NEW Conventional Loan Requirements 2026

If you’re planning to buy a home in 2026 and you’re asking, “Can I qualify for a conventional loan?” you’re in the right place. This guide breaks down NEW conventional loan requirements 2026 in plain English—especially for buyers in Huntington Beach and across Orange County.

Conventional financing is one of the most common ways to buy a home in Orange County. But the rules, the pricing, and the approval process can feel confusing—especially when you hear headlines about credit score “changes” that started in late 2025.

In this article, you’ll learn:

• What a conventional loan is (and why it matters in 2026)
• The 5 pillars lenders use to approve a conventional mortgage
• Credit score requirements (including what changed in late 2025)
• Down payment minimums (yes, 3% is real)
• How PMI works and how to remove it
• Debt-to-income ratio limits (DTI) and what counts as “debt”
• 2026 loan limits, including Orange County high-balance limits
• Pre-qualification vs pre-approval (and why it can make or break offers)

Want the video breakdown? Watch it here (and then use this article as your reference guide):

What Is a Conventional Loan?

A conventional loan is a mortgage that is not backed by the government(unlike FHA, VA, or USDA loans). Most conventional loans follow guidelines set by Fannie Mae and Freddie Mac.

Here’s what that means in the real world: conventional loans tend to reward stronger borrowers with better pricing. If you have higher credit, lower debt, and more money down, conventional financing can be one of the best deals in the mortgage world.

But you don’t need perfect credit, and you don’t need 20% down to qualify. Conventional loans are flexible. They just price risk differently.

The 5 Pillars of Conventional Loan Approval (2026)

Think of NEW conventional loan requirements 2026 like a five-part scorecard. Underwriting looks at the entire picture:

1. Income and employment history
2. Credit profile
3. Down payment and assets
4. Debt-to-income ratio (DTI)
5. Property type and loan size (loan limits)

Let’s break each one down so you know what matters most—especially in Huntington Beach and Orange County where prices and loan sizes can push you into high-balance territory.

1) Income and Employment Requirements: The 2-Year Stability Rule

One of the most common questions buyers ask is: “How long do I need to be on the job to qualify?”

In general, lenders want to see two years of stable employment and income. That doesn’t mean you can’t change jobs. It means you can’t look like a financial roller coaster.

Job changes are usually fine when:

• You stay in the same line of work (sales to sales, electrician to electrician, management to management)
• Your income is consistent or trending up gradually
• You can document your history (W-2s, paystubs, etc.)

Where things get tricky:

• Switching from W-2 employee to self-employed right before buying
• Trying to use brand-new self-employment income
• Big income swings year over year

If you’re self-employed, lenders typically want two years of self-employment history to count that income reliably. The key theme here is simple: income consistency matters more than the amount.

There’s no “minimum income” or “maximum income” for conventional loans. You can make $50,000 or $500,000. What matters is whether your income is documentable and stable.

2) Credit Score Requirements (and the Late-2025 Change That Affects 2026)

The classic guideline for conventional loans has long been a 620 minimum credit score. But here’s the real-world truth: many lenders add overlays(stricter internal rules), meaning you may need 640–660+ for smoother approvals and better pricing.

If you’re sitting near the minimum, you might qualify “in theory,” but the terms can be expensive and the approval can be harder. Your credit impacts:

• Your interest rate
• Your PMI cost
• Your overall pricing and approval strength

The big headline you may have seen for 2026

In late 2025, Fannie Mae’s Desktop Underwriter (DU) system stopped requiring a minimum traditional credit score for certain loan files. That’s why you’ll see headlines like “no credit score required for conventional loans.”

Reality check: this does not mean “no credit, no problem.” You still need to look strong overall, and the best pricing still goes to borrowers with higher scores, lower DTI, more down payment, reserves, and stable income.

So yes, it can help some thin-file borrowers. No, it does not magically create great rates or easy approvals for everyone.

3) Down Payment Requirements: Yes, 3% Down Is Real

There’s a common myth that you need 20% down for conventional financing. In reality, you can buy with as little as 3% down on a primary residence.

You can also put down 5%, 10%, 15%, 20% (or more). There’s a minimum—not a maximum.

Important note for Orange County buyers

In markets like Huntington Beach and Orange County, many buyers assume “conventional is always cheaper.” Not necessarily—especially at the minimum down payment. When you put 3% down, conventional PMI can get expensive, particularly if your credit isn’t strong.

That’s why you should not let a lender “pick” your loan program like it’s personal preference. You should be shown side-by-side options(conventional vs FHA, for example) so you can choose what fits your payment, your cash-to-close, and your long-term plan.

Mortgage Insurance (PMI): What It Is and How to Remove It

If you put less than 20% down on a conventional loan, you’ll have private mortgage insurance (PMI). PMI is required because you’re a higher risk to the lender. It protects the lender—not you—if you default.

Key PMI facts:

• PMI is not optional under 20% down
• Lower credit scores generally mean higher PMI
• Higher credit scores generally mean lower PMI

Here’s one of the biggest advantages of conventional financing: PMI can usually be removed once you have about 20% equity. Sometimes it’s automatic, sometimes you request it, and sometimes an appraisal is required. Many lenders also have seasoning rules (often around 12 months) before they’ll remove PMI early based on appreciation.

4) Debt-to-Income Ratio (DTI): The Most Misunderstood Number

Your debt-to-income ratio is your monthly debt payments divided by your gross monthly income(before taxes and deductions). Not your take-home pay.

What counts as debt?

• Car loans
• Student loans
• Credit card minimum payments
• Personal loans
• Installment loans

DTI does not include things like groceries, gas, childcare, or your Amazon spending. That’s your budget—not underwriting.

Front-end vs back-end DTI

• Front-end: housing expenses only (principal & interest, taxes, insurance, HOA)
• Back-end: housing expenses + other debts on your credit report

In many conventional scenarios, you generally want to be around 45% back-end to feel “normal.” With strong compensating factors, approvals can sometimes push higher, close to 50%—but conventional won’t go above 49.9%.

Important: just because you can qualify at a high DTI doesn’t mean you should. A lender’s job is to tell you what you can qualify for. Your job is to decide what you can comfortably afford without becoming house-poor.

5) 2026 Loan Limits (Conforming vs Jumbo) — Big for Orange County

Loan limits matter because they determine whether your loan is considered conforming (conventional guidelines) or jumbo (different rules, often stricter).

For 2026, the baseline conforming loan limit is $832,750 for a one-unit property.

In high-cost areas, the ceiling is higher. In Orange County, a one-unit property can go up to $1,249,125.

Rising loan limits don’t make underwriting easier. They keep the conforming program aligned with real home prices so buyers in higher cost areas aren’t forced into jumbo rules simply because prices moved.

Pre-Qualification vs Pre-Approval (Don’t Confuse These)

If you’re shopping for a home in Huntington Beach or Orange County in 2026, you want a real pre-approval, not a pre-qualification.

Pre-qualification:

• A conversation
• No documentation reviewed
• No credit pulled
• Often inaccurate in competitive markets

Pre-approval:

• Documents are reviewed
• Credit is pulled
• Income and assets are verified
• Stronger when writing offers

If you’re serious about buying, start with a real pre-approval so you don’t fall in love with a house and find out later that a detail in your income, credit, assets, or DTI creates a problem.

Documents You’ll Typically Need for a Conventional Loan (2026)

Most lenders will ask for:

• Your last 2 paystubs
• W-2s (often 2 years)
• Tax returns (especially if self-employed)
• Bank statements
• Driver’s license or ID
• Authorization to run credit

Conventional vs FHA: Which Is Better in 2026?

Many buyers weigh conventional against FHA—especially when using a low down payment.

Conventional often wins long-term because:

• No upfront mortgage insurance premium (UFMIP) like FHA
• PMI can be removed once you reach ~20% equity
• Stronger borrowers get better pricing

FHA can still be a better fit when:

• Your credit is weaker
• You’re putting the minimum down
• Conventional PMI pushes the payment too high

Bottom line: your lender should run both options side-by-side so you can decide based on numbers—not opinions.

Can You Use Conventional for a Primary, Second Home, or Investment Property?

Yes—conventional loans can be used for:

• Primary residences
• Second homes
• Investment properties

The catch is requirements tighten as you move away from a primary residence. Down payments typically increase, and the 3% down minimum is not available for investment properties. In many cases, investment property down payments start around 20%.

Gift Funds and Closing Costs

Many buyers ask if they can use gift funds from family. In many conventional scenarios, the answer is yes, depending on the structure of the file. The key is documentation—your lender should guide you so it’s handled correctly.

Closing costs vary by lender and location. Plan on bringing money beyond the down payment unless you negotiate seller credits or choose lender credits.

The Biggest Mistake Buyers Make: Waiting Too Long

The biggest mistake I see is waiting too long to talk to a lender because you “aren’t ready.” If you’re thinking about buying in 2026, starting early gives you time to fix anything that needs attention—credit, assets, DTI, job history—before you’re under pressure.

Ready to Buy in Huntington Beach or Orange County in 2026?

If you want a clear plan for how to qualify—and which loan option is actually best for your situation—reach out here:

www.jebsmith.net/contact-me

Whether you’re buying your first home, moving up, or trying to understand your numbers, the goal is the same: get clarity early, avoid surprises later, and put yourself in a position to win when the right home comes along.

Question for you: What do you think is the hardest part of qualifying right now—credit, down payment, or monthly payment? Let me know.