What is a conventional loan?
Short answer: a conventional loan is a mortgage that is not insured or guaranteed by a federal government program such as FHA, VA or USDA. It is the most widely used type of mortgage in Maryland, and for buyers with reasonable credit and some savings it is often the cheapest option over time.
Because there is no government insurance behind it, the lender carries more of the risk directly. That single fact explains almost everything else about conventional financing: why credit matters more, why mortgage insurance is priced to your risk profile rather than charged at a flat rate, and why it rewards a stronger financial profile more than the government programs do.
Most conventional loans in Maryland are ultimately sold to Fannie Mae or Freddie Mac, the two government-sponsored enterprises that buy mortgages from lenders. That is why their rules end up shaping what your lender can and cannot do.
Conventional vs. conforming: not the same thing
These two words get used interchangeably, and they should not be
- Conventional describes what the loan is not — not FHA, not VA, not USDA. It says nothing about size or standards.
- Conforming describes what the loan meets — Fannie Mae and Freddie Mac standards, including the loan limit the Federal Housing Finance Agency sets each year for the county.
So every conforming loan is conventional, but not every conventional loan is conforming. A conventional loan above the county limit is a jumbo loan: still conventional, no longer conforming, and underwritten to the lender’s own standards rather than agency rules.
This matters in Maryland more than in most states, because the gap between the baseline limit and the high-cost limit here is unusually wide. Where you buy can decide whether the same purchase price is a conforming loan or a jumbo loan.
Maryland conventional loan limits for 2026
Short answer: most of Maryland uses the national baseline conforming limit of $832,750 for a one-unit home in 2026. Five jurisdictions are higher. Above the applicable limit, the loan becomes jumbo.
| Maryland jurisdiction | 1 unit | 2 units | 3 units | 4 units |
|---|---|---|---|---|
| Montgomery, Prince George’s, Frederick, Charles | $1,249,125 | $1,599,375 | $1,933,200 | $2,402,625 |
| Calvert | $1,209,750 | $1,548,975 | $1,872,225 | $2,326,875 |
| All other counties and Baltimore City | $832,750 | $1,066,250 | $1,288,800 | $1,601,750 |
The four Washington-metro counties carry the national high-cost ceiling. Calvert County sits at its own value just below that ceiling — a detail most published county tables get wrong by lumping it in with the rest of Southern Maryland.
Why this is worth checking before you shop
A $900,000 purchase in Montgomery County can be a conforming loan. The same purchase in Anne Arundel County cannot. Same buyer, same price, different underwriting rules, different pricing and different documentation. If you are buying near the limit, confirm which figure applies to the county before you set your budget.
These are 2026 values published by the Federal Housing Finance Agency and they are reset annually. Our Maryland counties guide covers what buying is like in each part of the state.
How much down payment do you need for a conventional loan?
Short answer: as little as 3% for buyers who qualify for one of the low-down-payment programs, 5% is common for standard conventional financing, and 20% is the point at which mortgage insurance is no longer required. There is no single conventional down payment.
What the down payment actually controls:
- Whether you pay mortgage insurance at all. Below 20% down, expect it.
- How much that insurance costs. Coverage requirements and pricing both move with the loan-to-value ratio.
- Your pricing. Conventional loans use risk-based pricing adjustments tied to credit score and loan-to-value together.
- How much a seller may contribute toward your closing costs, which is capped on a sliding scale tied to your down payment.
The practical consequence is that conventional financing rewards incremental progress in a way the government programs mostly do not. Moving from 3% down to 5%, or from a 690 score to a 720, can change your monthly payment measurably. It is worth modelling before you decide when to buy.
Do you have to be a first-time buyer to put 3% down?
It depends entirely on which 3% program you use
This is the most commonly garbled fact in conventional lending, and the answer is genuinely different between the two main options:
- Fannie Mae’s standard 97% LTV option requires that at least one borrower is a first-time homebuyer. There is no income limit.
- Fannie Mae’s HomeReady does not require a first-time homebuyer at all — it is open to first-time and repeat buyers — but qualifying income is capped at 80% of area median income.
So a repeat buyer can still put 3% down, provided their income fits HomeReady. And a higher earner can still put 3% down, provided at least one borrower is a first-time buyer. What nobody gets is both at once.
| HomeReady | 97% LTV Standard | |
|---|---|---|
| First-time buyer | Not required | At least one borrower must be a first-time homebuyer |
| Income limit | 80% of area median income | No limit |
| Mortgage insurance | Reduced coverage at 90.01–97% LTV | Standard coverage |
| Pricing adjustments | Waived for HomeReady loans | Standard risk-based adjustments |
| Homebuyer education | Required if all occupying borrowers are first-time buyers | Required above 95% LTV if all occupying borrowers are first-time buyers |
Both 97% options are for a one-unit principal residence, including eligible condos, co-ops and planned unit developments, and both must be underwritten through Fannie Mae’s automated system. Freddie Mac runs a comparable program called Home Possible, also at 3% down with qualifying income capped at 80% of area median income, and it accepts a wider range of property types including 1–4 units.
What “first-time homebuyer” actually means here
It does not mean you have never owned a home. In this context it generally means no ownership interest in a principal residence during the previous three years. People who owned a decade ago, or who owned an investment property but not a residence, are often surprised to find they still count.
Note that this is a different test from Maryland’s first-time buyer transfer tax rule, which looks only at whether you have owned a principal residence in Maryland. The two are assessed separately and you can qualify for one and not the other.
What is PMI, and when does it come off?
Short answer: private mortgage insurance protects the lender, not you, and it is generally required on a conventional loan when you put down less than 20%. Unlike FHA insurance, it is designed to be removed — and federal law gives you specific rights to remove it.
Your rights under federal law
The Homeowners Protection Act governs cancellation on most conventional loans on a principal residence:
- You may request cancellation when the principal balance is scheduled to reach 80% of the home’s original value.
- The servicer must automatically terminate it when the balance is scheduled to reach 78% of original value, provided you are current on payments.
- Midpoint termination applies if you get there another way: coverage ends the month after you reach the midpoint of the amortisation schedule.
For a borrower-requested cancellation the servicer can require the request in writing, a good payment history and current status, certification that there are no junior liens, and evidence that the property value has not declined.
The distinction that decides FHA vs. conventional for a lot of Maryland buyers
On most FHA loans taken today with a low down payment, the mortgage insurance premium stays for the life of the loan — the only way off it is to refinance out of FHA entirely.
Conventional PMI is the opposite. It is built to end, and the Homeowners Protection Act sets out when. Over a long hold, that difference can outweigh a lower FHA rate or a lower FHA down payment. Our Maryland FHA loans guide covers the FHA side in the same depth.
One nuance worth knowing: cancellation rights are keyed to the home’s original value. Rising Maryland home values do not automatically accelerate them, though some servicers will consider a new appraisal under their own policies. That is a servicer question, not a legal right.
What credit score and income do you need?
Short answer: conventional approvals are driven by an automated underwriting decision that weighs credit, debt, income stability, assets and the loan-to-value ratio together — not by a single cutoff. Credit matters more than on the government programs, because pricing is tied directly to it.
Credit
Fannie Mae and Freddie Mac each publish eligibility standards, and lenders may add their own requirements on top. Two things are worth understanding:
- Credit score affects price, not just approval. Conventional loans use risk-based pricing adjustments that combine your score with your loan-to-value ratio. A stronger score can lower your rate rather than merely getting you a yes.
- Any specific minimum you are quoted may be a lender overlay. Lenders can and do require more than the agencies. If you are declined near a threshold, the same file is worth a second opinion.
We have deliberately not published a single minimum credit score on this page. The number people repeat online is a common lender practice rather than a universal rule, and printing it would mislead as often as it helps. Ask a lender to run your actual file.
Debt-to-income
Your debt-to-income ratio compares total monthly debt payments to gross monthly income. Conventional underwriting evaluates it through the automated system alongside compensating factors such as reserves, credit depth and down payment size, rather than applying one hard ceiling to every file. A ratio that fails with thin reserves can pass with strong ones.
Income and assets
- Income generally needs a documented, stable history, typically reviewed over about two years, with self-employed borrowers documenting through tax returns.
- Assets must be sourced and seasoned. Expect to document where the down payment and closing costs came from.
- Reserves — money left after closing — may be required depending on the file, the property type and the occupancy. They are frequently required on second homes, investment properties and multi-unit purchases.
Talk through where conventional financing actually lands for you
Down payment, mortgage insurance and pricing all move together on a conventional loan. A short conversation can show you what the trade-offs look like on your numbers.
This is not a commitment to lend. All loans subject to credit approval.
What can you buy with a conventional loan?
This is where conventional financing separates itself decisively from FHA, VA and USDA. All three government programs are limited to a primary residence. Conventional is not.
| Occupancy | Conventional | FHA, VA and USDA |
|---|---|---|
| Primary residence | Yes | Yes |
| Second home | Yes | No |
| Investment property | Yes | No |
Expect larger down payments and stricter terms as you move down that table. Second homes and investment properties carry their own down payment minimums, pricing adjustments and reserve requirements, and the low-down-payment programs above do not apply to them.
On property type, conventional financing covers single-family homes, townhomes, condominiums, planned unit developments and one-to-four-unit properties. The 3%-down programs are narrower: Fannie Mae’s 97% options are limited to a one-unit principal residence, while Freddie Mac’s Home Possible extends to 1–4 units, condos, co-ops and PUDs, with manufactured housing eligible subject to restrictions.
Condos and townhomes in Maryland
Townhomes are usually straightforward — they are ordinarily financed much like a detached house, and in Maryland’s inner suburbs and Baltimore neighbourhoods they represent a large share of the entry-level market.
Condominiums are the exception that catches buyers out. With a condo, the lender reviews the project as well as the borrower: budget and reserves, owner-occupancy mix, the proportion owned by any single entity, litigation, and insurance. A perfectly qualified buyer can be declined because of the association rather than anything on their own file.
Ask about the condo project before you fall in love with the unit
Project review is the single most common avoidable surprise in Maryland condo purchases. Ask your lender to look at the project early, particularly for smaller associations, buildings with significant deferred maintenance, or projects with a high share of rentals. Finding out at underwriting costs you the deal and the appraisal fee.
Gift funds and seller contributions
Short answer: gift funds are widely permitted on conventional loans for a principal residence, and sellers may contribute toward your closing costs — but the seller contribution is capped on a sliding scale tied to your occupancy and down payment.
How much a seller can contribute
| Occupancy | Loan-to-value | Maximum contribution |
|---|---|---|
| Principal residence or second home | Greater than 90% | 3% |
| Principal residence or second home | 75.01% to 90% | 6% |
| Principal residence or second home | 75% or less | 9% |
| Investment property | All ratios | 2% |
Note the direction of that scale, because it is counter-intuitive: the less you put down, the less a seller is allowed to contribute. A buyer at 3% down — the one most likely to need help with closing costs — is capped at 3%.
There is a second limit worth knowing. Financing concessions must not exceed the borrower’s actual closing costs; anything beyond that is treated as a sales concession and reduces the value the loan is based on. A seller cannot simply hand you the surplus.
On the 3%-down programs specifically, Fannie Mae permits the down payment to come from a range of sources including gifts, grants and Community Seconds, with no minimum contribution required from the borrower’s own funds under HomeReady.
Using Maryland assistance with a conventional loan
A conventional loan can serve as the first mortgage under the Maryland Mortgage Program, so eligible buyers may be able to combine conventional financing with Maryland down payment and closing cost assistance rather than choosing between them.
Two things make this pairing work particularly well with conventional financing:
- The 3%-down programs already permit assistance from third-party sources, and the low-down-payment structures contemplate a subordinate lien, with combined loan-to-value allowed up to 105% where the second is an eligible Community Seconds or Affordable Seconds loan.
- Reduced mortgage insurance coverage under HomeReady can lower the monthly cost at exactly the loan-to-value ratios assistance programs are designed to reach.
MMP applies its own income limits, purchase price limits, homebuyer education requirement and credit standards on top of the agency rules, so it is worth pricing both routes rather than assuming. Our Maryland down payment assistance guide covers the state, county and city programs in detail.
Maryland homebuyer tip: the first-time buyer transfer tax break
Maryland charges a state transfer tax of 0.5% of the consideration. On a sale of improved residential property to a first-time Maryland home buyer who will occupy it as a principal residence, the rate drops to 0.25% and the transfer tax is paid entirely by the seller.
The statutory definition counts only prior ownership of a principal residence in Maryland. County transfer and recordation taxes are set separately by each county and are unaffected.
Conventional vs. FHA, VA and USDA in Maryland
| Feature | Conventional | FHA | VA | USDA |
|---|---|---|---|---|
| Minimum down | 3% to 5% | 3.5% | 0% | 0% |
| Mortgage insurance | PMI, removable | Usually life of loan | None | Annual fee, life of loan |
| Credit emphasis | Highest | More flexible | Lender-set | Lender-set |
| Location restriction | None | None | None | Designated areas only |
| Income cap | Only on 3% programs | None | None | Yes |
| Who can use it | Anyone who qualifies | Anyone who qualifies | Eligible military only | Anyone who qualifies |
| Occupancy | Primary, second, investment | Primary only | Primary only | Primary only |
When conventional is usually the better choice
- Your credit is solid. Conventional rewards it in pricing; FHA largely does not.
- You can put down 5% or more, where PMI costs fall and the removal path shortens.
- You plan to stay long enough for removable PMI to beat life-of-loan FHA insurance.
- You are buying a second home or an investment property, where it is the only option of the four.
- You are buying a multi-unit property as an investment rather than as your residence.
When another program is likely stronger
- You are an eligible veteran or service member. VA financing offers zero down with no ongoing mortgage insurance at all, which conventional cannot match. See our Maryland VA loans guide.
- Your credit is still recovering. FHA is generally more accommodating, and because conventional pricing is risk-based, a weaker score costs more on conventional than the headline rate suggests.
- You have very little saved and the property is in a USDA-designated area, where zero down may be available subject to household income limits. See our Maryland USDA loans guide.
- You need maximum flexibility on debt ratios or past credit events, where the government programs often have more room.
For a side-by-side view of all four, see the Maryland loan programs overview.
See what conventional financing looks like on a real Maryland purchase
Getting pre-approved tells you your actual rate, payment and mortgage insurance cost, and whether a low-down-payment option applies to you.
This is not a commitment to lend. All loans subject to credit approval.
Beyond a standard purchase: refinance, renovation and new construction
Conventional financing is not only a purchase product, and several of its other uses are the reason buyers choose it in the first place.
Refinancing
Conventional refinances generally fall into two categories. A rate-and-term refinance changes your rate or term without taking cash out. A cash-out refinance converts equity into cash and is subject to tighter loan-to-value limits and pricing.
There is a third reason Maryland owners refinance that is easy to overlook: removing mortgage insurance. If you hold an FHA loan with life-of-loan insurance and your credit and equity have improved, refinancing into a conventional loan can end the insurance entirely. Whether it pays depends on the rate you would be giving up, so it is a calculation rather than an assumption. Our Maryland refinance options guide covers the wider picture.
Renovation financing
Both agencies offer renovation products — Fannie Mae’s HomeStyle Renovation and Freddie Mac’s CHOICERenovation — which let eligible borrowers finance improvements as part of the mortgage, with the loan based on the property’s value after the planned work rather than its condition on the day you buy.
This matters in Maryland’s older housing stock, where a sound house with a dated kitchen or an ageing roof is a common find. Availability varies considerably by lender, though: plenty of lenders that offer conventional financing do not offer renovation lending, so it is worth asking specifically rather than assuming.
New construction
Conventional financing is routinely used for new construction. In most Maryland transactions the builder carries the construction financing and you take conventional permanent financing at completion, which is why your rate lock strategy matters more on a new build than on a resale. Some lenders also offer single-close construction products, but these are a specialist offering rather than a standard one.
Buying before you sell
A frequent Maryland situation, particularly for move-up buyers in the Baltimore and Washington suburbs. There are generally three routes: qualify while carrying both mortgage payments, use bridge financing against your current equity, or make the purchase contingent on your sale — which is the weakest position in a competitive market.
Which is realistic depends on your ratios, your reserves and how a lender treats the home you are leaving. It is worth working out before you list, not after you are under contract on both.
How does the conventional loan process work?
- Get pre-approved. Credit, income and assets are reviewed, and you find out which down payment options you actually qualify for.
- Set your budget against the right loan limit for the county you are buying in.
- Shop, and ask about condo project eligibility early if you are considering a condominium.
- Go under contract, negotiating seller contributions within the applicable cap.
- Appraisal and inspections. The appraisal protects the lender; get your own inspection regardless.
- Underwriting, including verification of assets, income and any gift documentation.
- Clear to close, then settlement.
What to have ready
- Recent pay stubs and W-2s, or two years of tax returns if self-employed
- Recent bank and asset statements, with any large deposits explainable
- A gift letter and donor documentation if any funds are gifted
- Details of any subordinate financing or assistance you plan to use
- For a condo, the association’s budget and contact details for project review
For the full Maryland buying process from planning through settlement, see Buying a Home in Maryland. If you are earlier than that, Start Here covers the basics, and the free Maryland first-time homebuyer workshop walks through financing end to end. If you already own and are weighing your options, see Maryland refinance options.
Maryland conventional loan FAQ
Is a conventional loan the same as a conforming loan?
No. Conventional means the loan is not backed by a government program such as FHA, VA or USDA. Conforming means it meets Fannie Mae and Freddie Mac standards including the county loan limit. Every conforming loan is conventional; a conventional loan above the limit is a jumbo loan and is no longer conforming.
What is the conventional loan limit in Maryland for 2026?
$832,750 for a one-unit home in most of the state. Montgomery, Prince George’s, Frederick and Charles counties are at $1,249,125, and Calvert County is at $1,209,750. Limits are higher for two-, three- and four-unit properties.
Can you get a conventional loan with 3% down?
Yes, through programs such as Fannie Mae’s HomeReady or standard 97% LTV option, or Freddie Mac’s Home Possible. Each has its own eligibility rules, so qualifying for 3% down is not automatic.
Do you have to be a first-time buyer to put 3% down?
Only on some options. Fannie Mae’s standard 97% LTV option requires at least one borrower to be a first-time homebuyer but has no income limit. HomeReady has no first-time buyer requirement but caps qualifying income at 80% of area median income.
When can PMI be removed from a conventional loan?
You may request cancellation when the balance is scheduled to reach 80% of the home’s original value, and the servicer must terminate it automatically at 78% if you are current. Coverage also ends the month after the midpoint of the amortisation schedule.
How is conventional PMI different from FHA mortgage insurance?
Conventional PMI is designed to be removed, with federal cancellation rights. On most FHA loans with a low down payment, the premium stays for the life of the loan and the only way off it is to refinance out of FHA.
What credit score do you need for a conventional loan?
There is no single number that applies to every borrower. Conventional approvals come from an automated underwriting assessment, lenders may add their own requirements, and your score affects pricing as well as approval. A file declined near a threshold is worth a second opinion.
Can a seller pay my closing costs on a conventional loan?
Yes, within limits tied to occupancy and down payment: 3% above 90% loan-to-value, 6% between 75.01% and 90%, 9% at 75% or less, and 2% on investment properties. Contributions also cannot exceed your actual closing costs.
Can gift funds be used for the down payment?
Yes, on a principal residence, with documentation including a gift letter and evidence of the transfer. Under HomeReady there is no minimum contribution required from the borrower’s own funds.
Can conventional financing be used for a second home or rental?
Yes, and it is the only one of the four main programs that can. FHA, VA and USDA are limited to a primary residence. Expect larger down payments, pricing adjustments and reserve requirements.
Can conventional financing be used with Maryland down payment assistance?
A conventional loan can serve as the first mortgage under the Maryland Mortgage Program. MMP’s own income, purchase price, education and credit requirements apply on top of the agency rules.
Why do condos get declined when the buyer qualifies?
Because the lender reviews the condominium project as well as the borrower, looking at budget and reserves, owner-occupancy mix, concentration of ownership, litigation and insurance. Ask your lender to review the project early.
Is conventional always better than FHA?
No. Conventional usually wins on a solid credit profile and a longer hold, largely because PMI can be removed. FHA is often better where credit is still recovering, since conventional pricing is risk-based and a weaker score costs more than the headline rate suggests.
Sources
- Federal Housing Finance Agency — conforming loan limit values for 2026, full county list (Maryland one-unit through four-unit values; national baseline and high-cost ceiling).
- Fannie Mae — 97% loan-to-value options and HomeReady eligibility(first-time homebuyer requirement on the standard option, HomeReady income limit of 80% of area median income, mortgage insurance coverage, homeownership education requirements, one-unit principal residence eligibility, combined loan-to-value up to 105% with Community Seconds).
- Fannie Mae Selling Guide B5-6-01 — HomeReady Mortgage(3% down payment, no minimum borrower contribution, eligibility for first-time and repeat homebuyers, permitted funding sources).
- Fannie Mae Selling Guide B3-4.1-02 — Interested Party Contributions(maximum financing concessions by occupancy and loan-to-value, and the rule that concessions may not exceed the borrower’s closing costs).
- Freddie Mac — Home Possible(3% down payment, 97% loan-to-value and 105% total loan-to-value with Affordable Seconds, qualifying income limited to 80% of area median income, eligible property types).
- Consumer Financial Protection Bureau — private mortgage insurance cancellation and termination rights, including the 80% request right, 78% automatic termination, midpoint termination and the conditions that apply.
- Maryland Code, Tax-Property § 13-203 state transfer tax rate, the reduced first-time Maryland home buyer rate, who pays it, and the statutory definition of a first-time Maryland home buyer.
- Maryland Department of Housing and Community Development — Maryland Mortgage Program eligible first-mortgage types.
Figures verified August 22, 2026. Loan limits, agency guidelines and mortgage insurance rules all change. Re-check before relying on any figure here.
This page explains how conventional mortgage financing generally works for Maryland buyers. It does not determine individual eligibility, is not a commitment to lend, and is not a Loan Estimate. Program guidelines are set by Fannie Mae and Freddie Mac, and individual lenders may apply additional requirements. Maryland Homebuyer Hub is not affiliated with, endorsed by, or acting on behalf of any government agency.