Buying a home in 2026? Here’s what a conventional loan is, and how to qualify

Core Insights - Conventional loans are the most prevalent home loans in the U.S., accounting for over 77% of all home loans in 2023 [1][17] - There are two main types of conventional loans: conforming and non-conforming [1][18] Types of Conventional Loans - Non-conforming loans do not adhere to Fannie Mae or Freddie Mac guidelines, allowing lenders more flexibility in terms of loan size and credit requirements [2][18] - Conventional loans are typically suited for individuals with stable income, good credit, and manageable debt levels, and can accommodate buyers of large or unique properties [2][3][18] Down Payment Options - Programs like HomeReady and Home Possible permit down payments as low as 3%, enhancing competition among lenders [4][18] - The minimum down payment for conforming loans is set at 3%, with conforming loan limits reaching $832,750 for most homes and up to $1,249,125 in high-cost areas by 2026 [6][18] Loan Terms and Types - Conventional loans offer both fixed-rate and adjustable-rate mortgage options, with terms available for 10, 15, 20, or 30 years [4][18] - Fixed-rate mortgages maintain the same interest rate throughout the loan term, while adjustable-rate mortgages (ARMs) have rates that can fluctuate over time [8][9][18] Qualification Criteria - Most lenders require a minimum credit score of 620 and a debt-to-income (DTI) ratio of 50% or less, with many preferring a DTI of 41% or lower [13][14][15][17] - Borrowers can avoid private mortgage insurance (PMI) by making a down payment of 20% or more [14][18] Comparison with Other Loan Types - Conventional loans generally have higher credit score requirements and may incur PMI costs, but they offer higher loan limits compared to FHA loans [14][18] - Government-backed loans, such as FHA, VA, and USDA loans, cater to borrowers with lower credit scores and income levels, providing alternative financing options [11][12][18]