Conventional Loan Requirements 2025: Credit Score, DTI & Down Payment
Conventional loans are the most widely used mortgage type in the US — and unlike FHA or VA loans, they’re not backed by a government agency. That means lenders set their own standards within guidelines established by Fannie Mae and Freddie Mac, the two government-sponsored enterprises that buy most conventional mortgages. Here’s exactly what you need to qualify.
Conventional Loan Requirements at a Glance
| Requirement | Standard | With Compensating Factors |
|---|---|---|
| Minimum credit score | 620 | — |
| Minimum down payment | 3% (HomeReady/Home Possible) / 5% standard | — |
| Maximum DTI | 43–45% | Up to 50% |
| PMI required | Yes, if <20% down | Cancels at 20% equity |
| Loan limit (2025) | $806,500 (conforming) | Higher in designated high-cost counties |
| Property types | Primary, second home, investment | — |
| Occupancy | Any (primary, secondary, investment) | — |
Credit Score
Minimum: 620. Below this, you can’t get a conventional loan through Fannie Mae or Freddie Mac guidelines. You’d need FHA (580+) or another program.
But qualifying and qualifying well are different. Conventional loan pricing is heavily tiered by credit score:
| Credit Score | Rate Tier | PMI Cost |
|---|---|---|
| 760+ | Best | Lowest |
| 740–759 | Very good | Low |
| 720–739 | Good | Moderate-low |
| 700–719 | Average | Moderate |
| 680–699 | Below average | Moderate-high |
| 660–679 | Poor | High |
| 640–659 | Very poor | Very high |
| 620–639 | Minimum | Highest |
At 620, you’re at the floor — you qualify, but you’ll pay significantly more in both rate and PMI than a buyer at 720+. For most buyers, the target score for competitive conventional terms is 720 or above.
If you’re applying jointly, the lender uses the lower of the two middle scores. A co-borrower with a 580 score doesn’t help — it actively hurts.
Down Payment
Standard minimum: 5%. For a $400,000 home, that’s $20,000 at closing (plus closing costs).
3% down programs: Fannie Mae’s HomeReady and Freddie Mac’s Home Possible allow 3% down for buyers at or below their area’s median income. These programs have income limits but otherwise use standard conventional underwriting.
20% down: Eliminates PMI entirely. This is the threshold most buyers aim for to avoid the additional monthly cost.
Key difference from FHA: Conventional PMI cancels automatically when you reach 20% equity. FHA’s mortgage insurance on loans with under 10% down lasts the full 30 years. This makes conventional the better long-term choice for buyers who can qualify.
Debt-to-Income Ratio (DTI)
Standard maximum: 43–45%. Fannie Mae’s automated underwriting (Desktop Underwriter) can approve up to 50% DTI for borrowers with strong compensating factors.
Freddie Mac (Loan Prospector) is slightly more conservative in practice.
What counts in DTI:
- Proposed mortgage PITI + PMI
- Car loans, student loans (minimum payments)
- Credit card minimum payments
- Personal loans, other mortgages
- Child support / alimony (court-ordered)
What doesn’t count:
- Utilities, insurance premiums, subscriptions
- Child care (generally excluded)
- Living expenses
Income Requirements
No minimum income level — only DTI ratio requirements. Both W-2 and self-employed income qualify, with different documentation standards.
W-2 employees: 2 years of employment history. Recent job changes in the same field are generally acceptable if income is stable or increasing.
Self-employed: 2 years of tax returns. Lenders use net income (after business deductions), which may be lower than gross revenue. A strong 2-year average is required — declining income year-over-year raises flags.
Part-time/overtime/bonus income: Counted if you have a 2-year documented history of receiving it. One-time bonuses don’t count.
Rental income: 75% of documented gross rent from Schedule E.
Loan Limits (2025)
Conforming loan limit: $806,500 for a single-family home in most US counties.
High-cost areas: Up to $1,209,750 in counties where home prices are significantly above average (parts of California, New York, Hawaii, Colorado, etc.).
Loans above the conforming limit are jumbo loans — they follow different (stricter) underwriting guidelines and typically require 10–20% down, a 700+ credit score, and more cash reserves.
Property Requirements
Conventional loans are available for:
- Primary residences (single-family, condo, townhome, 2–4 unit)
- Second homes / vacation properties (typically 10% minimum down)
- Investment properties (typically 15–25% minimum down)
Condo requirements: The condo project must meet Fannie Mae or Freddie Mac’s warrantability standards. Non-warrantable condos (too many investor-owned units, active litigation against the HOA, etc.) require portfolio or non-QM financing.
Property condition: Conventional appraisals are less prescriptive than FHA. Minor cosmetic issues don’t create loan conditions. However, significant structural, safety, or habitability issues will still be flagged.
PMI: The Key Cost Variable
Private Mortgage Insurance (PMI) is required on conventional loans with less than 20% down. Unlike FHA’s MIP, PMI:
- Cancels automatically at 78% LTV (federal law — Homeowners Protection Act)
- Can be requested to cancel at 80% LTV with a good payment history
- Rates vary by credit score and LTV — unlike FHA’s flat rate
Approximate annual PMI rates by credit score (5% down, $380,000 loan):
| Credit Score | Annual PMI Rate | Monthly PMI |
|---|---|---|
| 760+ | 0.20–0.30% | $63–$95 |
| 720–759 | 0.30–0.50% | $95–$158 |
| 700–719 | 0.50–0.70% | $158–$222 |
| 680–699 | 0.70–0.90% | $222–$285 |
| 660–679 | 0.90–1.20% | $285–$380 |
| 620–659 | 1.20–1.80% | $380–$570 |
At 620, PMI on a $380,000 loan can cost $380–$570/month — more than some car payments, and on top of a higher interest rate. This is why improving your score before applying has such a large financial impact.
Reserves Requirement
Unlike FHA, conventional loans often require post-closing reserves — money left in savings after paying the down payment and closing costs.
- Primary residence: Usually 2 months PITI (varies by loan size and credit profile)
- Second home: 2–6 months typically required
- Investment property: 6 months or more
Strong reserves are one of the most powerful compensating factors for conventional loan approvals with higher DTI or lower credit scores.
Conventional vs. FHA: Quick Decision Guide
| Situation | Better Choice |
|---|---|
| Credit score 720+ | Conventional |
| Credit score 580–679 | FHA |
| 20% down payment | Conventional |
| Want PMI to cancel | Conventional |
| High DTI (45–57%) | FHA |
| Buying investment property | Conventional |
| Recent bankruptcy/foreclosure | FHA (shorter wait) |
Frequently Asked Questions
Can I get a conventional loan with a 600 credit score? No. The minimum is 620. At 600, your options are FHA (if 580+) or working to improve your score before applying.
Is there a maximum income limit for conventional loans? Standard conventional loans have no income limit. HomeReady and Home Possible (3% down programs) do have income limits tied to area median income — typically 80% of AMI.
How long after bankruptcy can I get a conventional loan? Chapter 7: 4 years from discharge. Chapter 13: 2 years from discharge or 4 years from dismissal. These are longer than FHA’s 2-year Chapter 7 waiting period.
Can I use gift funds for a conventional down payment? Yes, for primary residences, with a gift letter. For second homes or investment properties, rules are stricter — typically the buyer must contribute some portion from their own funds.
The Bottom Line
Conventional loans offer the best rates and lowest long-term costs for buyers with strong credit (720+) and meaningful down payments. The PMI cancellation feature makes them far more cost-effective than FHA over a 10–30 year hold.
For buyers at or below 680 credit with minimal down payment savings, FHA remains the more accessible path. The math on which is better depends on your specific credit score, down payment, and how long you plan to stay in the home.
Next step: Comparing loan options? Read FHA vs. Conventional Loan: Which Is Better for You? for a full cost comparison.
Sources
- Fannie Mae Selling Guide: B3-3, Income Assessment — fanniemae.com
- Freddie Mac Single-Family Seller/Servicer Guide — freddiemac.com
- Federal Housing Finance Agency: 2025 Conforming Loan Limits — fhfa.gov
Disclaimer: Loan requirements and limits change annually. Verify current standards with a licensed mortgage professional. HomeFinanceLab.com is not a lender and does not originate loans.
