A 700 credit score, 10% down, and nine years at the same employer. On paper, Marisa looked like a textbook conventional borrower. Then underwriting opened her file and found a $465 car payment, a $210 student loan she had co-signed for her brother, and a condo building sitting at 48% owner occupancy. The loan died three days before closing.
That gap is what most homebuyer guides skip. Conventional loan requirements are not a single checklist you clear once. They are a stack of tests applied to your income, your debts, the property itself, and the paper trail connecting all three. Fail one and the rest stop mattering.
What “conventional” actually means
A conventional mortgage is any home loan not backed by a government agency. No FHA insurance, no VA guaranty, no USDA rural designation. Because these loans are sold to Fannie Mae and Freddie Mac, they follow a shared rulebook, which is why the requirements look similar at a credit union, a mortgage broker, and a big national bank. The rules are consistent, but lenders layer their own overlays on top, so a 620 minimum can quietly become 640 at one shop and stay 620 at another.
The five requirements that decide most applications
Credit score: 620 is the floor, not the goal
Fannie Mae’s baseline is a 620 median score on the middle of your three credit reports. That gets you in the door. It does not get you a good price. At 620 with 5% down, expect pricing in the high range and mortgage insurance that stings. Cross 740 and the same loan can cost meaningfully less each month for the identical house. Between 620 and 740, every 20 points tends to move the rate a little.
One nuance people miss: the score that matters is the middle of three, not the highest. If your reports show 702, 688, and 731, underwriting uses 702.
Debt-to-income ratio: the number that sinks the most files
DTI compares every monthly debt obligation to your gross monthly income. Fannie Mae generally caps it at 45% with a standard automated approval, though strong compensating factors like six months of reserves or a long history of saving can push to 50%. Above 50%, you need a manual underwrite and a very persuasive story.
Here’s how it works with real numbers. A household earning $7,800 a month gross has a proposed housing payment of $2,340 including taxes, insurance, and any HOA dues. Add a $465 car payment, $210 in student loans, and $75 in minimum card payments. Total obligations: $3,090, or 39.6% DTI. Comfortable. Now replace the paid-off car with a $610 lease and add a second card at $140. The ratio climbs to 43.4%. Still approvable, but the automated system may flag it and ask for explanations.
Down payment: 3% exists, 20% just skips the insurance
Conventional loans do not require 20% down. They haven’t for years. The real structure:
- 3% down on a one-unit primary residence through Fannie Mae HomeReady or Freddie Mac Home Possible, both income-capped
- 5% down on a standard conventional loan with no income limit
- 15% down to reduce mortgage insurance on some programs
- 20% down to eliminate private mortgage insurance entirely
- 25% down on a second home or investment property, often more
The 3% route is genuinely useful for buyers under the area median income, though the mortgage insurance never fully drops off on HomeReady the way it does on a standard conventional loan at 80% loan-to-value. If your income sits near the cap, run the comparison carefully. For buyers with tighter finances, an FHA loan for low income buyers sometimes beats a 3% conventional deal on total monthly cost, even with the upfront insurance premium.
Cash reserves and asset documentation
Most conventional approvals want two months of reserves covering the full housing payment, and investment properties typically require six. Reserves must be verifiable. Cash in a shoebox does not count. Checking and savings statements, retirement accounts at 60% of vested value, and documented gift funds all qualify.
Gifts are allowed on conventional loans for primary residences, but the donor needs a signed letter stating the money is a gift with no repayment expected, plus evidence of where it came from. A $15,000 deposit with no paper trail is one of the most common reasons a file stalls.
Property condition and appraisal
The house has to be safe, sound, and structurally secure. Conventional appraisals are less picky than FHA’s, but peeling paint on a pre-1978 home, a roof at the end of its life, or an active leak can still trigger a repair requirement or a value cut. Two- to four-unit properties are allowed on conventional loans with slightly higher down payments, and if you are weighing a small multi-family building, the trade-offs between programs get real fast, as laid out in this comparison of buying a duplex with 3.5% down.
Loan limits set a hard ceiling
Conventional loans are capped by the conforming loan limit. For 2025, that’s $806,500 for a single-family home in most of the country, rising to $1,209,750 in high-cost markets like parts of California, Colorado, and the Northeast. Go one dollar over and you’re in jumbo territory with tighter credit and reserve requirements. Two- to four-unit properties have their own, higher limits.
The documents you’ll be asked to produce
Expect to hand over 30 days of pay stubs, two years of W-2s, two months of bank and brokerage statements, and a signed explanation letter for any large deposit. Self-employed borrowers need two years of federal tax returns with all schedules, plus a current profit-and-loss statement. Rental income requires leases and Schedule E. Child support, alimony, and pension income each have their own documentation rules.
Where conventional rules get stricter than government loans
Conventional underwriting scrutinizes self-employment income more aggressively than FHA. If you write off a large home office deduction or a business vehicle, your qualifying income drops, sometimes by 20% or more. A borrower who earns $140,000 but shows $88,000 after deductions qualifies on the $88,000. The same self-employed borrower often has an easier path with an FHA loan’s more forgiving income treatment, though the mortgage insurance costs run for the life of the loan.
Conventional also penalizes high DTI more than VA, which is one reason veterans comparing programs often find the VA option cheaper over 30 years, a point broken down in this FHA versus VA cost comparison.
The quiet disqualifiers nobody warns you about
Condos are a category unto themselves. If the building isn’t on Fannie Mae’s approved list or fails the owner-occupancy, budget, or insurance tests, the loan is dead regardless of your credit. Non-warrantable condos with heavy investor concentration or litigation are the usual culprits, and the same building-level traps show up in what gets an FHA condo approved.
Other files that die late: a job change during underwriting without a new written verification, an undisclosed debt that shows up on a final credit refresh, a $12,000 Venmo deposit from a parent with no letter, and a credit inquiry that turns into a new auto loan before closing. Lenders pull your credit again days before funding. Assume every account will be seen.
How to strengthen your file before you apply
Pull your three credit reports and dispute errors 90 days out. Pay down revolving balances below 30% utilization, ideally below 10%, because that can lift scores 20 to 40 points within two billing cycles. Avoid opening any new credit for six months. Save your down payment in one account and leave it alone for at least 60 days so it seasons. Gather two years of tax returns with every schedule attached. If you’re self-employed, talk to a loan officer about how your write-offs affect qualifying income before you fall in love with a house.
The borrowers who sail through underwriting are rarely the ones with the highest scores. They’re the ones who handed over a clean, complete file on day one and knew in advance which number would be scrutinized hardest.