Conventional Loan Requirements: What You Need to Qualify

Conventional mortgages are home loans that are issued by private lenders, such as banks and credit unions. The benefit of a conventional mortgage is that it carries some of the best rates and terms available to borrowers who qualify. Read on to explore our complete breakdown of conventional mortgage loans, including how they compare to other mortgage types and what their requirements are.

What is a conventional loan?

A conventional loan (as opposed to a government-backed loan, such as an FHA or VA loan) is issued and backed by a mortgage lender, bank, or credit union. It’s the most common type of mortgage, making up 67.6% of home sales in 2023. 

Conventional mortgages are subdivided into conforming and non-conforming loans. Conforming loans meet the standards set forth by government-sponsored enterprises Fannie Mae and Freddie Mac that guarantee most mortgages. Nonconforming loans do not meet these same standards (i.e., they may exceed the maximum loan amount or deviate from the credit score requirements). 

Conventional loans tend to cost less than FHA and some other loan types, but can also be harder to qualify for. “Conventional loans revolve around the borrowers' qualifications and the amount of the down payment,” says Sara Coers, associate director of the University of Indiana Center for Real Estate Studies. “Borrowers meet the lenders' thresholds for credit scores, debt-to-income ratios (DTI), and source and regularity of income. Each lender has a different minimum for each of these categories. A borrower with a high credit score, low DTI, and a steady, established job with a W2 salary is likely to be rewarded with the best loan terms.”

Minimum credit score for a conventional loan

The general credit score requirement for a conventional loan is 620 and above. However, Nia Adams, certified financial education instructor and first-time homebuying educator, recommends that borrowers have a 720 score or higher for a better interest rate. 

“Lenders' guidelines fluctuate based on the risk they see in the market at any given time and the types of internal risk tolerance they hold as a lending institution,” Coers says. Each lender sets its own criteria for its loan products, so even if conforming conventional loans require a 620 score, a lender may require a higher score for certain types of loans. 

Down payment requirements for conventional loans

Conventional loans require at least a 3% down payment to qualify for the loan, though paying a larger down payment may be a good idea. “A 20% down payment is viewed as the gold standard down payment to protect the lender against the majority of default risk,” Coers says.

In addition, if you put down less than 20%, the lender might require you to pay for private mortgage (PMI) insurance each month, typically until you reach 20% equity in the home.

DTI guidelines

Another qualifying factor for conventional loans is the borrower’s DTI. This reflects your monthly debt obligations divided by your gross monthly income. Lenders want to ensure that your budget has enough room to accommodate your new mortgage payment. They generally require that your new mortgage payment plus your current debt payments are no more than 36% of your monthly gross income, though this limit can be as high as 45% for some loans. 

Loan limits for conventional loans in 2024

Fannie Mae and Freddie Mac have placed limits on how large a conventional mortgage can be. For most counties in the U.S. in 2024, the upper price limit is $766,550, though this can be as high as $1,149,825 in certain high-cost areas.