Conventional Loan Requirements 2024 | First-Time Home Buyer

January 12, 2024 - 9 min read

Who qualifies for a conventional loan?

Conventional loan requirements aren’t as tough as many home buyers expect. Borrowers can often qualify for a conventional loan with a credit score of 620 or higher, reliable income, and at least 3% down. Additionally, lenders usually seek a two-year track record of steady income and employment. To verify your financial information, you’ll need to provide financial documents such as bank statements and tax forms.

Gone are the days when a 20% down payment and perfect credit were absolute prerequisites for securing a conventional mortgage. So don’t let those “traditional” standards get in your way if you’re ready to buy a home now.

Check your conventional loan eligibility. Start here

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Note on mortgage terminology: A “conventional loan" is any mortgage not backed by the federal government. Most conventional loans are also “conforming loans,” meaning they follow lending guidelines set by Fannie Mae and Freddie Mac. The terms are often used interchangeably, although not all conventional loans are conforming loans. In this article, we use the term “conventional loans” to refer to conforming loans that meet Fannie Mas and Freddie Mac requirements.

What do you need for a conventional loan?

In order to get a conventional loan, you need to meet basic lending requirements set by Fannie Mae, Freddie Mac, and your individual lender.

Typical conventional loan requirements include:

  • Minimum credit score of 620
  • Minimum down payment of 3-5%
  • Debt-to-income ratio below 43%
  • Loan amount within local conforming loan limits
  • Proof of stable employment and income
  • Clean credit history (no recent bankruptcy or foreclosure)
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Although Fannie Mae and Freddie Mac set the minimum conventional loan requirements, it’s important to note that lenders can set their criteria. For instance, while Fannie and Freddie’s guidelines permit a conventional loan with just 3%, some lenders require 5 %. Lenders might also set higher standards for credit score or debt-to-income ratio.

Since requirements vary by lender, it can be helpful to shop around when you find yourself on the borderline of qualifying for a conventional mortgage. If your initial application is denied, consider approaching a few other lenders to see if any of them will approve your mortgage application.

Conventional loan requirements

Here’s a detailed look at the basic requirements for a conventional loan.

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Credit score

As a rule of thumb, approval for a conventional loan requires a minimum credit score of 620. However, a higher credit score not only leads to lower interest rates but also reduces PMI costs. Borrowers with credit scores over 720 generally secure the most favorable conventional mortgage rates.

When you apply for a mortgage, the lender will pull both your credit score and credit report. Your credit history plays a critical role in determining your creditworthiness. If you have credit issues such as late and missed payments, bankruptcy, or foreclosure in your past, it can be more difficult to qualify for a home loan.

Down payment

One common misconception is that buyers must provide a hefty 20% down to purchase a home. However, standard conventional loans require just 5% down. Furthermore, there are select conventional loan program, such as Fannie Mae’s HomeReady and Freddie Mac’s Home Possible, that let you buy with as little as 3% down payment.

These specialized programs offer additional benefit, such as reduced private mortgage insurance rates and more lenient income requirements, making them particularly appealing for first-time home buyers. If you don’t use one of these programs, the standard down payment for a conventional loan typically remains at 5%.

Keep in mind that a conventional loan with less than 20% down will require private mortgage insurance (PMI). While you are responsible for paying this premium, the policy serves to protect the lender in the event of default. You can ask your lender to remove PMI once you build 20% equity.

Income and employment

To secure approval for a conventional loan, it’s crucial to demonstrate at least two years of stable, consistent income with the same employer or within the same field. Different types of income can help you qualify for a conventional home loan, including:

  • Salary or hourly income
  • Bonuses
  • Overtime
  • Commission
  • Part-time income
  • Self-employment
  • Contract or gig work

Lenders have the ability to consider additional sources of income for qualifying purposes. This includes various income streams such as retirement income, alimony, child support, and Social Security payments. However, it’s important to note that if you receive support payments like alimony or child support, these payments must be expected to continue for at least three years after obtaining the mortgage.

All income sources must be documented using your most recent W-2s, tax returns, bank statements, and pay stubs. Self-employed borrowers, on the other hand, typically provide at least two years of business tax returns in addition to personal tax returns.

Debt-to-income ratio

When assessing your eligibility for a home loan, mortgage lenders look at your income in comparison to existing debt obligations. Debt-to-income ratio (DTI) represents the percentage of your gross monthly income allocated toward monthly debt payments (including the future mortgage payment).

For a conventional loan, lenders prefer a DTI ratio under 36 percent. However, DTIs up to 43% are commonly allowed. In certain cases, you may even qualify with a DTI as high as 45-50%, if you have “compensating factors.” These factors could include a high credit score or significant cash reserves held in the bank.

To calculate your DTI ratio, add up your monthly debt payments and divide that sum by your monthly gross income. For example, if you have a gross income of $5,000 and monthly debt payments of $1,500, your debt-to-income ratio is 30 percent.

Loan limits

To obtain a conventional conforming mortgage, your loan amount must fall within local loan limits set by the Federal Housing Finance Agency (FHFA). These loan limits change annually, and are generally higher in areas with exceptionally high property values. In 2024, the conforming loan limit for a single-family home in most of the U.S. is $, while high-value loan limits go up to $. You can check your area’s current loan limits here.

In cases where loan amounts exceed the specific limit, borrowers must apply for a non-conforming loan or a “jumbo loan.” Jumbo loans typically require down payments ranging between 10% and 20% down.

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Property requirements

Conventional loans come with specific property requirements that must be met. The following criteria apply:

  • Single-family home or multi-unit home (no more than four units)
  • A residence, not a commercial property
  • Structurally sound
  • No claims against the property
  • Appraisal required
  • For condos, at least 51% of total units must be owner-occupied or second homes

In addition, lenders have safeguards in place to ensure that you do not borrow more than the home is worth. Once you have a signed purchase agreement, your mortgage lender will arrange for a home appraisal to verify that the sale price doesn’t exceed the property’s true market value.

Conventional loan requirements FAQ

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Is it hard to qualify for a conventional loan? 

It’s easier to qualify for a conventional loan than many first-time home buyers expect. You’ll need a minimum credit score of 620 as well as two consecutive years of stable income and employment. Getting approved also requires a minimum down payment between 3 and 5 percent and a debt-to-income ratio below 43 percent in most cases.

Do all conventional loans require 20% down?

In today’s mortgage landscape, the notion that a 20 percent down payment is necessary is a misconception. There are many mortgage programs, including conventional loans, which offer more flexible down payment options. Some first-time homebuyers can purchase with only 3 percent down, while others will need at least 5 percent. Keep in mind that buying a house with less than 20 percent down will require private mortgage insurance.

What's the maximum debt-to-income ratio for a conventional loan? 

Ideally, conventional mortgage lenders prefer a maximum debt-to-income ratio at or below 36 percent. This is the percentage of your pre-tax monthly income that goes toward monthly debt payments (mortgage, auto loans, student loans, minimum debt payments, etc.). However, some lenders allow a maximum debt-to-income ratio of up to 45 or 50 percent if the borrower has compensating factors. Those could include a high credit score, a bigger down payment, or several months’ worth of mortgage payments in reserves after closing.

Is an FHA or conventional loan better?

A conventional loan offers more advantages than an FHA loan if you have good credit (around 680 or higher) and at least 3 percent down. However, if your credit score is in the high-500s or low-600s, an FHA loan might be a more affordable option. That’s because FHA loans don’t charge higher mortgage insurance premiums for borrowers with lower credit. However, keep in mind that conventional private mortgage insurance can be canceled once you have sufficient home equity whereas FHA mortgage insurance is usually permanent.

How long does it take to get approved for a conventional loan?

The mortgage process for a conventional loan can take, on average, between 30 and 45 days. Once you submit a full mortgage application, the loan files goes through processing and underwriting, during which time the lender reviews all your financial documentation in detail. The lender will also arrange an appraisal to verify your new home’s fair market value. Some initial mortgage approvals are conditional, meaning you need to submit additional information or documentation to get final approval. Upon completion of the underwriting process, the lender schedules a closing date.

Find out if you qualify for a conventional loan

Due to their low down payment requirements, conventional loans present an attractive option for first-time homebuyers. To see if you qualify for a conventional loan, check your eligibility with a mortgage lender. That could be a bank, credit union, online lender, or mortgage broker. Once you connect with a loan officer, they will guide you through the process and inquire about some financial details. This will help ensure you are on the right path towards securing a conventional loan that suits you best.

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Valencia Higuera
Authored By: Valencia Higuera
The Mortgage Reports contributor
Valencia Higuera is a freelance writer from Chesapeake, Virginia. As a personal finance and health junkie, she enjoys all things related to budgeting, saving money, fitness, and healthy living.
Aleksandra Kadzielawski
Updated By: Aleksandra Kadzielawski
The Mortgage Reports Editor
Aleksandra is the Senior Editor at The Mortgage Reports, where she brings 10 years of experience in mortgage and real estate to help consumers discover the right path to homeownership. Aleksandra received a bachelor’s degree from DePaul University. She is also a licensed real estate agent and a member of the National Association of Realtors (NAR).