A Conventional loan is a mortgage that isn't insured by FHA or guaranteed by VA or USDA. Almost all of them follow the rules Fannie Mae and Freddie Mac publish, and those rules reward a solid credit score more than any other program does. With 3% down, a score in the 700s and a debt load in check, Conventional often beats FHA on monthly payment. With a score near 620, the math can flip, and the example further down shows exactly where.
The Conventional checklist
| Requirement | The rule |
|---|---|
| Credit score | 620 at most lenders (Fannie Mae's automated system has no fixed minimum) |
| Down payment | 3% on a single-family home, 5% on 2 to 4 units |
| Total DTI | Up to 50% with an automated approval |
| Mortgage insurance | Required above 80% LTV, and it cancels |
| Seller credits | 3% of the price with under 10% down, 6% with 10% up to 25% down, 9% with 25% or more down |
| Loan limit | $832,750 in most counties for one unit in 2026, up to $1,249,125 in high-cost areas |
| Occupancy | Primary home, second home or investment property |
Credit score: where Conventional starts
Fannie Mae runs most Conventional loans through Desktop Underwriter (DU), its automated underwriting system (AUS). Fannie Mae has removed the fixed 620 minimum for loans approved through DU and now lets the system weigh the whole credit picture. A loan approved by hand, without DU, still needs a 620 for a fixed rate and 640 for an adjustable rate. Most lenders, AAA Capital Funding included, still start Conventional at 620.
The bigger story is price. On FHA, a 640 and a 760 pay the same mortgage insurance. On Conventional, private mortgage insurance (PMI) is priced on your score and your loan-to-value ratio (LTV, the loan amount divided by the home's value). QualRate models PMI at about 1.50% of the loan per year near a 620 score, down to about 0.46% at 760 and up, with lower rates as your down payment grows. That spread is the whole reason a buyer with a 620 often ends up on FHA and a buyer with a 740 often ends up Conventional.
Down payment: 3% is real
You can buy a single-family home with 3% down two ways:
- Standard 97% loan. At least one buyer has to be a first-time homebuyer, which Fannie Mae defines as someone who hasn't owned a home in the past three years. It has to be a fixed-rate loan.
- HomeReady. No first-time buyer requirement, but your qualifying income can't exceed 80% of the area median income. If every buyer is a first-time buyer, a homeownership education course is part of the deal.
On a single-family home, the entire down payment and your closing costs can come as a gift from a relative, with no minimum from your own pocket. On 2 to 4 units with more than 80% LTV, Fannie Mae requires the first 5% to come from your own funds before gift money can help.
The seller can pay your closing costs too. With under 10% down, the cap is 3% of the price (or the appraised value, if lower). With 10% up to 25% down it rises to 6%, and with 25% or more down it's 9%.
If you have nothing saved at all, look at FHA 100% financing: a 96.5% FHA first mortgage plus a down payment assistance second that covers the 3.5%, so you bring $0 for the down payment.
Debt-to-income: the 50% ceiling
Your debt-to-income ratio (DTI) is your total monthly debt payments divided by your gross monthly income, before taxes. The new house payment counts as PITI: principal, interest, property taxes and homeowners insurance, plus PMI and any HOA dues.
With a DU approval, Fannie Mae allows a total DTI up to 50%. A manually underwritten loan is held to 36%, stretching to 45% when your credit score and reserves meet the Eligibility Matrix. Conventional has no separate cap on the housing payment alone when DU approves it, which helps buyers who carry little other debt.
On the debt side, Fannie Mae counts these:
- Credit cards: the minimum payment on your credit report. If no payment shows, the lender uses 5% of the balance.
- Car loans and other installment debt: the monthly payment. A loan with 10 or fewer payments left can be left out unless the payment is large enough to strain your budget.
- Student loans: the payment on your credit report. On an income-driven plan with a documented $0 payment, Fannie Mae lets the lender use $0. A deferred loan or one in forbearance is counted at 1% of the balance or the documented fully amortizing payment, so a $30,000 deferred balance counts as $300 a month.
Rent on the place you're leaving, utilities, phone bills and car insurance don't count. Run your own mix of debts through the DTI calculator.
Same buyer, two credit scores
Take a $300,000 single-family home in Broward with 3% down ($9,000), so the loan is $291,000 at 5.75% on a 30-year fixed. Taxes run about 0.95% of the price a year and insurance about $283 a month. The buyer earns $6,000 a month and pays $350 on a car and $150 on a student loan, $500 in total.
| Monthly cost | 620 score | 760 score |
|---|---|---|
| Principal and interest | $1,698.20 | $1,698.20 |
| Property taxes | $237.50 | $237.50 |
| Homeowners insurance | $283.00 | $283.00 |
| PMI | $363.75 (1.50%) | $111.55 (0.46%) |
| Total housing (PITI + PMI) | $2,582.45 | $2,330.25 |
| Total DTI with $500 of debts | 51.37% | 47.17% |
At 760, the buyer qualifies with room to spare. At 620, the higher PMI pushes the DTI past 50%. To get back under the line at 620, the housing payment has to fall to $2,500 ($3,000 maximum debt minus the $500 of other debts). Working backward, that's a price of about $289,000: a $280,330 loan, $1,635.93 in principal and interest, $228.79 in taxes, $283 in insurance and $350.41 in PMI, for $2,498.13 a month and a 49.97% DTI.
Run the same buyer on FHA at 3.5% down and the DTI lands just under 48%, well inside FHA's 56.9% limit. Plug in a real price with the price check tool to see each program side by side.
Before you make an offer, AAA Capital Funding will run your own numbers through every program we offer. Call 888-601-8344 and we'll do it with you on the phone.
Private mortgage insurance and how it comes off
PMI protects the lender when you put down less than 20%. You pay it monthly, built into your payment. Two numbers move the price: your credit score and your LTV. A 620 score at 97% LTV pays the most, and the rate falls as your score climbs and your down payment grows.
Conventional PMI doesn't stay forever. Under the Homeowners Protection Act, you can ask to cancel it once your balance reaches 80% of the home's original value, provided you're current and have a good payment history. It terminates automatically when the balance is scheduled to reach 78%. Paying extra principal gets you there sooner.
Co-signers on a Conventional loan
A parent, grandparent or other relative can co-sign as a non-occupant co-borrower. They sign the note and share the debt, but they don't have to live in the home and they don't have to go on the title. DU looks at their income, debts and credit together with yours.
Two rules matter. With a non-occupant co-signer, DU caps the loan at 95% LTV, so plan on 5% down instead of 3%. And non-taxable income such as SSI, or the non-taxable part of Social Security, is grossed up 25% for qualifying.
Put that in dollars. A grandparent with $1,400 a month in SSI adds $1,750 of qualifying income ($1,400 × 1.25). At a 50% DTI limit, every $1,000 of income supports $500 of monthly payments, so that $1,750 opens up $875 a month of room for the house payment. AAA gets the majority of its approvals with a co-signer on the loan. See how a specific co-signer changes your price with the co-signer calculator.
Buying 2 to 4 units with Conventional
You can buy a duplex, triplex or fourplex with 5% down as long as you live in one of the units. The extra rules:
- Reserves: six months of the full house payment in savings after closing, verified on statements. Reserves are money you'd still have if your income stopped.
- Your own money first: above 80% LTV, the first 5% has to come from your own funds before gifts can help.
- Rent counts: lenders use 75% of the market rent on the other units, taken from the appraiser's rent schedule or an existing lease. With 12 months or more of landlord experience, that rent can count as income. With less experience, it offsets the house payment only.
High-balance loans in costly areas carry lower LTV caps on 2 to 4 units. The house hacking calculator runs the rental math on a specific property.
Conventional loan limits
A conforming Conventional loan can't exceed the limit for your county. For 2026, the baseline limit is $832,750 for one unit, $1,066,250 for two, $1,288,800 for three and $1,601,750 for four. In high-cost counties the ceiling reaches $1,249,125 for one unit. A loan above your county's limit is a jumbo loan, which follows each lender's own rules. Look up your county on the loan limits page.
Waiting periods after a bankruptcy or foreclosure
Conventional waiting periods run longer than FHA's. Fannie Mae counts from the discharge, dismissal or completion date:
| Event | Standard wait | With documented extenuating circumstances |
|---|---|---|
| Chapter 7 bankruptcy | 4 years | 2 years |
| Chapter 13 bankruptcy | 2 years from discharge, 4 from dismissal | 2 years from dismissal |
| Foreclosure | 7 years | 3 years, with extra limits through year 7 |
| Short sale or deed-in-lieu | 4 years | 2 years |
Extenuating circumstances means a one-time event outside your control, such as a death, a serious illness or a job loss, that you can document. FHA allows a new loan three years after a foreclosure, so a buyer inside the Conventional window has a real option.
When Conventional wins and when FHA does
Conventional tends to win when your score is in the high 600s or better, when you'd rather have mortgage insurance that cancels, or when you're buying a second home or rental. FHA tends to win with a score under about 680, with a DTI above 50% (FHA goes to 56.9% with automated approval), or when you want the 100% financing route. Plenty of buyers qualify for both, and the right answer comes down to the payment and the cash you'll bring.
Call AAA Capital Funding at 888-601-8344 and we'll put Conventional and FHA next to each other on your real numbers. Which one you take is your call.