What Are Agency Loans? The Four Programs, Limits, and Costs

Agency loans are residential mortgages backed by a government-sponsored enterprise (Fannie Mae or Freddie Mac) or insured or guaranteed by a federal agency (FHA, VA, or USDA). That backing is what makes them “agency” loans, and it’s what keeps their interest rates lower and their qualification rules more uniform than mortgages without it. For 2026, the baseline conforming loan limit on a single-family home is $832,750, so most agency-backed conventional mortgages fall at or below that amount.¹

Why the Backing Matters

When a bank or mortgage company writes an agency loan, it usually doesn’t hold onto it. The lender sells the mortgage into the secondary market, where loans get bundled into mortgage-backed securities. Fannie Mae and Freddie Mac purchase conforming conventional loans and guarantee timely payment to the investors who buy those securities.² Because investors know the government-backed guarantee is there, they accept lower returns, and that shows up in your rate.

The other consequence is standardization. Agency loans follow written underwriting rules set at the agency level, so the process looks roughly the same whether you apply at a national bank or a small credit union. Loans that don’t meet agency guidelines, such as jumbo loans above the conforming limit, lack this backing, which is why they typically carry higher rates and tighter requirements.

The Four Programs and Who They’re For

“Agency loan” is an umbrella. Which agency stands behind your mortgage determines who can qualify and what it costs.

Conventional Conforming Loans

Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (the Federal Home Loan Mortgage Corporation) buy conventional conforming loans and set the underwriting rules lenders follow.² The Federal Housing Finance Agency oversees both and sets the loan limits each year.¹ These loans work for a broad range of borrowers and offer some of the lowest-down-payment conventional options through Fannie’s HomeReady and Freddie’s Home Possible programs.

FHA Loans

The Federal Housing Administration, part of HUD, insures mortgages issued by approved lenders. FHA is aimed at borrowers who may have lower credit scores or smaller savings, and its floor for credit and down payment is the lowest of the four programs.

VA Loans

The Department of Veterans Affairs guarantees mortgages for eligible service members, veterans, and certain surviving spouses. A VA loan requires a Certificate of Eligibility, which you can obtain after meeting the minimum service requirement of 90 continuous days of active duty.³ The signature feature is no down payment.

USDA Loans

USDA Rural Development guarantees mortgages for homebuyers in designated rural and suburban areas whose household income doesn’t exceed 115 percent of the area median. Like VA loans, USDA loans allow zero down.

2026 Loan Size Limits

The Housing and Economic Recovery Act of 2008 requires the FHFA to adjust conforming loan limits each year to track average home prices.¹ For 2026, the baseline limit on a one-unit property is $832,750 across most of the country. In designated high-cost areas, where median home values sit well above the national average, the ceiling rises to $1,249,125, which is 150 percent of the baseline.

If your loan needs to exceed the limit for your area, Fannie Mae and Freddie Mac can’t buy it, and it won’t qualify as an agency loan. You’d need a jumbo loan, which typically requires a credit score of 700 or higher, a larger down payment, and comes with a higher rate.⁴

Who Qualifies

Credit, down payment, and debt-to-income thresholds vary by program. Here’s how the four stack up.

Conventional (Fannie Mae and Freddie Mac)

Credit score: 620 minimum for fixed-rate loans underwritten manually. Loans run through Fannie Mae’s automated system have no hard floor, though lower scores hurt your chances.⁵
Down payment: as low as 3 percent through HomeReady or Home Possible, both aimed at first-time or income-restricted buyers. Standard conventional loans generally need at least 5 percent down.⁶⁷
Debt-to-income: automated underwriting caps DTI at 50 percent of gross monthly income. Manual underwriting is stricter, usually 36 to 45 percent depending on compensating factors.⁸

FHA

Credit score: the absolute floor is 500. Scores from 500 to 579 cap financing at 90 percent (10 percent down). Scores of 580 or higher qualify for maximum financing.⁹
Down payment: 3.5 percent with a credit score of 580 or higher.¹⁰
DTI: standard rules allow up to 43 percent, with automated underwriting able to approve higher ratios when compensating factors are strong.

VA

Credit score: no VA minimum, but most lenders want at least 620.
Down payment: zero.
DTI: 41 percent is the benchmark, with higher ratios allowed when residual income (cash left after obligations) is sufficient.

USDA

Credit score: no official USDA minimum, though most lenders look for 640 or higher.
Down payment: zero.
Eligibility: household income at or below 115 percent of area median, and the property must sit in a USDA-designated rural or suburban area.

The Cost of the Backing

Every program has a mechanism to protect lenders against default, and most of them add to what you pay.

PMI on Conventional Loans

Put less than 20 percent down on a conventional conforming loan and your lender will require private mortgage insurance. Rates vary with credit score and down payment but generally run 0.2 to 1.5 percent of the loan balance per year. PMI ends: you can request cancellation once your principal balance reaches 80 percent of the home’s original value, and the lender must automatically terminate it at 78 percent on the original amortization schedule.¹¹¹²

FHA Mortgage Insurance

FHA loans carry two layers. There’s an upfront mortgage insurance premium of 1.75 percent of the base loan amount at closing, which can be rolled into the loan, plus an annual premium paid monthly.¹³ On a standard 30-year FHA loan at or below a $625,500 base amount, the annual rate is 0.80 percent with at least 10 percent down, or 0.85 percent with less than 5 percent down. Unlike conventional PMI, FHA insurance on loans with less than 10 percent down lasts the life of the loan. Refinancing into a conventional loan is the way to shed it.

VA Funding Fee

VA loans skip monthly mortgage insurance, but most borrowers pay a one-time funding fee at closing. For first-time use with less than 5 percent down, the fee is 2.15 percent of the loan amount. It drops to 1.50 percent with at least 5 percent down and 1.25 percent with 10 percent or more.¹⁴ Veterans with service-connected disabilities are typically exempt.

USDA Guarantee Fees

USDA charges an upfront guarantee fee of 1 percent of the loan amount, plus an annual fee of 0.35 percent of the remaining balance, paid monthly. These fees run lower than FHA’s, which is part of why USDA is one of the cheapest options for borrowers who fit the location and income rules.

What Kinds of Property Qualify

Agency loans cover residential property, but not every kind of real estate is eligible. Fannie Mae and Freddie Mac purchase mortgages on one- to four-unit residential dwellings, whether detached, attached, or semi-detached.¹⁵ Beyond standard single-family homes, that includes:

Two- to four-unit properties, as long as you occupy one of the units under a primary residence program.
Condominiums, if the project passes the agency’s review of the HOA’s finances, insurance, and owner-occupancy rates.¹⁶
Planned unit developments that meet requirements on common-area ownership and management.

Occupancy type matters. The property can be your primary residence, a second home, or an investment property, but each carries different pricing and qualification rules. Investment properties typically want 15 to 25 percent down and price at higher rates than owner-occupied homes. An appraisal has to confirm the property meets minimum habitability standards and support the value used to size the loan.¹⁷

What Approval Actually Looks Like

Getting approved for an agency loan means passing both an automated screen and a human review. Expect 30 to 45 days from application to closing on a clean file.

After you submit a full application, your lender runs the data through an automated underwriting system. Fannie Mae’s is Desktop Underwriter; Freddie Mac’s is Loan Product Advisor.¹⁸¹⁹ Each returns a recommendation, usually “approve/eligible” or “refer/caution.” An approval moves the file forward; a referral kicks it into manual underwriting, which applies stricter standards.

Even with an automated approval, a human underwriter reviews the file to confirm every document matches the data submitted. Unexplained deposits, employment gaps, or discrepancies between your tax returns and W-2s trigger conditional approvals that ask for more paperwork. Clearing those conditions gets you to “clear to close.”

You’ll typically be asked for two years of W-2s and signed federal tax returns (plus business returns if you’re self-employed), 60 days of bank statements, and an authorization on IRS Form 4506-C so the lender can pull your tax transcripts directly from the IRS.²⁰ The lender also verifies employment directly with your employer.

Somewhere along the way, often at application, you can lock your interest rate. Locks commonly run 30, 45, or 60 days.²¹ Your rate then holds regardless of market movement as long as you close before it expires and the application doesn’t materially change. Extension fees can be steep, so ask upfront.

Before you sign, the lender must deliver a Closing Disclosure at least three business days ahead of closing.²² It lists your final loan terms, monthly payment, rate, and closing costs. Read it. If certain key terms change after delivery, the lender has to issue a new disclosure and restart the three-day clock. Once you sign and fund, the loan gets sold into the secondary market as an agency-backed security, and the cycle starts over.

1
FHFA. FHFA Announces Conforming Loan Limit Values for 2026
2
Congressional Budget Office. Fannie Mae and Freddie Mac’s Housing Goals
3
Veterans Affairs. Eligibility for VA Home Loan Programs
4
Federal Housing Finance Agency. FHFA Conforming Loan Limit Values
5
Fannie Mae. General Requirements for Credit Scores
6
Fannie Mae. What You Need to Know About Down Payments
7
Freddie Mac. Home Possible
8
Fannie Mae. Debt-to-Income Ratios
9
U.S. Department of Housing and Urban Development. Does FHA Require a Minimum Credit Score and How Is It Determined
10
U.S. Department of Housing and Urban Development. Loans
11
Consumer Financial Protection Bureau. When Can I Remove Private Mortgage Insurance PMI From My Loan
12
Office of the Law Revision Counsel. 12 USC 4902 – Termination of Private Mortgage Insurance
13
HUD.gov. Appendix 1.0 – Mortgage Insurance Premiums
14
Veterans Affairs. VA Funding Fee and Loan Closing Costs
15
Fannie Mae. General Property Eligibility
16
Fannie Mae. General Information on Project Standards
17
Fannie Mae. Uniform Residential Appraisal Report
18
Fannie Mae. Desktop Underwriter and Desktop Originator
19
Freddie Mac. Loan Product Advisor
20
Fannie Mae. Requirements and Uses of IRS IVES Request for Transcript of Tax Return Form 4506-C
21
Consumer Financial Protection Bureau. What’s a Lock-In or a Rate Lock on a Mortgage
22
Consumer Financial Protection Bureau. TILA-RESPA Integrated Disclosure FAQs