Conventional Loan Requirements: Credit, Down Payment, DTI & More

Minimum credit score: 620 for most conventional lenders. Best rates typically require 740+.

Score ranges and what they mean: 620–639: Marginal, you may qualify but expect higher rates and stricter scrutiny. 640–679: Fair, qualified but rates will be above average. 680–739: Good, competitive rates, normal documentation. 740+: Excellent, best available rates, smoothest process.

Conventional loans are credit-score-sensitive in a way FHA loans are not. A 760 score versus a 680 score can result in a rate difference of 0.5–0.75%, which on a $400,000 loan is roughly $120–$180/month.

Multiple borrowers: If applying with a co-borrower, the lender typically uses the lower middle score of both borrowers for qualification purposes.

Minimum down payment: 3% for first-time buyers through Fannie Mae HomeReady and Freddie Mac Home Possible programs. 5% for standard conventional with no income limits. 20% to avoid PMI entirely.

Below 20% down triggers PMI: Typically 0.2%–1.5% of the loan amount per year, added to your monthly payment. PMI cancels when your balance reaches 80% of the original purchase price, automatically at 78%.

Investment properties: 15–25% down required. No HomeReady/Home Possible eligibility.

Second homes: 10% minimum down payment.

DTI ratio is your total monthly debt payments divided by your gross monthly income. Conventional loans allow up to 45% DTI in most cases, with strong compensating factors allowing up to 50%.

Front-end DTI (housing only): Your proposed monthly PITI payment ÷ gross monthly income. Generally should be below 28%.

Back-end DTI (all debts): All monthly minimum debt payments (mortgage, car, student loans, credit cards, etc.) ÷ gross monthly income. Max 45–50%.

Example: $8,000/mo gross income. Max total debt payments at 45% = $3,600/mo. If your proposed mortgage PITI is $2,400 and you have $600 in other debts = $3,000 total = 37.5% DTI. Well within range.

Employment history: 2 years of continuous employment in the same field preferred. Job changes within the same industry are generally acceptable. Gaps of more than 30 days require explanation.

Self-employed borrowers: Must provide 2 years of business and personal tax returns. Income is calculated based on net income after deductions, not gross revenue.

Other income sources accepted: Rental income (with 2-year history and current lease), investment income (dividends, interest), Social Security/disability, retirement/pension, alimony/child support (if ongoing).

Income documentation: Most recent 30 days of pay stubs, 2 years of W-2s, 2 years of federal tax returns for self-employed or complex income situations.

Choose conventional if: You have a 680+ credit score and can put at least 5–10% down. PMI will be lower than FHA MIP for good-credit borrowers. And PMI cancels, FHA MIP doesn't (for most loans).

Choose FHA if: Credit score is below 660, you're putting down less than 5%, or you have higher debt levels. FHA is more forgiving on these fronts.

Break-even analysis: For a borrower with 5% down and a 680 score, FHA MIP vs. conventional PMI: FHA MIP is often higher per month but FHA rates may be lower. Run both scenarios with your loan officer, the 5-year total cost is what matters.