Considering buying a house and getting a mortgage? You’ve probably come across conventional loans. These mortgages are the most common in the U.S., but qualifying isn’t easy. Lenders look closely at your finances to determine whether you qualify or not, which is why understanding conventional loan requirements is so important.
In this guide, you’ll learn how credit scores, down payments, debt-to-income ratios, and property appraisals and inspections factor into approval. We’ll also cover scenarios like buying with a low down payment or using a conventional loan for an investment property.
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: 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.
- Non-conforming or jumbo loans: These are mortgages that exceed those limits or don’t fit Fannie and Freddie’s criteria. They often have stricter qualification requirements.
If you’re comparing conventional vs. FHA loans, the decision comes down to credit and down payment. FHA loans are more forgiving for lower scores and down payments, but conventional loans can save you money long-term if you can qualify.
Credit requirements
Conventional loan credit requirements are generally more stringent than government-backed alternatives, but they reward borrowers with excellent credit with better terms and rates. Most lenders require a minimum FICO score of 620.[1]
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 slightly vary 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 requirements
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. For most conventional mortgages, the minimum down payment is:
- 3% for conforming fixed-rate loans. This is available through special programs like Fannie Mae’s HomeReady, Freddie Mac’s Home Possible, or the Conventional 97 programs.[2][3][4]
- 5% for adjustable-rate mortgages (ARMs). Because ARMs carry more risk due to future rate changes, lenders usually set a slightly higher minimum down payment.[5]
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.
If you’re looking for a 5% down conventional loan, there isn’t a special product that requires exactly 5%. Instead, some lenders or loan types, like ARMs, set their minimum down payment at 5%. For borrowers who want the lowest possible entry point, the 3% programs are the best option.
Debt-to-income and qualifying ratios
When lenders review your mortgage application, they also want to know how much debt you already have and whether you'll handle the new mortgage payment on top of your existing obligations. Your debt-to-income (DTI) ratio helps them evaluate your risk level.
Lenders focus on two types of DTI ratios:
- 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.
Most lenders prefer front-end ratios not exceeding 28% and back-end ratios no more than 36%. Some lenders approve borrowers with high DTI ratios of 43–45%, and sometimes up to 50% with strong compensating factors.
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 high. Consider paying down existing debt, increasing your income, avoiding new loans, or choosing a less expensive property to improve your approval odds.
Appraisal and inspection requirements
Lenders don’t just evaluate you. They also need to confirm the property is worth the price and structurally sound. That’s where conventional loan appraisal requirements come in. 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.
So, do all conventional loans require 20% down? No, but putting down less than 20% triggers PMI fees.
Loan limits and types
For 2025, the baseline loan limit 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.
Next steps for getting a conventional mortgage loan
Conventional mortgages open the door to homeownership for millions of Americans every year. But like any financial product, approval depends on meeting certain requirements for conventional loans — a credit score of at least 620, a 3% down payment, and a DTI ratio not exceeding 43%.
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.
- 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.
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FAQ
To qualify for a conventional loan, you need a credit score of at least 620, a 3% down payment, debt-to-income ratios under 43-45%, and a property that meets appraisal standards. You’ll also need to provide proof of income and assets.
Common reasons for denial include low credit, a high DTI ratio, or property issues that don’t meet conventional loan inspection requirements.
It depends on your financial profile and the house you want to buy. FHA loans are more flexible because they often require low credit and smaller down payments, but they come with upfront and annual mortgage insurance premiums. Conventional loans require stronger credit but often cost less long-term, especially if you can avoid or cancel PMI.
Conventional loan properties must pass a professional appraisal focusing on safety, soundness, and structural integrity.
A conventional loan calculator can help you estimate your DTI, PMI, and monthly payments based on your loan amount, interest rate, and down payment. This can give you an idea of what to expect before applying.
nFor investment properties, most lenders require higher credit scores (often 680+), larger down payments (15–25%), reserves covering several months of payments, and stricter DTI limits. Lenders want to ensure you can manage the added risk of a non-owner-occupied property.