Conventional loans are the most common mortgage in the country. They're also the most misunderstood when it comes to how they're priced. Your rate isn't just determined by "the market." It's determined by your specific profile. Here's how it works.
What makes a loan "conventional"?
Conventional loans are not backed by a government agency. They conform to guidelines set by Fannie Mae and Freddie Mac, the two government-sponsored enterprises that buy most mortgages from lenders after they close. Because lenders can sell these loans on the secondary market, they're willing to offer them at competitive rates.
Most conforming conventional loans follow Fannie Mae or Freddie Mac guidelines, including loan limits. For 2025, the conforming loan limit is $806,500 in most DC, MD, and VA counties. High-cost areas, including DC proper and many Northern Virginia and Maryland suburbs, have higher limits.
Loans above the conforming limit are called jumbo loans. They follow different guidelines and are priced differently.
Basic qualification requirements.
Credit score: Minimum 620 for most lenders. But this is where the nuance matters. See the LLPA section below.
Down payment: As low as 3% for first-time buyers through Fannie Mae HomeReady or Freddie Mac Home Possible. Otherwise 5% minimum. 20% eliminates PMI entirely.
Debt-to-income ratio (DTI): The standard limit is 45%, meaning your total monthly debt payments (including the new mortgage) divided by your gross monthly income can't exceed 45%. Some borrowers with strong compensating factors (high credit, significant reserves) can go up to 50% through automated underwriting.
Employment and income: Two years of stable income history. W-2 employees are straightforward. Self-employed borrowers typically need two years of tax returns and business financials.
Property types: Conventional loans are available for primary residences, second homes, and investment properties, unlike FHA and VA, which are primary-residence only.
How your credit score affects your rate: LLPAs explained.
This is the part most lenders don't explain upfront.
Fannie Mae and Freddie Mac charge what are called loan-level price adjustments (LLPAs), pricing hits based on your credit score, LTV ratio, loan purpose, and property type. Lenders pass these adjustments through to your rate or add them as points.
The result: two buyers getting the same loan amount with different credit scores will get meaningfully different rates. Not just a little different. Hundreds of dollars per month different in some cases.
PMI + LLPA impact on a $400,000 conventional loan (30-year fixed, 5% down):
| Credit Score | Approx. Rate | Monthly P&I | Monthly PMI | Total Monthly |
|---|---|---|---|---|
| 760+ | 6.75% | $2,465 | $100 | $2,565 |
| 720–739 | 7.00% | $2,528 | $133 | $2,661 |
| 680–699 | 7.375% | $2,626 | $187 | $2,813 |
| 640–659 | 7.75% | $2,723 | $267 | $2,990 |
Rates and PMI amounts are illustrative. Actual pricing depends on current market conditions, lender, and full borrower profile.
The difference between a 760 credit score and a 680 credit score on this loan is $248/month, or nearly $3,000/year. Over five years, that's almost $15,000.
This is why working on your credit before applying, if your score has room to improve, can pay off substantially.
PMI: when you need it and when it goes away.
Private mortgage insurance is required on conventional loans when your LTV is above 80% (i.e., your down payment is less than 20%). PMI protects the lender if you default. You pay for it.
PMI cost is driven by your credit score and LTV:
- 760+ credit, 95% LTV: roughly 0.25–0.40% annually
- 700 credit, 95% LTV: roughly 0.50–0.75% annually
- 660 credit, 95% LTV: roughly 0.90–1.20% annually
On a $400,000 loan at 0.60% annually, that's $2,400/year, or $200/month. It's real money, but it's not permanent.
How to remove PMI:
- Request cancellation when your LTV reaches 80% based on original value and original amortization schedule (you need a clean payment history)
- Your lender is legally required to automatically cancel PMI when your LTV reaches 78% based on original value
- You can also pay for a new appraisal if your home has appreciated and you believe your LTV has dropped below 80% based on current value
Unlike FHA mortgage insurance, conventional PMI has a clear exit path. This is one of the key advantages of conventional over FHA for buyers who qualify for both.
The 20% down question: is it worth waiting?
Putting 20% down eliminates PMI. On a $500,000 home, that's $100,000 down, a significant hurdle for most buyers.
The math on waiting to hit 20% depends on what your money is doing in the meantime. If home values are appreciating and you're renting while you save, you may be paying more in rent than you would in PMI, and watching the home get further out of reach.
The honest answer: 20% down is not a requirement, and it's often not the right financial move. PMI at 0.5–0.7% per year is not free money, but if it gets you into a home that builds equity in a market like the DMV, it may cost less than the alternative.
This is a calculation worth running with your specific numbers before you decide.
Want to see conventional loan pricing on your actual profile?
We'll run your numbers (credit score, income, down payment) and show you exactly what rate pricing looks like for you, including a PMI estimate and break-even on a larger down payment.