, debt levels, and payment history – rather than automatically rejecting applications based solely on a credit score number. Fannie Mae also now accepts VantageScore 4.0 and FICO 10T in addition to classic FICO scores, and can consider alternative payment data like rent, utility, and cell phone payments for borrowers with limited credit histories.

This is great news for borrowers who may have credit scores below 620 but have strong compensating factors like a larger down payment, significant savings, low debt, and stable employment. Keep in mind that individual lenders and PMI companies may still maintain their own credit score overlays, so it is important to work with a lender who has adopted the updated guidelines. Note that manually underwritten loans still require a minimum 620 credit score – this change applies only to loans processed through DU's automated system.

Basic Qualifying Requirements

Conventional loans make up the largest share of mortgages written today. While they have somewhat stricter qualifying requirements than government-backed loans, they are very accessible for borrowers who meet the basic criteria:

• Credit score: No hard minimum through Fannie Mae's Desktop Underwriter – your full financial profile is evaluated. Most lenders still look for 620 or higher, and higher scores unlock better rates and terms.
• Down payment: As low as 3% through HomeReady, Home Possible, Conventional 97, or HomeOne
• Debt-to-income ratio (DTI): Typically up to 45%, and up to 50% with strong compensating factors
• Employment: Stable income history, generally at least 2 years
• Property types: Single-family homes, condos, townhomes, and multi-unit properties (up to 4 units)

What Do You Need to Apply?

The conventional loan application process is straightforward. You will need to provide documentation to verify your income, assets, and financial history:

• Recent paystubs (last 30 days)
• W-2s from the past 2 years
• Tax returns (especially if self-employed)
• Bank and asset statements
• Documentation of any debts or liabilities
• Verification of employment

Your underwriter may request additional documents based on your specific situation. The appraisal and title work round out the process, which typically takes just a few weeks from application to closing.

Conventional loan financing in Colorado remains one of the most popular and cost-effective options available. Whether you are a first-time buyer taking advantage of a 3% down payment program or a seasoned homeowner looking for competitive rates, there is a conventional loan product that fits your needs.

I have worked with conventional loans for many years and have helped my clients navigate every option to find the best loan for their situation. Let's discuss your financial goals today to see if conventional loan financing is right for you.