Conventional loans are the most widely used mortgage type in the Philadelphia market, and they offer flexibility that government-backed programs cannot match: higher loan limits, cancellable mortgage insurance, lower long-term cost for buyers with solid credit, and fewer property condition requirements that can complicate closings on older rowhouses. For buyers who qualify, a conventional loan is often the most cost-effective mortgage structure over a typical hold period.
But "conventional" is not a single product. It covers a range of programs -- from Fannie Mae HomeReady at 3% down designed for first-time and low-to-moderate income buyers, to standard conforming loans at 5-20% down, to jumbo loans above the 2026 conforming limit of $806,500. The right conventional structure depends on your credit score, down payment, income, property type, and whether the property is a primary residence, second home, or investment purchase.
This guide covers what makes a loan "conventional," the 2026 conforming loan limit for Philadelphia County, how conventional compares to FHA and VA financing, PMI in detail, down payment tiers and their cost implications, credit score requirements, Philadelphia-specific appraisal considerations, and how conventional loans handle condos and investment properties. For the broader purchase timeline, see our Philadelphia mortgage pre-approval guide.
What is a conventional loan?
A conventional loan is any mortgage that is not insured or guaranteed by a federal government agency. FHA loans are insured by the Federal Housing Administration. VA loans are guaranteed by the Department of Veterans Affairs. USDA loans are backed by the Department of Agriculture. Conventional loans carry none of these government backstops -- they are funded by private lenders and are either held in portfolio by the originating lender or sold to Fannie Mae (Federal National Mortgage Association) or Freddie Mac (Federal Home Loan Mortgage Corporation), the two government-sponsored enterprises that operate the secondary mortgage market.
The vast majority of conventional loans are originated to be sold to Fannie Mae or Freddie Mac. When a loan meets Fannie Mae or Freddie Mac's purchase requirements -- loan amount, credit score, debt-to-income ratio, property type, and underwriting standards -- it is called a conforming loan. Loans that exceed the conforming loan limit are jumbo loans, which must be held in portfolio by the lender or sold to private investors rather than Fannie or Freddie. Jumbo loans carry their own underwriting standards that are typically more stringent than conforming guidelines.
Because conventional loans lack government insurance, lenders manage their default risk through underwriting standards: higher minimum credit scores, documented income and assets, and appraisal-based loan-to-value limits. Private mortgage insurance (PMI) fills the role that government insurance plays in FHA loans -- it protects the lender if the borrower defaults with less than 20% equity. Unlike FHA's mortgage insurance premium, however, conventional PMI is cancellable when equity reaches 20%, which makes conventional loans less expensive over a long hold period for borrowers who meet the credit and down payment requirements.
2026 conforming loan limit for Philadelphia County
The Federal Housing Finance Agency (FHFA) sets the conforming loan limit annually based on changes in average home prices nationally. Philadelphia County is not designated as a high-cost area by the FHFA, so it uses the baseline national conforming loan limit. For 2026, the baseline conforming loan limit for a single-family property is $806,500. This limit applies to Philadelphia County and all surrounding Pennsylvania counties that are not designated as high-cost areas.
| Property Type | 2026 Conforming Loan Limit (Philadelphia County) | Market Coverage |
|---|---|---|
| Single-family (1 unit) | $806,500 | Covers nearly all Philadelphia rowhouse and twin transactions |
| 2-unit (duplex) | $1,032,650 | Covers the majority of legal 2-unit rowhouses across the city |
| 3-unit | $1,248,150 | Covers most legal 3-unit conversions at current market prices |
| 4-unit | $1,551,250 | Covers most legal 4-unit properties in the Philadelphia market |
The single-family conforming limit of $806,500 covers effectively the entire Philadelphia rowhouse market. Even in the city's most expensive neighborhoods -- Rittenhouse Square, Society Hill, Old City, and the higher-end pockets of Fishtown and East Passyunk -- the majority of rowhouse transactions remain below $806,500. Buyers who need a loan above this threshold are in jumbo territory, which means stricter underwriting, higher down payment requirements (typically 20-30%), and rates that may be modestly higher or lower than conforming rates depending on market conditions.
Conforming vs. jumbo: the practical distinction
The conforming/jumbo distinction matters practically in two ways. First, conforming loans are underwritten to Fannie Mae or Freddie Mac guidelines, which are standardized and widely applied by all lenders -- if you qualify for a conforming loan with one lender, you will qualify with most others, and you can comparison shop effectively. Jumbo loans are portfolio products: each lender sets their own underwriting guidelines, reserve requirements, and pricing. A buyer who qualifies for a jumbo loan with one lender may not qualify with another whose guidelines are more conservative. Second, conforming loans have access to a deeper secondary market, which historically has produced more competitive pricing than jumbo products during periods of market stress.
Conventional vs. FHA vs. VA comparison
The right loan type for a Philadelphia buyer depends on the combination of their credit profile, down payment, prior military service, property type, and how long they intend to hold the property. Here is how the three main loan types compare across the dimensions that matter most:
| Feature | Conventional | FHA | VA |
|---|---|---|---|
| Minimum down payment | 3% (HomeReady / Home Possible); 5% standard | 3.5% (580+ credit); 10% (500-579 credit) | 0% (no down payment required) |
| Minimum credit score | 620 typical; 740+ for best rates | 500 FHA floor; most lenders 580-620 | No VA minimum; most lenders 580-620 |
| Mortgage insurance | PMI required below 20% down; cancellable at 80% LTV | MIP for life of loan (<10% down); drops after 11 years if 10%+ down | No PMI or MIP; one-time funding fee (waived for disabled vets) |
| Loan limit (Philadelphia 2026) | $806,500 conforming; above is jumbo | $524,225 single-family | No statutory loan limit for eligible veterans with full entitlement |
| When it tends to be best | 620+ credit, 5%+ down, long hold period where PMI cancellability matters | Lower credit (580-679), minimal down payment, higher DTI | Eligible veterans and surviving spouses; best 0-down option with no PMI |
For an eligible veteran purchasing in Philadelphia, the VA loan almost always wins on total cost: no down payment, no PMI, competitive rates, and a single upfront funding fee that is often lower over the loan life than years of FHA MIP. For non-veterans with 620+ credit and 5-10% down, conventional is typically better than FHA for buyers who plan to hold for more than five to seven years -- the PMI cancellability becomes the deciding factor. For buyers with credit scores below 680 and minimal down payments, FHA's more flexible qualification standards and lower PMI equivalent cost at lower credit tiers may produce the lower payment. See our Philadelphia FHA loan guide and Philadelphia VA loan guide for full detail on each program.
Conventional vs. FHA: the detailed comparison
For the many Philadelphia buyers who are choosing specifically between conventional and FHA financing, the differences across eight key dimensions determine which program produces the better outcome:
| Dimension | Conventional | FHA |
|---|---|---|
| Minimum down payment | 3% (HomeReady / Home Possible); 5% standard conventional | 3.5% with 580+ credit score |
| Minimum credit score | 620 (most lenders); 740+ for best pricing | 500 FHA floor; most lenders require 580-620 |
| Mortgage insurance | PMI cancellable at 80% LTV; auto-cancels at 78% LTV | MIP permanent for life of loan if <10% down; drops after 11 years if 10%+ down |
| Loan limits (Philadelphia 2026) | $806,500 single-family conforming; jumbo above that | $524,225 single-family; cannot exceed regardless of down payment |
| Seller concessions allowed | 3% (<10% down); 6% (10-25% down); 9% (25%+ down) | 6% of purchase price regardless of down payment |
| DTI limit | 45% max; up to 50% with compensating factors via AUS | Up to 57% with AUS approval |
| Appraisal standards | Value-focused; no government minimum property requirements (MPRs); appraiser flags safety items but no pre-closing repair mandate | FHA appraiser certifies MPR compliance; property condition deficiencies must be remediated before closing |
| Condo approval | Standard condo review (warrantable vs. non-warrantable); no government project approval required | Project must be FHA-approved or qualify for single-unit approval; eliminates many Philadelphia condo associations |
The appraisal standards difference is particularly meaningful for older Philadelphia properties. FHA minimum property requirements mean the appraiser can require sellers to fix deteriorated paint, roof deficiencies, unsafe mechanicals, and other habitability issues before the loan funds. Conventional appraisers assess value, not property condition in the same mandatory sense -- a seller and buyer can negotiate repairs or credits without the appraiser's conditions blocking the closing. For distressed properties, estate sales, and fixers in older Philadelphia neighborhoods, conventional financing gives buyers far more flexibility to negotiate as-is or with post-closing repair credits.
Down payment tiers and PMI implications
The down payment percentage a buyer brings to a conventional loan determines the loan-to-value ratio, which drives PMI eligibility, PMI cost, and the timeframe to PMI cancellation. Here are the four common down payment tiers for a conventional purchase in Philadelphia:
| Down Payment | LTV at Origination | PMI Required? | Approximate PMI Cost (annual, on $300k purchase) | Notes |
|---|---|---|---|---|
| 3% ($9,000 on $300k) | 97% | Yes | $2,400-$3,600/yr ($200-$300/mo) | HomeReady / Home Possible only; income and first-time buyer restrictions apply |
| 5% ($15,000 on $300k) | 95% | Yes | $1,800-$3,300/yr ($150-$275/mo) | Standard conventional available to all buyers; most common entry point |
| 10% ($30,000 on $300k) | 90% | Yes | $900-$2,400/yr ($75-$200/mo) | Lower PMI rate; seller concession cap rises to 6%; PMI cancels faster |
| 20% ($60,000 on $300k) | 80% | No | None | No PMI; lower monthly payment; best rate pricing for most lenders |
The PMI cost range is wide because the rate varies by credit score, LTV, and the PMI product type (borrower-paid monthly PMI vs. lender-paid PMI rolled into the rate vs. single-premium PMI paid upfront at closing). A buyer with a 760 credit score putting 10% down will pay materially less in PMI than a buyer with a 640 credit score putting 5% down, even on the same purchase price. Ask your lender to show you the PMI rate grid for your specific credit score and LTV before finalizing your down payment strategy.
Private mortgage insurance (PMI) explained
PMI is private insurance that protects the lender -- not the borrower -- if the borrower defaults on a loan with less than 20% equity. Unlike FHA MIP, which is paid to the federal government and is set by FHA rules, PMI is priced by private insurance companies and varies based on credit score, LTV, loan term, and property type.
PMI cost range
PMI typically costs between 0.2% and 1.5% of the loan amount per year. The range is wide and the actual rate depends primarily on LTV (lower LTV means lower PMI rate) and credit score (higher score means lower PMI rate). A buyer with a 760 credit score putting 10% down might pay 0.30-0.45% annually. A buyer with a 640 credit score putting 5% down might pay 1.0-1.4% annually. On a $285,000 loan (5% down on a $300,000 purchase), the difference between 0.35% and 1.20% PMI is $2,422.50 vs. $3,420 per year -- a $997 annual difference driven entirely by credit score. This is the practical reason why improving a credit score from the 640s to the 760s before applying for a conventional loan can save a Philadelphia buyer several thousand dollars per year in mortgage costs.
PMI cancellation: the key advantage over FHA
The Homeowners Protection Act (HPA) governs PMI cancellation on conventional loans. There are two cancellation mechanisms:
- Borrower-requested cancellation at 80% LTV: Once the loan balance falls to 80% of the original purchase price through principal paydown and/or the lender accepts an appraisal showing the property's value has increased, the borrower can request PMI cancellation. The lender must cancel PMI when the request is made, the loan is current, and the borrower has a satisfactory payment history. An appraisal is typically required to document increased value if the borrower is relying on appreciation rather than principal paydown alone.
- Automatic cancellation at 78% LTV: The HPA requires lenders to automatically cancel PMI -- without any request from the borrower -- when the loan balance falls to 78% of the original purchase price based on the original amortization schedule. This happens through normal principal paydown regardless of market appreciation. On a 30-year conventional loan at 7%, it takes approximately 11-12 years of payments to reach 78% LTV on a 95% LTV loan through amortization alone. In an appreciating market like Philadelphia's, requesting cancellation based on increased property value can accelerate this significantly.
On a typical Philadelphia rowhouse that appreciates 4-6% per year, a buyer who starts at 95% LTV might reach 80% LTV through a combination of appreciation and principal paydown in five to seven years -- at which point requesting PMI cancellation with a new appraisal can eliminate hundreds of dollars per month in PMI cost. This stands in sharp contrast to FHA loans originated with less than 10% down, where MIP is permanent regardless of equity growth unless the loan is refinanced.
Credit score requirements by down payment tier
Conventional loan underwriting uses risk-based pricing: the combination of credit score and LTV determines the interest rate and PMI cost. Here is the practical impact by tier:
| Credit Score Range | Minimum Down Payment Available | Rate Impact vs. 760+ Score | PMI Rate Impact |
|---|---|---|---|
| 760 and above | 3% (HomeReady/Possible); 5% standard | Best available pricing | Lowest PMI tier |
| 740-759 | 3-5% | Minimal premium vs. 760+ | Near-lowest PMI |
| 720-739 | 3-5% | Modest rate premium (+0.10-0.25%) | Moderate PMI increase |
| 700-719 | 3-5% | Noticeable rate premium (+0.25-0.50%) | Elevated PMI rate |
| 680-699 | 5% (most lenders) | Material rate premium (+0.50-0.75%) | High PMI rate; FHA comparison often warranted |
| 620-679 | 5% (some lenders); 10%+ preferred | Significant rate premium (+0.75-1.25%) | Highest conventional PMI; FHA frequently cheaper |
The crossover point where FHA becomes cheaper than conventional -- on a total monthly payment basis -- is roughly in the 640-680 credit score range for a buyer with 5% or less down. Below that threshold, FHA's standardized MIP rates and more flexible underwriting often produce a lower payment despite the absence of PMI cancellability. Above 680-700 with 10% or more down, conventional typically wins on monthly cost and long-term total cost. Have your lender run both scenarios at your actual credit score and down payment before committing to a loan type.
DTI limits for conventional loans
Debt-to-income ratio (DTI) is the ratio of all monthly debt obligations to gross monthly income. Conventional underwriting has two DTI limits: the front-end ratio (housing costs only -- principal, interest, taxes, insurance, and HOA fees divided by gross monthly income) and the back-end ratio (all monthly debts including the new housing payment divided by gross monthly income). The back-end DTI is the binding constraint in most conventional underwriting scenarios.
The standard maximum back-end DTI for conventional conforming loans is 45%. With strong compensating factors -- high credit score (740+), significant cash reserves (12+ months of housing payment in liquid assets after closing), or a low LTV -- Fannie Mae's and Freddie Mac's automated underwriting systems (DU and LP respectively) can approve back-end DTIs up to 50%. These are not guaranteed approvals: the AUS makes the determination based on the full risk profile of the loan file. A buyer with a 740 credit score, 20% down, and 18 months of reserves will have much more DTI flexibility in AUS than a buyer with a 640 credit score, 5% down, and no reserves beyond the minimum required.
Philadelphia's 4.278% transfer tax adds a wrinkle to DTI analysis: the transfer tax is paid in cash at closing and does not affect monthly DTI, but it reduces the liquid assets available for reserves. A buyer whose DTI approval depends on demonstrating 12 months of reserves must hold those reserves after paying the transfer tax and all other closing costs. See our Philadelphia closing costs guide for a full cash-to-close calculation that factors in transfer tax and all settlement costs.
First-time buyer conventional programs
Fannie Mae HomeReady
HomeReady is Fannie Mae's reduced-cost conventional mortgage program for low-to-moderate income buyers. Key features:
- 3% minimum down payment on primary residences; the down payment can come entirely from gift funds, grants, or down payment assistance programs
- Reduced PMI rates: HomeReady borrowers pay lower PMI than standard conventional, which partially offsets the higher LTV at origination
- Income limits: Borrower income must be at or below 80% of the area median income (AMI) for the census tract where the property is located. Philadelphia's AMI varies by neighborhood; many Philadelphia census tracts are eligible. Fannie Mae's HomeReady income lookup tool at fanniemae.com/homeready allows you to enter any address and check income eligibility before applying
- First-time buyer requirement: Not required -- HomeReady is available to repeat buyers who meet the income limit, though at least one borrower must complete a homeownership education course (HUD-approved online course, approximately 4-6 hours)
- Multi-unit properties: HomeReady is available for 1-unit primary residences and, with additional requirements, for 2-4 unit properties where the borrower occupies one unit
Freddie Mac Home Possible
Home Possible is Freddie Mac's parallel program to HomeReady, with broadly similar terms: 3% down, reduced PMI, 80% AMI income limit for all borrowers on the loan, and a required homeownership education course for first-time buyers. The main practical difference between HomeReady and Home Possible is which automated underwriting system the lender uses (Fannie Mae's DU vs. Freddie Mac's LP) -- the borrower outcome is usually comparable. Some lenders specialize in one or the other; ask your lender which program their underwriting system supports most efficiently for your file.
HomeReady and Home Possible with Philadelphia down payment assistance. Both programs are specifically designed to accept down payment assistance from grants, gifts, and second-mortgage DPA programs. Philadelphia buyers using city and state assistance programs -- including PHFA's Keystone Advantage loan and PHDC programs -- can layer that assistance with HomeReady or Home Possible to achieve 0% or near-0% out-of-pocket down payment on a conventional loan. This combination avoids FHA's permanent MIP while still achieving a minimal down payment. Ask a PHFA-approved lender to model the HomeReady or Home Possible structure with available DPA programs for your income and target price range.
Gift funds on conventional loans
Conventional loan rules on gift funds depend on the down payment percentage:
- 20% or more down payment: Gift funds may constitute 100% of the down payment. No minimum borrower contribution from the borrower's own funds is required. The gift must come from an acceptable source (family member, domestic partner, or fiancee) and must be documented with a gift letter confirming no repayment obligation.
- Less than 20% down: At least some portion of the minimum borrower contribution must come from the borrower's own funds. Fannie Mae requires that for LTVs above 80%, if the down payment exceeds 3% (for HomeReady) or 5% (standard conventional), the portion above the minimum must be documented as the borrower's own funds. The exact sourcing requirements depend on down payment percentage and loan type -- your lender will specify the minimum own-funds requirement for your scenario.
- Investment properties: Gift funds are not permitted on investment property purchases. The entire down payment must come from the borrower's own documented funds.
All gift funds must be documented with a gift letter and sourced in bank statements showing the donor's ability to give. Lenders are required to verify that gift funds are not disguised loans. A transfer from a relative's account to the borrower's account within 60 days of application will be flagged for sourcing documentation.
Philadelphia-specific appraisal considerations
Conventional appraisals are value-focused: the appraiser's job is to estimate market value using the sales comparison approach, not to certify government minimum property requirements as FHA appraisers must do. But Philadelphia's distinctive housing stock creates appraisal dynamics that conventional buyers should understand before going under contract.
Rowhouse appraisals and party wall disclosures
Philadelphia rowhouses are appraised using comparable rowhouse sales in the same neighborhood or adjacent comparable neighborhoods. The party wall structure -- shared masonry walls between attached properties -- does not itself create an appraisal issue, but the party wall disclosure in the Pennsylvania Agreement of Sale does create a documentation requirement. Pennsylvania's standard Agreement of Sale includes a party wall disclosure addendum acknowledging the shared wall structure, and the conventional appraiser will note the property type accurately in the report. What can create an appraisal complication is a party wall that shows visible evidence of distress from an adjacent deteriorated property: significant through-wall cracking, bowing, or evidence of movement. A conventional appraiser who observes structural distress is likely to note it as a condition affecting value or marketability even without the MPR mandate of an FHA appraisal. See our Philadelphia home inspection guide for party wall evaluation guidance.
Open permits and appraisal value
Open building permits that have not been finalized (received a passing L&I inspection) can affect a conventional appraisal in one of two ways. First, unpermitted work that was completed without a final inspection may be noted by the appraiser as a condition of concern -- particularly if the work is structural (a rear addition, a finished basement, a converted attic) or if it affects the property's gross living area (GLA) calculation. If an appraiser cannot count unpermitted space as GLA because the permit was not finaled, the appraised value may come in below contract price. Second, an open permit may create a title issue that affects the lender's ability to fund the loan. See our Philadelphia open permits guide for how to research permit status before making an offer and how to negotiate permit resolution as a contract condition.
Lead paint in pre-1978 homes
Conventional loans do not have the same mandatory lead paint minimum property requirements that FHA loans impose. A conventional appraiser is not required to call out deteriorated paint as a condition requiring pre-closing remediation in the same way an FHA appraiser is. However, a conventional appraiser can still flag visibly hazardous conditions -- severely deteriorated paint with obvious lead paint hazard exposure, particularly in a property with young children as stated occupants -- as a condition affecting value or habitability. The more practical lead paint risk for conventional buyers in Philadelphia is the Pennsylvania residential real property disclosure obligation under the Residential Disclosure Law: sellers are required to disclose known lead paint hazards, and buyers have the right to a 10-day inspection period for lead paint testing before going under contract. Conventional financing does not waive this right or the seller's disclosure obligation -- it simply removes the mandatory pre-closing remediation requirement that FHA imposes. Know your inspection contingency rights before waiving lead paint inspection periods on any pre-1978 Philadelphia property.
Run a Flagstone report before any offer. Open L&I permits that were never finaled are one of the most common issues that create appraisal complications and closing delays on Philadelphia conventional purchases. A permit pulled for a rear addition in 2007 that was never inspected is an open permit that will appear in the Atlas database and may create appraisal and title issues. Pull the permit history for any target property before making an offer so you know what is open and can negotiate resolution as a contract condition. See our Philadelphia open permits guide for the full research protocol.
Conventional loans for investment properties and rentals in Philadelphia
Conventional loans are the primary financing tool for Philadelphia investors purchasing rental properties. The underwriting parameters differ from owner-occupied purchases in several important ways:
- Down payment requirements: Investment property purchases require a minimum of 15-20% down for single-family (most lenders require 20-25% in practice for optimal pricing), and 25% down for 2-4 unit non-owner-occupied purchases. There is no 3% or 5% minimum for investment properties -- the government-sponsored programs with low down payments are for owner-occupied primary residences only.
- Interest rate premium: Investment property conventional loans carry a pricing premium above owner-occupied purchase rates. This premium typically ranges from 0.5% to 1.0% in rate or equivalent points, reflecting the higher default risk on non-owner-occupied properties.
- Rental income qualifying: For investment property purchases, projected rental income from the subject property can be used to qualify (offset against the housing payment) if documented with a current lease or an appraiser's rent schedule. For properties with existing leases, 75% of the gross rent is counted as qualifying income (the 25% vacancy and expense factor is standard). For vacant properties, the appraiser provides a market rent estimate and 75% of that figure is used.
- Reserve requirements: Investment property loans typically require 6 months of principal, interest, taxes, and insurance (PITI) in liquid reserves after closing for the subject property, plus additional reserves for any other investment properties owned. This reserve requirement can be a binding constraint for investors who have concentrated all liquid capital in down payments.
- Portfolio limits: Fannie Mae and Freddie Mac limit the number of financed investment properties a single borrower can hold using conventional conforming financing (currently 10 total financed properties under Fannie Mae guidelines). Investors who exceed this limit must use portfolio lenders or commercial financing for additional acquisitions.
Condo financing: warrantable vs. non-warrantable
Conventional condo financing requires the condo project to be "warrantable" -- meeting Fannie Mae and Freddie Mac's project eligibility requirements. A warrantable condo is one that can be financed with a conforming conventional loan and sold into the secondary market. A non-warrantable condo cannot be sold to Fannie or Freddie and must be financed through a portfolio lender at typically higher rates and with more stringent requirements.
Warrantability requirements
Key Fannie Mae warrantability criteria include:
- No single entity (person, LLC, or company) may own more than 10% of the units in the project (except in new construction developments during the initial sales period)
- At least 51% of units must be owner-occupied or second-home units (not investor-owned rentals)
- No more than 15% of units may be more than 60 days delinquent on HOA assessments
- The HOA must maintain adequate hazard, liability, and fidelity insurance coverage
- No active or pending litigation that would materially affect the project's financial health or habitability
- The project must be complete and not subject to additional phasing that would change the structure of ownership
FNMA limited review and spot approval
Fannie Mae offers two review pathways for condo projects. Full review applies the complete warrantability checklist. Limited review is a streamlined process available for established projects with a strong history, where the lender certifies certain conditions without a full project review. For Philadelphia condo purchases, limited review is available on principal residence and second-home purchases at certain LTVs, providing a faster path to conventional financing than full review. Unlike FHA's single-unit approval (SUA) pathway -- which allows purchase of individual units in non-FHA-approved projects subject to specific criteria -- conventional limited review is only available for projects that do meet the warrantability criteria but qualify for expedited lender certification rather than full project documentation.
Non-warrantable condo situations in Philadelphia commonly arise in: small converted rowhouse associations with fewer than 8 units where investor ownership exceeds 10%, associations with pending HOA litigation, buildings where one investor has acquired multiple units creating concentration above the 10% threshold, and associations with inadequate reserves. For a non-warrantable condo, portfolio lenders -- including local community banks and credit unions -- can often provide financing at modestly higher rates. Confirm warrantability with your lender before going under contract on any Philadelphia condo by providing the HOA documents for a preliminary review.
Pre-application checklist for a Philadelphia conventional purchase
- Pull your credit reports and scores. Check all three bureaus (Equifax, Experian, TransUnion) before applying. Conventional pricing is highly credit-score-sensitive -- even 20 points can affect your rate and PMI cost materially. Identify and dispute any inaccuracies before applying. Allow 30-60 days for dispute resolution to be reflected in your score.
- Document your income for at least 24 months. Conventional underwriting requires two years of documented income. W-2 employees need two years of W-2s and recent pay stubs. Self-employed borrowers need two years of personal tax returns (and business returns if applicable) with the lender averaging qualifying income over the 24-month period. Changing employers in the 60-90 days before application is not disqualifying but requires explanation; changing from W-2 to self-employed requires a full two-year track record of self-employment income.
- Source and season all funds for down payment and closing costs. All funds used for closing must be sourced in bank statements from the prior 60 days. Large deposits that cannot be documented as payroll, asset transfers, or gifts with a gift letter will be questioned by underwriting. Season gift funds in your account for at least 60 days if possible, or document them with a full gift letter at application.
- Calculate your true cash-to-close including Philadelphia transfer tax. At 4.278% of purchase price, Philadelphia's combined transfer tax is a large closing cost item that many buyers underestimate. A $300,000 purchase requires $12,834 in transfer tax alone, before down payment, title, lender, and prepaid costs. See our Philadelphia closing costs guide for a full settlement cost estimate.
- Run a Flagstone report on every target property before making an offer. Check L&I violation history, open permits, rental license status, and 311 complaint data. Open permits in particular can create appraisal complications on conventional loans -- finding them before the offer lets you negotiate resolution as a contract condition rather than discovering them during underwriting.
- Get pre-approved (not just pre-qualified) before making offers. A pre-approval involves income documentation review, credit pull, and a preliminary underwriting assessment. A pre-qualification is an unverified estimate. In Philadelphia's competitive market, a pre-approval letter signals to sellers that you are a serious, verified buyer. See our Philadelphia mortgage pre-approval guide for what documents you will need.
- Evaluate HomeReady or Home Possible if your income qualifies. Check your income eligibility using Fannie Mae's HomeReady lookup tool before applying for a standard conventional loan. If you are within 80% AMI for your target neighborhood, the reduced PMI cost of HomeReady or Home Possible may be materially better than standard conventional PMI at 3-5% down.
- Request your home inspector to flag items that affect conventional appraisal value. Party wall conditions, open permit indicators (work without obvious permit finality), gross living area discrepancies between OPA records and actual condition -- these are value-affecting items under conventional appraisal standards. Ask your inspector to identify them explicitly.
- Confirm condo warrantability before going under contract on a condo unit. Ask the listing agent or HOA for the HOA bylaws, budget, reserve study, and meeting minutes before making any offer on a condo. Share these with your lender for a preliminary warrantability assessment before committing to a purchase price.
- Keep your financial profile stable from pre-approval to closing. No new credit lines, no large purchases financed with new credit, no job changes, no undocumented large account deposits between pre-approval and settlement. Conventional lenders re-verify employment and re-pull credit within days of closing; any material change in credit profile can trigger re-underwriting or, in serious cases, loan denial.
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Run a free reportFrequently asked questions about conventional loans in Philadelphia
What is the minimum credit score for a conventional loan in Philadelphia?
The minimum credit score for a conventional loan is 620 at most lenders. Buyers with scores of 740 or higher receive the best interest rates and lowest PMI premiums. At scores between 620 and 679, expect higher PMI rates and potentially slightly higher interest rates compared to the same loan with a 740+ score. If your credit score is in the 620-679 range, run a side-by-side comparison with FHA: at that score range, FHA may produce a lower monthly payment despite the absence of PMI cancellability.
Is PMI required forever on a conventional loan?
No. PMI on a conventional loan is not permanent. Lenders are required by the Homeowners Protection Act to automatically cancel PMI when the loan balance reaches 78% of the original purchase price based on the amortization schedule. Borrowers can also request PMI cancellation when equity reaches 20% (80% LTV) -- either through principal paydown, appreciation, or both -- and the lender must cancel it upon a valid request supported by a satisfactory payment history and, if relying on appreciation, a new appraisal. This is the key long-term cost advantage conventional loans hold over FHA financing, where MIP is permanent on loans originated with less than 10% down.
Can I use a conventional loan to buy a multifamily property in Philadelphia?
Yes. Conventional loans are available for 2-4 unit properties. For owner-occupied 2-4 unit purchases, conventional financing requires a higher down payment than for single-family homes: typically 15-20% for a 2-unit and 20-25% for 3-4 unit owner-occupied properties, though specific lender requirements vary. For investment property purchases (non-owner-occupied), conventional loans require 20-25% down depending on unit count and lender. Rental income from non-occupied units can be used to help qualify if properly documented with existing leases or an appraiser's rent schedule.
What is the minimum down payment for a conventional loan in Philadelphia?
The minimum down payment for a conventional loan on a primary residence is 3% through Fannie Mae HomeReady or Freddie Mac Home Possible, available to buyers who meet income limits (generally at or below 80% of area median income) or who are first-time buyers. Standard conventional loans require 5% down for most primary residence purchases. To eliminate PMI entirely, 20% down is required. On a $300,000 Philadelphia rowhouse, these tiers represent $9,000 (3%), $15,000 (5%), and $60,000 (20%) in down payment. For investment properties, the minimum is 20-25% regardless of program.