Ken Starks · Independent mortgage broker · Conventional loans
Conventional loans: strong pricing for strong borrowers
Conventional mortgages from 3% down with removable PMI and the most competitive pricing in the market. I shop dozens of wholesale lenders to find the best conventional rate for your credit profile and down payment.
3% down · 620+ credit score · No cost, no obligation.
The basics
What is a conventional loan?
A conventional loan is a mortgage with no government insurance behind it, no FHA, no VA, no USDA backing. Instead, conventional loans follow guidelines set by Fannie Mae and Freddie Mac, the two government-sponsored enterprises that purchase most conventional mortgages from lenders after closing.
In practical terms, this means conventional loans live or die on your credit profile. Because there is no government insurance backstop, lenders rely on your credit score, down payment, income, and debt ratios to assess risk. The upside is that borrowers with strong credit get the strongest pricing and lowest costs available in the mortgage market. The downside is that borrowers with lower scores or less-than-perfect credit may find FHA or VA more affordable.
Over 23 years of originating mortgages, I have placed more borrowers into conventional loans than any other product. For the right borrower, it is almost always the most cost-effective choice, especially when you factor in the ability to remove mortgage insurance over time.
The conventional advantage
Why conventional is often the best choice
These are the real advantages I walk borrowers through, the program features that make conventional the most cost-effective choice for the right profile.
-
Removable PMI
This is the single biggest advantage over FHA. Conventional private mortgage insurance (PMI) can be removed once you reach 20% equity, either through payments or home appreciation. FHA mortgage insurance stays for the life of the loan (or 11 years with 10%+ down). Over time, this difference saves thousands.
-
No upfront insurance fee
FHA charges a 1.75% upfront mortgage insurance premium at closing. On a $400,000 loan, that is $7,000 added to your balance. Conventional loans have no upfront insurance fee. Your PMI is a monthly cost that disappears once you build enough equity.
-
Sharper pricing for strong credit
Conventional pricing rewards good credit. Borrowers with scores of 740 and above get access to the sharpest pricing and smallest loan-level pricing adjustments. If your credit is in that range, conventional will almost always beat FHA on total cost.
-
Flexible property types
Conventional loans work for primary residences, second homes, and investment properties, all under the same program umbrella. FHA and VA are limited to primary residences only. If you are buying a vacation home or rental property, conventional is your conforming option.
2026 guidelines
Conventional loan requirements for 2026
Here is what you actually need to qualify for a conventional loan in 2026, from credit and down payment to property types and loan limits.
| Requirement | Details |
|---|---|
| Credit score | 620 minimum recommended. Best pricing starts at 740+, with the most favorable loan-level pricing at 780+. As of late 2025, Fannie Mae eliminated its hard 620 floor, but most lenders still use 620 as a practical minimum. |
| Down payment | 3% minimum (HomeReady, Home Possible, Conventional 97), 5% standard. 10% reduces PMI significantly, 20% eliminates PMI entirely. |
| Debt-to-income ratio | Up to 45%, with exceptions to 50% for borrowers with strong compensating factors (high credit score, large reserves, low LTV). |
| Employment | Typically 2 years of consistent employment history. Self-employed borrowers need 2 years of tax returns, or consider non-QM alternatives. |
| Property types | Single-family, condos, townhomes, 2-4 unit properties, second homes, and investment properties. Manufactured homes eligible with restrictions. |
| 2026 loan limits | $832,750 for single-family in most areas (all of Arizona). $1,249,125 in high-cost areas (Orange County, CA). Above these limits requires a jumbo loan. |
| Mortgage insurance | Required below 20% down. Cost ranges from 0.25% to 2% of loan amount annually, based on credit score and LTV. Removable at 80% LTV. |
Loan-level pricing adjustments
How your credit score affects conventional loan pricing
This is one of the most misunderstood parts of conventional lending. Your interest rate is not just based on market conditions, it is adjusted by Loan-Level Pricing Adjustments (LLPAs), risk-based fees mandated by Fannie Mae and Freddie Mac that vary based on your credit score, down payment percentage, property type, and loan purpose.
| Credit score | LLPA impact | What it means for you |
|---|---|---|
| 780+ | Lowest fees | The best possible conventional pricing. Minimal or no risk-based adjustments. This is the tier to target if possible. |
| 760–779 | Very low fees | Excellent pricing. Slightly higher adjustments than 780+, but still among the strongest pricing available. |
| 740–759 | Low fees | Strong pricing tier. Most borrowers in this range get very competitive rates. |
| 720–739 | Moderate fees | Solid pricing, but noticeably higher adjustments than the 740+ tier. This is where improvement efforts start to pay off. |
| 700–719 | Higher fees | Still competitive, but LLPA fees increase meaningfully. Larger down payments can partially offset. |
| 680–699 | Significant fees | Noticeably higher pricing. At this tier, FHA may actually be cheaper for some borrowers, I run both scenarios to compare. |
| 660–679 | High fees | Substantial pricing adjustments. FHA usually wins on total cost at this credit level. |
| 620–659 | Highest fees | Maximum LLPA charges. FHA is almost always the better option in this range. |
Broker advantage on LLPAs: every lender starts from a different base rate before LLPAs are applied. Lender A might have a lower base rate but higher margin. Lender B might price more aggressively at certain credit tiers. When I shop your loan, I am comparing the final, all-in rate after LLPAs from every available wholesale lender. A borrower with a 720 score might get the best deal from a completely different lender than a borrower with a 760 score. This kind of granular matching is the core value of working with a broker on conventional loans.
Mortgage insurance
Private mortgage insurance: how it works and how to remove it
If you put less than 20% down on a conventional loan, you will pay private mortgage insurance (PMI). PMI costs range from roughly 0.25% to over 1.5% of the loan amount per year, depending on your credit score and the loan-to-value ratio. On a $400,000 loan, that translates to roughly $85 to $500 per month. The higher your credit score and the larger your down payment, the lower your PMI rate.
| Method | Requirements |
|---|---|
| Borrower request at 80% LTV | When your loan balance reaches 80% of the original purchase price or appraised value (whichever was lower at closing), you can request cancellation in writing. Must be current on payments with no late payments in the prior 12 months. |
| Automatic cancellation at 78% LTV | Your servicer must automatically cancel PMI when the balance reaches 78% of the original value based on the amortization schedule. No action required on your part. |
| Home appreciation (after 2 years) | If your home has appreciated and you have at least 25% equity based on a new appraisal, you can request PMI removal after owning the home for at least two years. |
| Home appreciation (after 5 years) | After five years, the standard 20% equity threshold applies for appreciation-based removal. A new appraisal is required to confirm the current value. |
Compare this to FHA, where mortgage insurance stays for the life of the loan if you put less than 10% down. A conventional borrower who puts 5% down on a $400,000 home in Gilbert, Arizona might pay PMI for five to seven years before reaching 20% equity through payments and appreciation. An FHA borrower on the same home pays mortgage insurance for the entire 30-year term, or until they refinance into a conventional loan. Over 30 years, that difference is substantial.
Side by side
Conventional vs. FHA vs. VA: which loan is right for you?
The choice between conventional, FHA, and VA depends on your credit score, down payment, military status, and how long you plan to keep the loan.
| Factor | Conventional | FHA | VA |
|---|---|---|---|
| Min. credit score | 620 (best pricing at 740+) | 580 (500 with 10% down) | No VA minimum (lenders want 580–620) |
| Down payment | 3%–20%+ | 3.5% | 0% |
| Mortgage insurance | PMI (removable at 20% equity) | MIP for life of loan* | VA funding fee (no monthly MI) |
| Upfront insurance cost | None | 1.75% of loan amount | 2.15%–3.3% funding fee |
| Max DTI | 45%–50% | 50%–57% | Up to 60% |
| Property types | Primary, 2nd home, investment | Primary residence only | Primary residence only |
| 2026 loan limit (AZ) | $832,750 | $557,750 (Maricopa Co.) | No limit (full entitlement) |
| Best for | Credit 700+, wants PMI removal | Credit 580–700, lower DTI flexibility | Eligible veterans/service members |
*FHA MIP drops off after 11 years if you put 10% or more down. My approach: I never assume which loan is best. For every client, I run conventional and FHA scenarios side by side, and VA if you are eligible. I compare the total cost over the first five years, ten years, and the full loan term. Sometimes conventional wins by a landslide. Sometimes FHA is actually cheaper for the first few years. And sometimes the answer is to start with FHA and refinance into conventional once your credit improves or your equity grows. The right answer is always in the numbers.
Low down payment
Low down payment conventional programs
You do not need 20% down for a conventional loan. Several programs allow as little as 3% down, making conventional accessible to first-time home buyers and moderate-income borrowers.
-
Conventional 97
The standard 3% down conventional program. Available for first-time buyers (at least one borrower has not owned a home in the past three years). Fixed-rate terms only. No income limits in most areas. The simplest path to a 3% down conventional loan.
-
Fannie Mae HomeReady
3% down with income limits (80% of area median income, or no limit in low-income census tracts). Allows non-occupant co-borrower income and boarder income to help qualify. Reduced PMI rates compared to standard conventional.
-
Freddie Mac Home Possible
3% down with similar income limits to HomeReady. Allows sweat equity and certain non-traditional credit for qualification. Reduced PMI pricing. If HomeReady does not fit your situation, Home Possible often does.
All three programs can be combined with Arizona down payment assistance programs like HOME Plus and Home in Five to further reduce your out-of-pocket costs. I walk every eligible buyer through these layered options to minimize what you need to bring to closing.
The wholesale process
How I find you the best conventional rate
Conventional loans are the most commoditized product in the mortgage market, every lender offers them. But pricing varies meaningfully from lender to lender on the same day, for the same borrower profile. Here is why.
- 1
The wholesale channel advantage
Banks and credit unions offer retail rates that include their overhead markup. When I submit your loan through the wholesale channel, lenders compete at wholesale pricing. That markup is reduced or eliminated. On a conventional loan, where every eighth of a percent matters, the wholesale advantage translates directly to your bottom line.
- 2
LLPA optimization
Different wholesale lenders absorb LLPAs differently. One lender might eat a portion of the credit score adjustment to win your business. Another might offer a credit for a specific LTV range. I compare the net pricing, rate plus all adjustments, across every available lender and show you the top options with full transparency.
- 3
Lender credit vs. points
Sometimes a lower rate is not a lower total cost. A lender offering a slightly higher rate with a credit toward closing costs might save you more overall than a lender with a rock-bottom rate and higher fees. I model both scenarios and show you the breakeven point so you can make an informed choice based on how long you plan to keep the loan.
On any given day, I might see conventional rate quotes from 20 or more wholesale lenders. The spread between the best and worst, for the exact same borrower, can be a quarter percent or more. On a $400,000 30-year loan, that quarter percent equals roughly $60 per month and over $20,000 in total interest. Multiply that across the thousands of loans I have originated over 23 years, and you start to understand why rate shopping through a broker is not optional, it is essential.
Conventional quick facts
See if conventional beats FHA for you
I will run conventional and FHA side by side and give you an honest recommendation, not a sales pitch.
Not sure conventional fits?
Compare related programs
Conventional loan FAQs
Conventional loan questions
Straight answers from someone who has placed more borrowers into conventional loans than any other product.
What is a conventional loan?
What credit score do I need for a conventional loan?
How much is the down payment on a conventional loan?
Can I remove PMI from a conventional loan?
What are the 2026 conventional loan limits?
Should I choose a conventional loan or an FHA loan?
Why should I get a conventional loan through a broker?
Let me find your best conventional rate
I will run your scenario through every wholesale lender I work with and show you the best conventional options, rate, fees, and total cost, so you can make a confident decision. No obligation, no pressure.
The Starks Team · Ken Starks, Independent Mortgage Broker · Equal Housing Lender. This is not a commitment to lend. Conventional loan programs, pricing, and loan limits are subject to change and depend on individual qualification with Fannie Mae and Freddie Mac guidelines in effect at time of application.