Conventional Loan Requirements
- 640+ credit score
- 5% – 20% down payment
- 3% down with 97 Conventional loan
- Pay stubs, tax returns, and W2’s
- Full two years employment history
- Debt-to-income ratio must not exceed 43%
- Reserve funds of at least 2-3 months of mortgage payments
Down Payment Guidelines
- Down payment between 5%-20% of the sales price
- PMI required if the down payment is less than 20%
- Down payment can be a gift from a friend or family member
Pros and Cons of Conventional Loans
- Higher loan limits than FHA
- Adjustable-rate and fixed-rate loan terms available
- No private mortgage insurance (PMI) with 80% loan-to-value ratio
- Available for second homes and investment properties
- PMI cancels when the LTV reaches 78%
- Lower PMI rates than FHA
- Conventional 97 with 3% down
- Credit score requirement is higher than FHA (minimum 620-640)
- Higher down payment requirement (5%-20%)
- Qualifying guidelines are more strict
- Low-income borrowers may not qualify
Conforming loans are mortgage loans that are underwritten to standards issued by Government-backed entities Fannie Mae and Freddie Mac and make up more than half of all mortgages issued today.
Loans that do not meet these requirements are non-conforming, including jumbo loans, portfolio loans, and investor loans.
Conventional Loan Limits
- Low-cost areas: $410,400
- High-cost areas: $765,600
Conventional Loan Alternatives
If you find you’re not eligible for a conventional loan there are alternatives that are easier to qualify for. Government-backed loans are issued by private lenders and guaranteed by the Federal Government that have low down payment and credit requirements.
- FHA Loans – An FHA mortgage is popular for its low 580 credit score requirements and 3.5% down payment.
- VA Loans – VA loans are for Veterans; they come with no downpayment or mortgage insurance.
- USDA Loans – The Department of US Agriculture created the USDA guaranteed loan program for low-to-median income homebuyers in rural areas of the country.
A conventional loan may be a good fit for you if
- Minimum 640 FICO score
- Have a 20% down payment
- Want to avoid PMI by putting at least 20% down
- Have a high income (low debt-to-income ratio)
- Need a loan amount that is above the FHA loan limit