Conventional Loan Requirements (2022 Guide)

Written by Jamie AyersSeptember 14th, 20229 minute read

Jump to section: Summary | Down payment | Mortgage insurance | Credit score | Income | Loan limits | Occupancy | Gift funds | Co-signers | Seller-paid closing costs | Next steps | FAQ

A conventional mortgage is a home loan that’s not insured or guaranteed by the U.S. government. Qualifying home buyers can use conventional mortgages to purchase a primary residence, second home, or investment property.

You don't need a 20% down payment to get a conventional loan. Some programs allow down payments as low as 5% or even 3%. In other words, it’s easier to qualify for a conventional loan than you might think!

This guide breaks down conventional loan requirements — and how they compare to other types of mortgages — to help you choose the best loan to fit your needs.

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🔎 At a glance: Qualifications for a conventional loan

Actual requirements for a conventional home loan will ultimately depend on the specific lender and circumstances surrounding the home purchase. But most lenders conform to the approval standards set by quasi-government agencies Fannie Mae and Freddie Mac (hence the term “conforming loan”).

Who can qualify for a conventional loan?

It's not as difficult to get a conventional loan as you might think. Chances are you’ll be able to qualify for a conventional loan so long as you:

  • Have a good credit history and decent credit score (620 or higher)
  • Save up at least 5% for the minimum down payment (or 3% for niche programs)
  • Have steady income that can adequately cover the monthly payments

While conventional loans generally have higher qualification standards than government-backed loans — and lenders are free to set stricter standards than Fannie and Freddie’s minimum qualification criteria — most home buyers are still able to secure approval. In fact, nearly 80% of all mortgages in the U.S. are conventional loans.[1]

If you have a less-than-stellar credit history or credit score, lower income, or limited savings for a down payment, you may want to consider a government-backed mortgage that offers more flexibility and relaxed eligibility criteria.

Conventional loans vs FHA loans

Federal Housing Authority (FHA) loans offer more flexibility than conventional loans when it comes to credit scores and down payments. You can qualify for an FHA loan with a credit score as low as 500 with a 10% down payment. If your credit score is 580 or higher, you can get approved with as little as 3.5% down.

The big drawback with FHA loans is, if you put down less than 10%, you’ll have to pay additional mortgage insurance premiums (MIP) for the entire life of the loan. With conventional loans, you’ll have to pay private mortgage insurance (PMI) — but you can remove it once your equity stake reaches 20%.

» MORE: FHA loan eligibility requirements

Conventional loans vs VA loans

The Department of Veterans Affairs (VA) offers loans for veterans, active-duty military, and surviving spouses. The two biggest benefits of VA loans are:

  • No minimum down payment: You can qualify with $0 down
  • No mortgage insurance: This helps lower monthly payments and long-term costs

But unlike conventional loans, you can’t use a VA loan to buy a second home. And you’ll also have to pay a funding fee upfront at closing – usually 1.25% to 3.3% of the total loan amount, depending on a variety of factors (though some applicants can secure funding fee exemptions).

» MORE: VA loan eligibility requirements

Conventional loans vs USDA loans

The United States Department of Agriculture (USDA) offers loans in certain designated rural areas. Like VA loans, USDA loans don’t require buyers who meet certain criteria to make a down payment. Low-income borrowers can also get low interest rates (sometimes as low as 1%) and home improvement funding for homes in need of rehab after purchase.

USDA loans are only available for properties in qualifying areas, have maximum income limits for applicants, and generally require a minimum credit score of 640. USDA borrowers will also have to pay upfront or annual “guarantee fees,” similar to PMI (though guarantee fees are generally lower than PMI).

» MORE: USDA loan eligibility requirements

⚡️ Quick Tip: Finding a buyer's agent is a good first step!

Connecting with an experienced local agent is a good first step to kickstart your home buying process. Agents can help you set a budget and recommend trusted lenders so you can compare rates, get preapproved, and start touring houses.

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Requirements for conventional loans in 2022

Conventional loan down payment requirements

Minimum down payment for conventional loans
HomeReady
3% down
Home Possible
3% down
Conventional 97 loan
3% down
Conventional loan with PMI
5-19% down
Conventional loan with no PMI
20% down
Piggyback loan with no PMI
10% down

First-time and low-income buyers can qualify for a conventional loan with down payments as low as 3% through programs like HomeReady (Fannie Mae), Home Possible (Freddie Mac), and Conventional 97 loans.

You can get a conventional loan with PMI for as little as 5% down if you’re purchasing a single-family primary residence. But minimum down payments are higher for second homes and multi-family properties.

Conventional loans w/ PMI: Min. down payments by property type
Single-family, primary home
5% down
Second home
10% down
Multi-family property
15% down

You can also qualify for a conventional loan with 10% down via what’s known as a piggyback loan, where you use two mortgages to increase your loan limit and/or avoid PMI.

How 20% down conventional loans save you money

A key benefit of conventional loans is that if your down payment is 20% or higher (i.e. the loan is at or below 80% of the home’s value), you don’t have to pay any private mortgage insurance (PMI). This lowers the cost of the loan overall. A down payment of 20% or more will also make it easier to qualify for the loan, may help you get a lower interest rate, and lower your monthly payments.

Private mortgage insurance requirements for conventional loans

If your down payment for the conventional mortgage is lower than 20%, you’ll have to pay for private mortgage insurance (PMI).

When the loan amount exceeds 80% of the home’s appraised value, the lender will require PMI to protect itself in the event that you default (stop making payments).

You don't need to get mortgage insurance on your own — your lender will do it on your behalf. The cost of private mortgage insurance is determined by your credit score, down payment percentage, loan amortization (fixed or adjustable-rate) and a few more variables. Your PMI premium will be shown on your loan estimate and page 1 of your closing disclosure.

Most borrowers add PMI payments to their monthly mortgage premiums. But you may be able to pay PMI in a lump sum at closing, or roll it into your mortgage in exchange for a slightly higher interest rate. Talk to your lender about your options.

Once your equity reaches 20% of the home’s value (i.e. the lender’s stake is 80% or less), you can ask the lender to remove the PMI from your monthly payments. Once your equity rises to 22% of the original purchase price, the Homeowners Protection Act requires the lender to remove the PMI automatically – even if the home’s fair market value has fallen.[2]

» MORE: Learn how to get rid of PMI here

Conventional loan credit score requirements (2022)

You’ll likely need a minimum credit score of 620 to qualify for a fixed-rate conventional loan (640 for adjustable-rate). But because conventional loans aren’t backed by the federal government and are, therefore, a bit riskier for lenders, many will actually require higher credit scores. As of January 2022, the average credit score for conforming conventional loans was 744.[3]

⚡️ Quick Tip: A credit score of 740 or higher will generally:

  • Make it easier to get approved
  • Net you a lower interest rate
  • Allow you to make lower down payments, if necessary

Conventional loan income and employment requirements

Most lenders approve loans based on Fannie Mae and Freddie Mac’s underwriting guidelines. There are no specific minimum income requirements. Approval will be based on the tentative loan amount, your gross monthly earnings, and level of recurring debt.

💵 Acceptable forms of employment income include:

  • Base pay (salary or hourly) income
  • Bonus and overtime income
  • Commission income
  • Secondary employment income (second jobs and multiple jobs)

Each type of income requires specific sets of income verification documents, which can be found in this section of the Fannie Mae guidelines.

Generally speaking, expect to provide recent paystubs, W-2s, and/or tax returns. You may also be asked to complete a Request for Verification of Employment Form.

Fannie and Freddie also list other non-employment income that can be used to qualify for a conventional mortgage. Accepted forms of non-employment income include things like child support, interest and dividends, and long-term disability. You can find the full list of acceptable forms of non-employment income here.

You can qualify for a conventional loan if you’re self-employed. Most lenders will generally require your two most recent personal (and sometimes business) tax returns to verify income stability. That said, you still may be able to qualify if you’ve been employed for less than two years — but it can be a bit more complicated. You can read the full guidelines for self-employment income here.

Debt-to-income ratio requirements for conventional loans

Most lenders will require a debt-to-income (DTI) ratio of 45-50% or lower for conventional loan approval. Your DTI percentage reflects how much of your gross monthly income goes towards recurring debt, like credit card bills, student loans, and car payments.

If the lender adds your tentative monthly mortgage premium to your existing recurring monthly debt and the resulting number is greater than 50% of your gross monthly income (also known as your “back-end DTI”), you likely won’t get approved for the loan.

💡 Tips for lowering your DTI

  • Start paying down debts: If you can eliminate some recurring monthly debt, you’ll lower your DTI and increase your borrowing power.
  • Increase your down payment: A bigger down payment means lower monthly payments, which also lowers your back-end DTI.
  • Increase your income: See if you can negotiate a raise, get a new job, or find ways to earn supplemental income (approved by Fannie and Freddie).
  • Get a co-signer: Adding a co-signer with a higher income and/or lower DTI will also increase your borrowing power.

Conventional loan limits in 2022 (conforming)

The maximum loan amounts are established each year by the Federal Housing Finance Agency (FHFA). The 2022 conventional loan limits are:[4]

Property type
Loan limit
1-unit home (single-family)
$647,200
2-unit home (duplex)
$828,700
3-unit home (triplex)
$1,001,650
4-unit home (fourplex)
$1,244,850

Any conventional loan that exceeds these limits is considered “nonconforming” – in that it doesn’t “conform” to the limits in the Fannie Mae and Freddie Mac underwriting guidelines.

These mortgages are commonly known as jumbo loans. Nonconforming jumbo loans generally have stricter qualification criteria and higher down payments and interest rates.

💡 What are conforming jumbo loans?

Fannie and Freddie make exceptions and increase conventional loan limits for borrowers in counties with high home values and costs of living. These high-cost counties can be found via HUD’s mortgage limits tool if you select Fannie / Freddie in the “Limit type” box.

Conventional loan occupancy requirements

Occupancy requirements for conventional loans are relatively flexible. Lenders will allow borrowers to use conventional loans for:

  • Primary residences (one to four units)
  • Rental properties
  • Second homes

Co-signers and non-occupant co-borrowers

Conventional loans do permit co-signers and co-borrowers, though they’re generally more restrictive than government-backed loans like FHA mortgages. In addition to meeting the general borrower eligibility requirements and other stipulations, a co-signer or non-occupant co-borrower must not:

  • Occupy the property
  • Have an ownership interest in the property
  • Have a sales interest in the property

You can read the full guidelines for co-signers and non-occupant borrowers here.

Conventional loan gift guidelines

If you’re applying for a conventional loan for a single-family primary residence or second home, 100% of the funds needed to qualify for and close your loan can be gifted — regardless of your down payment percentage. If you’re buying other types of properties and/or paying less than 20%, things can get a little trickier.

🎁 Full breakdown of conventional loan gift funds guidelines

  • If the down payment is 20% or more on a one- to four-unit principal residence or second home, 100% of the funds for the down payment and closing costs can come from a gift.
  • If the down payment is less than 20% on a one-unit principal residence, 100% of the funds for the down payment and closing costs can come from a gift.
  • If the down payment is less than 20% on a two- to four-unit principal residence or second home, the borrower has to contribute at least 5% of their own funds. The remaining funds needed to complete the transaction can be gifted.
  • Gifts are not permitted for investment properties.

Gifts for funding conventional loans also have required documentation and verification steps. You can learn more about gift funds here.

Seller-paid closing costs (sellers assist) for conventional loans

The home seller is allowed to pay a portion of the closing and prepayment fees incurred by the buyer. The amount of help is restricted to the proportion of the down payment:

Down payment*
Assistance limit*
3–9%
3%
10–25%
6%
26% or more
9%
*Percentage of purchase price

» MORE: Learn about seller’s assist programs for buyers

What are the next steps in qualifying for a home mortgage?

If you are ready to look for a home loan, the next best step is to explore your options based on your qualifications. You can work directly with a lender or a mortgage broker who can explore various lenders and loan products that are suitable for you.

Be prepared to submit documents like:

  • Recent pay stubs
  • Two years of tax returns and W-2s
  • Recent bank statements along with explanations for large deposits
  • Proof of additional income like child support orders, leases for rental income, etc.
  • Valid government ID

Once you submit all this information, your lender or broker should be able to recommend one or more routes based on your qualifications and financial objectives.

If you’re wondering how to find a lender, asking your real estate agent is a good place to start. Most experienced agents will be able to recommend several trusted lenders they work with often so you can shop rates and get preapproved.

🏡 Talk to a top local agent in your area.

Clever Real Estate free agent's matching service has helped thousands of home buyers find the perfect real estate agent to guide them on their journey.

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Learn More

More FAQ about conventional loans

What are the benefits of a conventional home loan?

The biggest advantage that conventional loans have over the government backed mortgages are the higher loan amounts, no upfront PMI, and no PMI with loan amounts at 80% or less.

Can a first-time home buyer get a conventional loan?

First-time home buyers are eligible for a conventional loan. In fact, Fannie Mae Conventional 97% loan program — aka HomeReady— targets first-time home buyers.

Can closing costs be included in a conventional loan?

No, closing costs cannot be financed with a conventional home loan.

Can you refinance a conventional loan?

Yes, conventional loans can be refinanced.

Is it better to go FHA or conventional?

The choice between an FHA loan and a conventional loan is dependent on the borrower's circumstances. For example, if the credit score is low, the FHA program is better. If the credit score is high and you can afford a 20% down payment, a conventional loan will likely save you money in the short and long term. Talk to your loan officer and/or financial advisor about which type of loan is best-suited to your specific financial situation and goals.

Are conventional loans federally backed?

Fannie Mae and Freddie Mac are technically backed by the Federal Government. If one or both corporations are on the precipice, the Feds will jump in to save the companies because Fannie and Freddie hold as much as 50% of the mortgages in the United States.

What are the benefits of a conventional home loan?

The biggest advantage that conventional loans have over the government backed mortgages are the higher loan amounts, no upfront PMI, and no PMI with loan amounts at 80% or less.

ARTICLE SOURCES
[1]

ICE Mortgage Technology. "Originiation Insight Report." Accessed July 14, 2022.

[2]

Consumer Finance Protection Bureau. "Homeowners Protection Act (PMI cancellation procedures)." Accessed July 14, 2022.

[3]

Black Knight. "Originations Market Monitor Report." Accessed July 14, 2022. Updated January 2022.

[4]

Federal Housing Finance Agency (FHFA). "Full County Loan Limits 2022." Accessed July 14, 2022. Updated 2022.