A conventional loan is often a cost-effective mortgage option for borrowers with solid credit. It has no upfront mortgage insurance fee, offers flexibility across several property types, and may allow you to drop mortgage insurance after building enough equity.
Conventional loan requirements generally follow guidelines set by Fannie Mae and Freddie Mac, the two companies that buy most conventional loans from lenders after closing. A loan that meets their rules is called a "conforming loan." Staying within the conforming loan limit may give you access to different pricing and qualification options. Going above it doesn’t always mean a higher rate, though: jumbo loans are priced on their own, so compare the available terms and total costs.
Even when two lenders both offer conventional loans, they may apply different underwriting overlays, which is why one lender may approve a file another declines. Your credit score, down payment and debt-to-income ratio, more than the loan type itself, tend to shape your final pricing.
Conventional loan requirements at a glance
- Minimum credit score
- Varies by underwriting method and lender. Automated underwriting (such as Fannie Mae’s Desktop Underwriter) evaluates overall credit risk rather than applying a single minimum score. Manual underwriting and lender overlays typically set their own minimums, often around 620. Scores of 740 or higher generally support more favorable pricing.
- Down payment
- Low down payment options for eligible borrowers and programs; requirements vary by occupancy, property and product.
- Maximum DTI
- Varies by underwriting method. Manual underwriting is typically capped around 36%, with exceptions up to 45% for borrowers who meet compensating-factor requirements. Automated underwriting may allow ratios up to 50%, subject to the system’s findings and lender overlays.
- PMI
- Generally required when the loan is more than 80% of the home’s value. Under the Homeowners Protection Act, eligible borrowers may request cancellation when the scheduled balance reaches 80% of the original value, and PMI generally ends automatically at a scheduled 78% if the loan is current.
- Eligible property types
- Single-family homes, condos, townhomes and two-to-four-unit properties
- Conforming loan limit
- Set each year by the FHFA (opens in a new tab) and varies by county
- Documentation
- Depends on your income and asset profile. It may include pay stubs, W-2s and bank statements, with tax returns typically required for self-employed borrowers or those with rental or other complex income.
These are general market guidelines, not a promise from Wonder Rates. Each lender adds its own rules on top of Fannie Mae and Freddie Mac’s baseline, so your exact terms can vary.
conventional_infographic · 1600×900DTI, LTV and PMI, explained simply
Debt-to-income ratio (DTI) is your total monthly debt divided by your gross monthly income, including your new mortgage payment. Maximum DTI varies by underwriting method, loan product and overall borrower profile. Manually underwritten loans are typically held to a lower ceiling, often around 36%, with room for higher ratios when a borrower meets specific compensating factors. Loans run through automated underwriting can be approved with ratios up to 50%, depending on the system’s findings and the lender’s own overlays. Run your own number with the DTI calculator.
Loan-to-value (LTV) works the other way. It compares what you owe to what the home is worth. Under the Homeowners Protection Act, eligible borrowers may request PMI cancellation when the loan balance is scheduled to reach 80% of the home’s original value, subject to payment history, property value, loan status and servicer requirements. PMI also generally terminates automatically once the scheduled balance reaches 78% of the original value, as long as the loan is current. This is one of the biggest cost advantages a conventional loan has over an FHA loan.
How it works with Wonder Rates
- 1
Check your scenario
Answer a few questions about your credit, income and target property. Ask whether an initial review can be completed without a hard credit pull.
- 2
See matched options
Wonder Rates shows you conventional loan scenarios based on typical lender rules for your profile, and you can compare them with other programs you may qualify for.
- 3
Talk to a loan officer
A licensed loan officer explains which documents you will need and answers questions about your DTI or PMI.
- 4
Lock and close
Once you pick a lender option, your loan officer walks you through the appraisal, underwriting and closing steps, with updates throughout so nothing feels like a mystery.
conventional_video · 16:9 embedA licensed loan officer can walk you through your own numbers, in English or Tiếng Việt.
Call 408-600-1900Who a conventional loan is for
The credit-ready first-time buyer
If your credit score is above 700 and you have some savings, a conventional loan may be worth comparing with FHA. The more cost-effective option depends on APR, mortgage insurance, fees and how long you expect to keep the home. You skip FHA’s upfront mortgage insurance premium, and you can drop PMI later. Our first-time home buying guide walks through the rest of the plan.
The homeowner ready to drop PMI
Maybe you have an FHA loan or a conventional loan with PMI. If payments or rising home values have built equity, refinancing into a new conventional loan may let you remove mortgage insurance once you reach 80% LTV. See when refinancing is worth it.
The condo buyer in a building FHA has not approved
Not every condo building meets FHA’s rules, and getting a building approved can take months. Conventional loans are usually more flexible here because they do not depend on FHA project approval.
The buyer of a second home or small investment property
Conventional loans can cover primary homes, second homes and investment properties with up to four units. FHA and VA loans generally do not, because those programs are built for owner-occupied primary homes. First-time buyers in California may also qualify for down payment assistance or other local benefits.
Pros and cons
Pros
- No upfront mortgage insurance fee, unlike FHA’s upfront MIP
- PMI cancellation can generally be requested once the scheduled balance reaches 80% of original value, unlike most FHA mortgage insurance
- Can finance primary homes, second homes and investment properties with up to four units
- Often a lower total cost over the life of the loan for borrowers with strong credit
Cons
- Manual underwriting and lender overlays often require a higher credit score than FHA for approval and more favorable pricing
- Down payment and savings requirements are often stricter for investment properties
- Manually underwritten loans are often capped more tightly on DTI than government-backed programs
- Documentation can be more involved for self-employed borrowers with complex income
Conventional vs. FHA: which is right for you?
Conventional and FHA loans solve different problems. Which one is better depends on your credit and how long you plan to stay in the home.
FHA loans are usually easier to qualify for, and some lenders accept lower credit scores than conventional programs do. That makes FHA a common choice for buyers still building their credit. The tradeoff is mortgage insurance: FHA charges an upfront premium at closing plus an ongoing annual premium, and for many FHA loans the annual premium does not go away unless you refinance out of the program.
Conventional loans usually ask for a higher credit score under manual underwriting or lender overlays. Depending on your profile and loan terms, conventional mortgage insurance may be more favorable over time: eligible borrowers may request PMI cancellation when the balance is scheduled to reach 80% of the home’s original value, and a loan at or below 80% of the home’s value may avoid PMI from the start.
If you are comparing both, look at the total cost over the number of years you plan to stay in the home, not only the rate at closing. The mortgage payment calculator and the rate comparison calculator can help you line up two scenarios side by side.
Wonder Rates compares Conventional options across multiple wholesale lenders.