Conventional Loan Requirements: What Does It Take to Qualify?

Conventional loan requirements are more stringent than requirements for government-backed loans like FHA, USDA, or VA loans, but they still aren't as tough as you might expect. Most people can qualify for a conventional loan with a credit score of at least 620, a down payment ranging from 3–5% (depending on which programs you qualify for), and a consistent source of income.

We'll cover how individual conventional loan requirements change based on credit scores, down payments, debt-to-income ratios, and property appraisals and inspections. We’ll also cover how conventional loans work with low down payments and investment properties.

What is a conventional loan?

A conventional loan is a mortgage that's not guaranteed or insured by a government agency, like the Federal Housing Administration (FHA), Department of Veterans Affairs (VA), or U.S. Department of Agriculture (USDA). Instead, they’re backed by private mortgage lenders like banks, credit unions, and other financial institutions. Since the federal government doesn’t insure conventional loans, they often have stricter borrower requirements.

There are two main types of conventional loans: conforming loans and non-conforming loans.

• Conforming loans: These adhere to the loan limits and guidelines set by Fannie Mae and Freddie Mac, the two government-sponsored enterprises that provide the mortgage market stability and affordability. If your lender might sell your loan down the line on the secondary mortgage market, they'll want it to adhere to these standards.
• Non-conforming or jumbo loans: These are mortgages that exceed those limits or don’t fit the criteria for Fannie and Freddie. They often have stricter qualification requirements and higher interest rates since they won't be sold to Fannie Mae or Freddie Mac later on.

Conventional loan requirements

Credit and financial health

Most lenders require a minimum FICO score of 620.[1] Conventional loan credit requirements are generally more rigorous than government-backed alternatives, but they reward borrowers with excellent credit with better terms and rates.

Having a credit score above 720 provides several advantages. Borrowers with scores in this range usually qualify for lower interest rates, reduced private mortgage insurance (PMI) premiums, and more favorable loan terms. This can mean tens of thousands in savings over the life of the loan.

Lenders evaluate your creditworthiness by pulling reports from the three major bureaus: Experian, Equifax, and TransUnion. Scores may vary slightly from each bureau, so they’ll use the middle score of the three. Beyond the score, they also review your history of on-time payments, outstanding balances, and whether you’ve had bankruptcies or foreclosures.

You’ll also need to provide documents like recent pay stubs, W-2s, or tax returns if self-employed. Lenders use these documents to confirm your income and employment stability, which, together with your credit score, determines your eligibility.

Down payment

For a down payment on a conventional loan, you'll typically need at least 3–5% of the home's purchase price. One of the biggest myths about mortgages is that you need to put 20% down to qualify for a conventional loan. While a 20% down payment can help you avoid extra costs, it isn’t a requirement. In fact, many buyers today get approved with much less. Here is how to know if your minimum down payment requirement is 3% or 5%:

• 3% for conforming fixed-rate loans through special programs: This is available through special programs like Fannie Mae’s HomeReady, Freddie Mac’s Home Possible, or the Conventional 97 programs. These programs are primarily designed to help low-to-moderate income homebuyers qualify for mortgages.[2][3][4]
• 5% for standard conventional loans: If you don't qualify for any of the 3% programs, 5% is the minimum down payment for most standard conventional loans.
• 15-20% for investment properties or second homes: If you're using a conventional loan to purchase an investment property or second home, the minimum down payment will typically be between 15% to 20%.

This flexibility means you can qualify for a conventional loan even if you don’t have a large amount saved. However, the size of your down payment has a direct impact on your long-term costs.

A larger down payment of at least 20% can help eliminate PMI, secure lower interest rates, and reduce your monthly mortgage payment. If you can’t afford to put 20% down, you can still cancel PMI once you reach 20% equity in your home.

Debt-to-income (DTI) and qualifying ratios 

Traditionally for conventional loans, most lenders prefer front-end DTI ratios not exceeding 28% and back-end ratios no more than 36%. Although some lenders approve borrowers with high DTI ratios of 43–45%, and sometimes up to 50% with strong compensating factors like a large income or a lot of money saved.

• Front-end ratio: Also known as housing ratio, this is the percentage of your income that goes toward housing costs. It includes mortgage principal and interest, property taxes, homeowner’s insurance, and HOA dues if applicable.
• Back-end ratio: This is the percentage of your income that goes toward all debt obligations, including credit cards, auto loans, student loans, personal loans, child support, and the potential mortgage payment.

Your DTI matters because it helps lenders assess your repayment capacity and determine if you can comfortably handle your mortgage payment alongside other financial obligations. During underwriting, you'll need to provide pay stubs, tax returns, and other income documentation to verify your DTI calculations. If your DTI is high, your chances of getting denied are higher.

Appraisal and inspection

Before any conventional loan can be approved, your lender will require an appraisal and inspection. For the appraisal, the lender wants to make sure the home is worth the money they're lending you for it. A licensed appraiser will visit the home to:

• Verify its market value based on comparable sales
• Check that it meets safety and livability standards
• Assign a property condition rating (C1 to C6)

Any subject-to conditions identified during the appraisal must be repaired before closing. Fannie Mae requires deficiencies to be addressed or supported by a professional report before loan delivery.

Conventional loan inspection requirements are less strict than FHA or VA standards, giving borrowers more flexibility in property conditions. However, structural problems or safety issues can still affect your mortgage application.

Mortgage insurance (PMI)

If you put down less than 20%, you’ll need to pay private mortgage insurance (PMI). This protects the lender in case you default.

PMI rates vary based on credit score, down payment size, and loan type, but they typically range between 0.14% and 2.24% of the loan balance per year. That cost is added to your monthly payment.

The good news is that PMI doesn’t last throughout the life of the loan. You can request for cancellation once your loan-to-value (LTV) ratio hits 80%. By law, lenders must remove PMI once your LTV reaches 78% if you’re current on payments.

Conventional loan limits and types

For 2025, the baseline loan limit for conventional loans is $806,500 in most U.S. counties and up to $1,209,750 in high-cost areas. Loans exceeding these amounts are considered non-conforming or jumbo loans and typically have stricter qualification requirements.

Conventional loans can finance primary residences, vacation homes, and investment properties. If you’re thinking about purchasing an investment property, most lenders require a higher down payment (at least 15%), higher credit scores, and additional cash reserves.

Meet the requirements? Next steps for a conventional loan

If you’re planning to apply for a conventional loan, the best thing you can do is to start preparing early to ensure that you meet all the conventional loan requirements. Here are the steps to help you prepare:

• Check your credit score and report for any errors, pay down balances, and avoid taking on new debt before applying.
• Calculate your debt-to-income (DTI) ratio to find out whether your current debts leave enough room for a mortgage payment.
• Explore low-down-payment programs like HomeReady, Home Possible, or Conventional 97 if you meet the income and other requirements.
• Compare multiple lenders to ensure that you’re getting the best rates and terms.
• Plan for upfront and ongoing costs, such as closing costs, appraisal fees, and PMI.

FAQ about conventional loan requirements

Disclaimer: The information provided in this article is for informational purposes only.  It is not intended as legal, financial, investment, or tax advice, and should not be relied upon as such.  Consult a licensed financial advisor or tax professional regarding your personal financial situation before making any decisions.