Conventional Loan Requirements: Full Checklist

Short answer: A conventional loan generally asks for a credit score commonly cited around 620 or higher, a down payment as low as 3 percent for a qualifying primary residence, and a back-end debt-to-income ratio commonly referenced around 45 percent. Private mortgage insurance usually applies below 20 percent down, and it can be removed once equity grows, unlike FHA's mortgage insurance. Occupancy, property type, and loan purpose all shift the exact thresholds.

Conventional loan requirements get discussed constantly in comparison to FHA, VA, and USDA, but rarely laid out as their own checklist, which is backwards given that conventional is the loan type most borrowers with reasonably strong credit actually end up using. RefiNook covers the government programs individually elsewhere; this breakdown exists to put the conventional baseline itself in one place: the credit score, the down payment, the debt-to-income ceiling, the mortgage insurance rule, the reserves, the property standard, and how each one shifts depending on whether you are buying a primary residence, a second home, or an investment property, or refinancing one you already own.

Every figure below is framed as commonly cited and illustrative, because conventional requirements are not a single fixed rulebook the way a government program’s minimums are. Fannie Mae and Freddie Mac publish guidelines, but individual lenders layer their own overlays on top, so two lenders can quote different thresholds on an identical file. Use this breakdown to understand the shape of what you will be asked for, then confirm the live numbers with the lenders you actually approach. Run your own numbers through the companion calculator on this page as you read, and the refinance break-even calculator if you are comparing a refinance into conventional terms.

What a conventional loan actually is

A conventional loan is a mortgage that no government agency insures or guarantees. That single, structural fact is the entire definition, and everything else commonly associated with conventional loans, lower long-run insurance costs, a familiar 30-year fixed structure, the comparison point every other program gets measured against, follows from it rather than from any separate rule. FHA, VA, and USDA loans each carry a government backstop that changes their underwriting; a conventional loan carries none, so the lender and, where applicable, Fannie Mae or Freddie Mac absorb the risk themselves.

Most conventional loans are also conforming, meaning they meet Fannie Mae and Freddie Mac’s size and underwriting guidelines and can be sold to those agencies. That sale is what lets the lender recycle its capital and keep conventional pricing relatively standardized across lenders. A conventional loan can also be non-conforming, most commonly because its balance exceeds the conforming loan limit, in which case it becomes a jumbo loan instead, covered separately in our jumbo loan breakdown, which carries its own stricter credit, down payment, and reserve requirements. This breakdown focuses on ordinary conforming conventional loans, the product most borrowers mean when they say conventional.

Conforming vs non-conforming: where conventional fits

It helps to separate two words that get used almost interchangeably but answer different questions. Conventional answers the question of who insures the loan: nobody, as opposed to FHA, VA, or USDA. Conforming answers a different question entirely: does the loan’s size and structure meet Fannie Mae and Freddie Mac’s published guidelines, which determines whether it can be sold to those agencies. A loan can be conventional and conforming at once, which describes the overwhelming majority of conventional loans written. A loan can also be conventional and non-conforming, which describes a jumbo.

The practical reason this distinction matters is pricing and flexibility. A conforming conventional loan benefits from the deep, liquid market that buying and selling to Fannie Mae and Freddie Mac creates, which tends to produce more standardized terms across lenders. A non-conforming conventional loan has no such automatic buyer, so the lender carries more of the risk and often prices and underwrites more conservatively. If your financed balance is comfortably under your county’s conforming loan limit, the rest of this breakdown applies cleanly. If it is near or above that limit, read the jumbo breakdown alongside this one, because the two sets of requirements diverge from that point forward.

The credit score conventional lenders ask for

Credit score is usually the first filter in a conventional file, and the minimum commonly cited across the industry sits around 620, though this is a floor rather than a target. A score at or barely above the minimum can still be approved, but it typically comes with a rate add-on under risk-based pricing, where conventional lenders price loans in tiers that reward a higher score with a lower rate and charge a borrower near the minimum more for the same loan. The practical range worth aiming for, if you have time before applying, runs well above the minimum; strong conventional pricing is commonly associated with scores in the 740-plus range.

Unlike a government program’s published floor, a conventional credit minimum is not uniform across every lender, because each one can layer its own overlay on top of the baseline guidelines. A borrower declined at 620 by one lender might be approved by another whose overlay sits lower, particularly if other parts of the file, reserves, a low debt-to-income ratio, a larger down payment, are strong enough to offset the thinner credit. Our credit score to refinance breakdown covers how the same scoring logic plays out on the refinance side, and the principles carry over directly to a purchase conventional loan.

Down payment requirements by occupancy and buyer type

Conventional down payment minimums are not one number; they step up by who is buying and what the property will be used for. A qualifying first-time buyer purchasing a primary residence can commonly find programs starting around 3 percent down. A repeat buyer on a primary residence commonly sees a minimum closer to 5 percent. Once the property stops being your primary home, the minimums rise further: a second home commonly requires around 10 percent down, and an investment property commonly requires around 15 percent or more, because a lender’s risk grows as the borrower’s personal stake in living there shrinks.

A larger down payment is also one of your most direct levers against every other requirement on this page. It lowers your loan-to-value ratio, which can soften the credit score and debt-to-income thresholds a lender applies, and it can remove PMI entirely once it crosses 20 percent. Whether to put down the minimum or more is a genuine trade-off between keeping cash liquid and lowering your monthly cost, and it is worth running both versions through the companion calculator on this page before deciding.

Private mortgage insurance on a conventional loan

Private mortgage insurance, PMI, is the mechanism that lets a conventional lender accept a down payment below 20 percent without charging a punitive rate for the added risk. PMI is paid by the borrower but protects the lender, covering part of its loss if the loan defaults on the thin-equity portion of the balance. It is typically added as a monthly premium on top of principal and interest, and the premium is commonly cited in a range tied to your credit score, down payment, and loan type, generally somewhere between a few tenths of a percent and a bit over one percent of the loan balance annually. Treat any specific rate as illustrative; get a quote from your own lender.

The structural advantage conventional PMI holds over FHA mortgage insurance is that conventional PMI is generally temporary. Once your loan-to-value crosses a commonly cited 80 percent threshold, usually based on the home’s original value, you can typically request cancellation in writing, and many loans reach automatic termination near a commonly cited 78 percent threshold without you having to ask, provided you are current on payments. Our removing PMI breakdown covers every route to dropping it, including paying down the balance faster, a value-based cancellation after appreciation, and a recast, in full detail. The short version for this checklist: PMI is a cost of a thin down payment, not a permanent fixture.

How conventional PMI differs from FHA mortgage insurance

This is the single comparison that most often decides between conventional and FHA for a borrower who could qualify for either. FHA mortgage insurance has two parts, an upfront premium financed into the loan and an annual premium collected monthly, and on many FHA loans written with the standard lower down payment, that annual premium is structured to last for the life of the loan regardless of how much equity you later build. Conventional PMI, by contrast, is designed to come off once your equity crosses the commonly cited 80 percent loan-to-value mark, either automatically or by request.

That difference compounds over time. A borrower who qualifies comfortably for conventional and stays in the home for many years will often come out ahead of an equivalent FHA borrower purely on the mortgage insurance line, even if the conventional rate itself is not dramatically different. It is also the most common reason FHA borrowers eventually refinance into conventional once their credit and equity improve, a move our FHA pros and cons breakdown covers from the FHA side. The trade only favors conventional if you actually qualify for it on reasonable terms; a borrower who cannot clear conventional’s credit or down payment bar is comparing a real FHA loan against a conventional loan that may not be available to them yet.

Debt-to-income limits on a conventional loan

Debt-to-income ratio, DTI, measures the share of your gross monthly income already committed to debt payments, including the new housing payment. Conventional underwriting commonly references a back-end ceiling, counting every debt, around 45 percent, though automated underwriting can sometimes extend further for an otherwise strong file with compensating factors such as high cash reserves, a low loan-to-value, or residual income well above the minimum. There is no single hard national number; the ceiling that actually applies to your file depends on the program, the automated underwriting result, and your lender’s own overlays.

A DTI ratio comfortably under the commonly cited ceiling tends to move through underwriting with the fewest conditions, while a ratio near or above it can still be approved with strong compensating factors but usually invites extra documentation and scrutiny. Our debt-to-income breakdown covers the front-end and back-end split in more depth, and the afford a mortgage breakdown runs the same ratios forward into a purchase price.

Income, employment and documentation requirements

Conventional underwriting generally wants to see stable, verifiable income, typically evidenced through recent pay stubs, W-2s or tax returns for the past two years, and verification of employment. A salaried borrower with a steady two-year history in the same line of work usually has the most straightforward documentation path. Variable income, commission, bonus, or self-employment income, is still eligible, but it is typically averaged over two years and documented more heavily, since the lender wants confidence the income is stable rather than a one-time spike. Our self-employed refinance breakdown covers how that averaging works in detail, and the same logic applies on a conventional purchase.

Asset documentation runs alongside income documentation. Expect to show the source of your down payment and closing funds, typically through recent bank statements, and any large, unexplained deposit can trigger a request to document where it came from, since lenders are required to confirm funds are not an undisclosed loan or an ineligible gift. Gift funds from an eligible donor are generally allowed on a conventional loan, usually with a signed gift letter, though the exact rules on how much of the down payment can come from a gift vary by occupancy and loan-to-value. Organizing these documents before you apply, rather than scrambling once underwriting asks, is the single most reliable way to keep a conventional file moving on schedule.

Asset and cash reserve requirements

Cash reserves, liquid assets left over after your down payment and closing costs are paid, are not always required on a conventional primary-residence purchase with a strong file, but they become more consistently required as the loan gets riskier, whether through a lower credit score, a higher debt-to-income ratio, or a property that is not your primary residence. Reserves are measured in months of your full housing payment, principal, interest, taxes, insurance, and any association dues, and a lender wants to see that you could keep paying the mortgage for a period even if your income paused.

Second homes and investment properties commonly carry a reserve requirement even when a comparable primary-residence file would not, and the required months typically scale upward with the number of financed properties you already hold. Our investment property refinance breakdown covers reserve requirements on a rental in full depth, including how the requirement stacks as your portfolio grows. The practical lesson for any conventional borrower is to keep the down payment and the reserves in separate mental buckets while budgeting, since spending every available dollar on the down payment can leave a file short on reserves at the worst possible moment.

Property and appraisal standards

A conventional loan requires an appraisal establishing the home’s value, which the lender uses to confirm the loan-to-value ratio the loan is being sized against. Conventional appraisal standards generally focus on the property supporting the loan amount and being free of serious safety or structural issues, but they are commonly described as somewhat less strict on cosmetic condition than FHA’s appraisal standard, which applies a specific health-and-safety checklist that can require repairs before closing on issues a conventional appraisal might simply note. This is one reason a property in rougher cosmetic condition sometimes clears conventional financing more easily than FHA financing on the identical house.

In some cases a conventional refinance may qualify for an appraisal waiver, where the lender relies on an automated valuation instead of a traditional in-person appraisal, which can shorten the timeline and remove a cost. Waiver eligibility depends on the automated underwriting result, the loan-to-value, and the specific transaction, and it is never guaranteed going in. Our refinance appraisal breakdown covers what a conventional appraisal actually involves and when a waiver is more or less likely, and it is worth reading before you budget for an appraisal fee you might not end up paying.

Occupancy type: primary home, second home, investment property

Occupancy is arguably the single biggest lever on a conventional file, because it reaches into nearly every requirement covered so far at once. A primary residence gets the most forgiving pricing, the lowest down payment minimums, and generally the most lenient reserve requirements, because a lender’s risk is lowest when the borrower lives in the home and has the strongest incentive to keep paying. A second home, a property you occupy part of the year without renting it out as a business, sits in the middle: a higher down payment, a modest rate adjustment, and typically some reserve requirement.

An investment property sits at the stricter end across every category: the highest down payment minimum, the largest rate adjustment, per-property reserve requirements, and on a refinance, rental income is generally counted only after a vacancy and maintenance haircut rather than at face value. Our investment property refinance breakdown covers the full mechanics of that tightening, including the debt service coverage ratio loan some investors use as an alternative once conventional financed-property limits are reached. Know which occupancy category your loan falls into before you shop rates, because comparing a second-home quote against a primary-residence advertised rate is comparing two different products.

Conventional loan requirements at a glance

The table below lines up the commonly cited conventional minimums by category, as a quick reference. Read it as the shape of the typical requirement, not a quote; every lender writes its own overlays on top of the baseline guidelines.

Conventional refinance requirements

The same pillars, credit, DTI, documentation, and loan-to-value, govern a conventional refinance, but the specific thresholds commonly shift by transaction type. A rate-and-term refinance, which replaces your existing loan without taking cash out, generally allows a higher loan-to-value than a cash-out refinance on the same property, because you are not increasing what you owe. Our rate-and-term refinance breakdown covers that version of the transaction in full, and our cash-out refinance walkthrough covers the version that pulls equity out, which commonly asks for more remaining equity and sometimes a stronger credit profile.

Occupancy still governs a refinance exactly as it governs a purchase. Refinancing your primary residence gets the most favorable loan-to-value limits; refinancing an investment property, covered in depth in our investment property refinance breakdown, tightens the loan-to-value cap, raises the reserve requirement, and counts rental income only after a haircut. A borrower refinancing out of an FHA loan into conventional specifically to drop lifetime mortgage insurance should expect to clear the same credit and equity bar a conventional purchase would require, since the new loan is underwritten on its own terms rather than inheriting the old FHA file’s approval.

Conventional vs FHA: how the requirements compare

Borrowers who could plausibly qualify for either program usually land on conventional when their credit and down payment are strong enough to make the trade favorable, and on FHA when a thinner credit file or a smaller down payment makes FHA the more accessible door. The requirements themselves point in a consistent direction: FHA is generally more forgiving on credit score and down payment at the entry point, while conventional is generally cheaper over time for a qualifying borrower, chiefly because its mortgage insurance can be removed. Our FHA pros and cons breakdown runs a full worked comparison between the two programs on one illustrative purchase, and it is worth reading alongside this checklist if you are genuinely undecided between them rather than already leaning conventional.

A worked example: qualifying for a $350,000 home

Put the pieces together on one illustrative file. A repeat buyer is purchasing a $350,000 home with 5 percent down, an illustrative down payment of $17,500, financing $332,500 at an illustrative 6.75 percent rate on a 30-year term. Principal and interest on that balance comes to roughly $2,157 a month. Add an illustrative $350 a month for property tax and insurance and an illustrative $166 a month of PMI, since the down payment sits below 20 percent, and the total housing payment lands near $2,673.

The buyer carries $450 a month in other required debt payments and earns $8,000 a month gross. Total monthly debt, housing included, comes to $3,123, which against the $8,000 income produces a back-end DTI of about 39.0 percent, comfortably under the commonly cited 45 percent ceiling, with roughly $477 of room left before hitting it. A credit score in the high 600s or better would be a reasonable illustrative fit for this file at this rate tier. None of these figures is a quote; run your own price, down payment, rate, income, and debts through the companion calculator on this page to see where your own file lands.

Common reasons a conventional application gets declined

Most conventional declines trace back to one of a short list of causes rather than something exotic. A debt-to-income ratio that lands above the lender’s applicable ceiling once every account is counted is the most frequent, often because a borrower underestimated a credit card minimum or forgot a car payment that will not finish before closing. A credit score below the lender’s overlay, even if above the general industry-cited minimum, is a close second, since each lender can set its own floor above the baseline.

Undocumented or unexplained funds are a third common cause, where a large deposit shows up in bank statements without a clear, documented source, which underwriting is required to resolve before closing. A property that fails to appraise at the purchase price is a fourth, since the loan-to-value calculation depends on the appraised value, not the contract price, and a low appraisal either requires more cash down or a renegotiated price. Knowing these four in advance lets you address them before you apply rather than after a denial.

How to strengthen a thin conventional file

If your numbers sit near a threshold rather than comfortably clear of it, a handful of moves tend to help more than others. Paying down a revolving balance before you apply can lower your DTI and sometimes improve your credit score in the same move, since credit utilization is itself a scoring factor. Avoiding new credit applications or large purchases in the months before closing keeps your DTI and your score from shifting unexpectedly mid-file, which is one of the more common and entirely avoidable ways an approved file falls apart before closing.

Adding a qualified co-borrower whose income and debts improve the combined ratio is another lever, covered in general terms in our debt-to-income breakdown. A larger down payment, if the cash is available, simultaneously lowers your loan-to-value, can remove PMI, and reduces the loan amount the DTI calculation has to support. None of these moves changes what you actually earn or owe; they simply make sure the file presented to underwriting reflects the strongest honest version of your finances.

Rate shopping on a conventional loan

Because conventional loans are not standardized by a government program the way an FHA rate sheet is, the spread between lenders on an identical conventional file can be wider than borrowers expect, which makes shopping more than one lender genuinely worthwhile rather than a formality. Credit score, loan-to-value, loan purpose, and occupancy all move conventional pricing through the same risk-based tiers that decide your PMI cost, so the rate you are quoted is really a reflection of where your file sits across all of them at once, not a single number set in isolation by the market that day.

Once you have a quote you intend to act on, a rate lock protects it from moving before you close, and our rate lock breakdown covers how long a typical lock runs and what a float-down option can and cannot do for you. Our how to get the best mortgage rate breakdown covers the general levers, points, credit, timing, that apply to a conventional purchase or refinance with full force. Gathering two or three Loan Estimates within the same short window, rather than spacing quotes out over weeks while the market moves, is the cleanest way to compare conventional offers on equal footing.

Common conventional loan mistakes

The recurring errors, gathered so you can avoid them.

• Assuming 20 percent down is required. Conventional programs commonly go as low as 3 to 5 percent on a primary residence; 20 percent only avoids PMI, it is not a minimum to qualify.
• Forgetting reserves exist separately from the down payment. Spending every available dollar on the down payment can leave a file short on required reserves, particularly on a second home or investment property.
• Taking on new debt or a new credit card before closing. A late pre-closing purchase can shift your DTI or your score enough to jeopardize an already-approved file.
• Comparing a second-home or investment-property quote against a primary-residence rate. Occupancy changes the pricing; comparing across categories is comparing different products.
• Treating the commonly cited DTI ceiling as a hard national rule. The actual ceiling your file is measured against depends on the program, the automated underwriting result, and your lender’s overlays.
• Not asking how PMI would cancel. PMI is generally temporary on a conventional loan; know the 80 and 78 percent thresholds before you assume you are stuck paying it indefinitely.
• Shopping only one lender. Overlays vary enough that the same file can be approved on noticeably different terms from one conventional lender to the next.

Conventional loan requirements checklist

A short list to work through before you apply.

• Pull your credit reports and correct any errors well before you apply, since corrections take time to post.
• Confirm your back-end DTI against the ceiling your target lender actually applies, not a general industry figure.
• Separate your down payment cash from your reserve cash in your own budgeting, and confirm the reserve months your specific scenario requires.
• Gather two years of income and employment documentation, plus a clear paper trail for any large deposit.
• Decide your occupancy honestly, primary residence, second home, or investment property, since it changes nearly every other number.
• Get quotes from more than one lender, since overlays and PMI pricing both vary meaningfully.
• Run your own numbers through the companion calculator on this page before you commit to a price range.

The bottom line

A conventional loan is defined by one fact, no government agency insures it, and every requirement in this checklist follows from lenders and, usually, Fannie Mae or Freddie Mac pricing that risk themselves: a credit score commonly cited around 620 and up, a down payment starting around 3 to 5 percent on a primary residence and rising for a second home or investment property, a back-end DTI commonly referenced around 45 percent, and PMI below 20 percent down that can be cancelled once equity grows. Occupancy is the lever that moves nearly every other number, and documentation is the part that most often slows an otherwise qualifying file down. Run your own price, down payment, income, and debts through the companion calculator on this page, compare it against the FHA alternative if you are genuinely undecided, and confirm the live requirements with a licensed mortgage professional before you commit to a purchase or a refinance.

This breakdown is educational general information, not mortgage, financial, or legal advice, and RefiNook is not your lender. Conventional loan requirements are set by individual lenders layered on top of Fannie Mae and Freddie Mac guidelines, which are revised over time, so every credit score, down payment percentage, DTI ceiling, PMI rate, and dollar figure here is a round illustrative example chosen to show how conventional underwriting behaves, not a quote or a promise. Real requirements differ by lender, loan program, property type, occupancy, and your own profile. Confirm current requirements, rates, and PMI terms with a licensed mortgage professional before you plan a purchase or refinance around any figure in this breakdown.

Edited by Hamza Hai, MBA · Editor

Hamza Hai is the editor of RefiNook. She holds an MBA and reviews the site's articles against our editorial standards, checking that every figure is labelled for what it is, that nothing is presented as verified fact without a source the reader can check, and that the writing stays useful to a non-specialist.

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