Conventional loans are one of the most popular types of mortgages: almost all lenders offer them. In August 2020, 82% of all closed mortgages were conventional loans, according to a report by Ellie Mae, making them far more popular than FHA, VA, or other home loans.<\/p>\n
Conventional loans tend to have stricter requirements than government-backed mortgages. But with so many homeowners meeting these requirements, a conventional loan might be more accessible than you think.<\/p>\n
Here\u2019s what you should know about conventional loans before you apply:<\/b><\/p>\n <\/a><\/p>\n A conventional mortgage<\/a> is a home loan<\/a> not backed by a government agency such as the FHA, VA, or USDA.<\/p>\n Lenders often sell conventional loans to Fannie Mae or Freddie Mac, which are government-sponsored enterprises (GSEs) that help make mortgage financing available.<\/p>\n While GSEs have financial qualifications that determine who can borrow money for a home and what type of property the loan can finance, they are typically less restrictive than government agencies.<\/p>\n Learn More: <\/i><\/b>FHA Loan Requirements and Qualifications<\/i><\/b><\/a><\/p>\n <\/a><\/p>\n Lenders view conventional loans as a higher risk because the government doesn\u2019t guarantee them. As a result, lenders stand to lose all of the remaining principal and interest on a mortgage<\/a> if the borrower ends up unable to make payments.<\/p>\n All conventional loans have to meet certain baseline requirements set by Fannie Mae and Freddie Mac. Each lender, however, is free to impose its own, higher standards, which are known in the business as \u201clender overlays.\u201d What lenders cannot do is impose standards that would qualify as mortgage discrimination.<\/p>\n As a borrower, these are the minimum conventional loan requirements you should be prepared to meet:<\/p>\n Find My Rate<\/a> <\/p>\n <\/div><\/div><\/p>\n\n <\/a><\/p>\n Your credit score<\/a> might be the most important conventional mortgage requirement. If your score is not at least 620, you can\u2019t get approved. Your credit score also affects the mortgage rates lenders will offer you. The higher the score, the lower your rate.<\/p>\n While Fannie Mae and Freddie Mac\u2019s minimum credit score requirement is 620, lenders might require your score to be higher.<\/p>\n <\/a><\/p>\n Your debt-to-income, or DTI<\/a>, is a percentage that tells lenders how much of your total monthly income goes toward debt payments each month, such as your credit cards and student loans.<\/p>\n (Total monthly debt) \/ (Gross monthly income) x 100 = DTI<\/b><\/p>\n For example, say you\u2019re considering a mortgage payment of $1,200. You have a $300 student loan payment and a $250 car payment, and your gross income is $5,000. Here\u2019s how you would calculate your DTI:<\/p>\n ($1,200 + $300 + $250) \/ $5,000 = 0.35 or 35%<\/b><\/div><\/div>\n In some cases, you\u2019ll need a DTI of 36% or less in order to borrow from certain mortgage lenders<\/a>, especially if your credit score is below 700. If you can\u2019t reduce your monthly debt to get below this level, you might want to apply for a smaller mortgage.<\/p>\n Learn More: How to Get a Small Mortgage Loan<\/a><\/em><\/strong><\/p>\n <\/a><\/p>\n Many people assume you have to put down 20% for a conventional loan. Fannie Mae and Freddie Mac, however, only require 3% down.<\/p>\n A piggyback loan<\/a> \u2014 also known as an 80\/10\/10 loan \u2014 can get you out of this requirement. With a piggyback loan, you put 10% down, but the other 90% of the home\u2019s purchase price is split into two mortgage loans: a main mortgage of 80% and a second \u201cpiggyback\u201d mortgage of 10%. The combination of your down payment and the secondary mortgage allows you to avoid PMI.<\/div><\/div>\n Not everyone will get approved for a loan with a down payment<\/a> as low as 3%. For example, Fannie Mae\u2019s 97% LTV Standard mortgage \u2014 also known as a Conventional 97 loan \u2014 allows 3% down but requires at least one borrower to be a first-time buyer<\/a>, and Freddie Mac\u2019s Home Possible program requires a credit score of at least 660.<\/p>\n Here are some popular low-down-payment conventional mortgage programs to consider:<\/b><\/p>\n\n\n
What is a conventional loan?<\/h2>\n
Requirements for a conventional loan<\/h2>\n
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Credible makes finding a mortgage easy<\/strong><\/span><\/h3>\n
Compare prequalified mortgage rates from top lenders in just 3 minutes.<\/h6>\n
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\n<\/p>\nCredit score of at least 620<\/h3>\n
Debt-to-income ratio of no more than 45%<\/h3>\n
Minimum down payment of 3%, or 20% with no PMI<\/h3>\n