The Quick Read: A conventional loan follows the underwriting rules set by Fannie Mae and Freddie Mac, and it has no government insurance behind it. To qualify, a borrower needs a workable credit score, a debt-to-income ratio inside the automated or manual limit, documented stable income, and a property that meets agency standards. Leverage runs up to 97% on a one-unit home for first-time buyers and 95% for most other buyers on a principal residence, subject to lender guidelines and full file review.
Most buyers ask one question first: “Do I need 20% down?” No. The harder questions come after that, and this article walks through them in the order a file actually moves. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
Key Takeaways
- Occupancy sets leverage. A principal residence gets the highest loan-to-value (LTV). Second homes and rentals get less.
- Mortgage insurance applies above 80% LTV, and on conventional loans it is not permanent.
- There is no single debt-to-income (DTI) limit. It depends on whether software or a person underwrites the file.
- Lenders can be stricter than the agencies. That is why one lender’s answer differs from another’s.
Conventional payment estimate
The starting figures are an example price at the first-time buyer’s minimum down payment. Replace them with yours.
Editable benchmark: 7.32% as of October 22, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not a conventional loan quote.
Estimate seeded at the low end of Fannie Mae’s published range (0.58%–1.86% a year); the insurer prices the actual premium on the score and the leverage. Applies only above 80% loan-to-value.
Illustrative starting assumptions: a $350,000 price, the first-time buyer’s minimum down payment, a thirty-year term at the current Freddie Mac benchmark, mortgage insurance at the low end of Fannie Mae’s published range, and property taxes and insurance estimated at typical national rates. Every field is editable.
Illustrative estimate only — not a Loan Estimate, approval, quote, or commitment to lend. The rate field carries the weekly Freddie Mac thirty-year conventional benchmark, a market reference and not a conventional loan quote; your rate is set by the lender at lock. The mortgage insurance figure is an editable estimate seeded from Fannie Mae’s published typical range, not a premium quote; the insurer prices the actual premium, and the cancellation month assumes scheduled payments with no extra principal and no change in value. Taxes, insurance and dues are editable estimates; closing costs are not included. Conforming loan limits apply by county. Licensed in sixteen states for consumer mortgages.
What “Conventional” and “Conforming” Mean
A conventional loan is a mortgage that no government agency insures. A conforming loan is a conventional loan that Fannie Mae or Freddie Mac can buy. To be conforming, it must meet their guides and stay under the county loan limit that the Federal Housing Finance Agency (FHFA) sets each year. Go above that limit and it becomes a jumbo loan, which follows lender rules instead of agency rules.
Neither agency lends to you. Lenders originate the loan, then sell it. That’s why the agencies’ rules govern loans they never write. If a loan doesn’t fit their guides, the lender can’t sell it on easily, so lenders underwrite to those guides closely.
The two rulebooks are the Fannie Mae Selling Guide and the Freddie Mac Single-Family Seller/Servicer Guide. They overlap heavily. Where they differ, the differences show up in the details: Freddie Mac’s Home Possible and HomeOne options versus Fannie Mae’s HomeReady, and the way each automated system weighs a file.
Across the wholesale programs placed through Lendmire’s conventional loan programs, the agency guide is the starting point. The lender’s own overlays are the second layer.
Who Sets Which Rules
Four parties shape a conventional file, and each controls something different.
- FHFA sets the conforming loan limits. They vary by county and by unit count, and the limit does not fall when home prices fall. Check FHFA’s current list rather than relying on a number in an article.
- Fannie Mae and Freddie Mac set underwriting and eligibility rules.
- The lender may add overlays, which are stricter rules than the agency requires. A higher credit floor is the common one.
- The federal consumer-finance regulator governs consumer protection, including repayment-capacity rules and mortgage insurance cancellation.
The Fannie Mae Eligibility Matrix pulls much of this together. It sets maximum LTV, minimum credit score, reserves, and the manual-underwriting DTI by transaction type. Fannie Mae updates it periodically, so the current version is the one to read.
How a Conventional Loan Is Underwritten, Step by Step
1. Application. The borrower completes the standard loan application, which asks for a two-year employment history.
2. Credit pull. The lender pulls a merged credit report. Freddie Mac requires scores from at least two credit reporting agencies.
3. Automated underwriting. The lender runs the file through Fannie Mae’s Desktop Underwriter (DU) or Freddie Mac’s Loan Product Advisor (LPA). The result is Approve/Eligible, Accept, or a referral to manual underwriting.
4. Income, assets, and DTI. The lender documents income, adds the new housing payment and other monthly debts, and divides by gross monthly income.
5. Valuation. This can be a full appraisal, or in some cases a value acceptance offer.
6. Mortgage insurance. If LTV is above 80%, insurance is arranged.
7. Final conditions and closing. The lender clears remaining conditions, closes, and sells the loan.
A Loan Estimate and a Closing Disclosure bracket the process. They are the documents that show the loan’s real terms.
What decides the outcome? The automated finding, the pairing of credit score and LTV, the DTI, reserves, stable income, the property’s value and condition, and occupancy. Those seven things.
Credit Score: Why There Isn’t One Number
Many borrowers hunt for “the” minimum score. It doesn’t exist as a single figure.
Fannie Mae’s Selling Guide section on credit scores says the minimum depends on LTV, loan purpose, units, amortization type, and DTI, and it points to the Eligibility Matrix. For a single borrower, the representative score is used. For several borrowers, it is the average of the median scores.
Freddie Mac handles it differently. Under Guide section 5203.2, no minimum Indicator Score is required for an LPA “Accept” mortgage, because the system has already judged the credit reputation acceptable.
That is the agency view. In practice, the wholesale conventional programs Lendmire works with generally start at a 620 decision score, and an adjustable-rate loan under manual underwriting starts at 640. The automated finding governs most files. Some lenders set a higher floor than the agencies do, which is one reason pricing and approvals differ from lender to lender.
If a borrower has no usable credit score, a path may still exist. Freddie Mac’s LPA can assess cash flow and rent-payment history, and Fannie Mae has nontraditional credit exceptions. These are narrower routes and depend on the lender.
Debt-to-Income: Two Ceilings, Not One
DTI is your total monthly debts, including the new payment for principal, interest, taxes, insurance, and any HOA dues, divided by gross monthly income. Taxes, insurance, and dues count against you, so a high-tax county can cut borrowing power even when the loan itself looks modest.
Per Fannie Mae Selling Guide B3-6-02, the limit depends on how the file is underwritten:
| Underwriting method | Maximum total DTI |
|---|---|
| Manual, standard | 36% |
| Manual, with score and reserve strength | 45% |
| Automated (DU) | 50% |
The 45% manual tier requires the credit score and reserves listed in the Eligibility Matrix. Cash-out refinances can carry a lower automated maximum, and non-occupant borrowers face a lower manual ratio. The wholesale conventional programs Lendmire places use a 50% ceiling on automated files.
New debt matters too. A car loan opened between application and closing can trigger re-underwriting, so hold off on financing anything until the loan has closed.
Down Payment and Leverage by Scenario
No, 20% isn’t required. Here is how leverage runs on a purchase under the programs Lendmire arranges, subject to lender guidelines:
| Scenario | Maximum LTV |
|---|---|
| One-unit principal residence, first-time buyer, fixed rate | 97% |
| One-unit principal residence, other buyers | 95% |
| Two- to four-unit principal residence | 95% |
| Second home | 90% |
| Investment property, one unit | 85% |
| Investment property, two to four units | 75% |
The first-time buyer tier uses the agency definition: no ownership interest in a residence during the previous three years. The 97% tier is for fixed-rate loans and runs through automated underwriting. Manual underwriting is capped lower.
Occupancy changes everything. If you plan to live in the home, you get the top row. If the plan is a second home or a rental, the cap drops, and the profile needs to be stronger. Intent to occupy is a legal representation on the loan, not a formality.
LTV uses the lower of the sales price or the appraised value. A home that appraises under contract price means a bigger down payment, or a renegotiation.
Income-Limited Programs
HomeReady and Home Possible are built for lower-down-payment buyers. Both carry an income limit of 80% of area median income, which is set by the property’s location, not where you work. Home Possible also requires homebuyer education when every borrower is a first-time buyer. Some of these programs allow combined LTV above 97% when paired with an affordable second lien, but that depends on the specific program and lender.
Mortgage Insurance: Temporary on Conventional Loans
Any conventional loan above 80% LTV needs mortgage insurance. Published typical annual premiums run from 0.58% to 1.86% of the balance. That is a range, not a quote, and the actual cost turns on credit score, LTV, and coverage. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
The good news: it ends.
- At 80% of the home’s original value, you may request cancellation. You need a good payment history, no subordinate liens, and no decline in value. The CFPB explains the request right.
- At 78% of original value, the servicer must terminate it automatically, if you are current.
Here’s the catch. 80% is a right to ask. Only 78% is automatic. Don’t stop paying the premium until the servicer confirms cancellation in writing. The cancellation rules also do not cover loans classed as high-risk. FHA’s insurance premium works under different rules, so don’t mix the two up.
Extra principal payments can reach 80% sooner. The first scheduled date should appear on your insurance disclosure.
Income, Employment, and Reserves
Income must be stable, documented, and likely to continue. Lenders look at the most recent two years for a reliable pattern. A shorter history can work when offsetting positives exist.
Self-employed borrowers generally provide two years of personal and business returns. One year may be allowed for a business at least five years old where the borrower has owned 25% or more for five years, and some shorter histories of at least 12 months are allowed in limited circumstances. Declining income can disqualify that income, and averaging needs history behind it. This is where file strength matters more than the headline rules.
Reserves are cash left after closing. The Eligibility Matrix ties reserve requirements to the transaction, and manual files at the 45% DTI tier lean on them hardest. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Where the General Rule Breaks
Rules are clean until a file lands in an edge case. These are the common ones.
Credit events. Agency waiting periods are four years from a chapter 7 discharge, seven from a foreclosure, and four from a short sale or deed-in-lieu. Shorter periods may apply with documented extenuating circumstances. These are the agencies’ rules, and a lender may ask for more.
Valuation. An appraisal isn’t always required. Fannie Mae uses “value acceptance,” where DU accepts a value from existing data, and a variation that uses a trained data collector instead of an appraiser. The system decides the offer. You can’t request it. Condition rating C6 properties are ineligible for sale to Fannie Mae, and an offer can disappear if the file changes.
Non-occupant co-borrowers. A parent can co-sign, but the limits tighten: a lower LTV cap and a lower manual DTI for the occupying borrower.
Two- to four-unit homes. Leverage is lower than on a one-unit home, and some programs, such as Home Possible, require landlord education on purchases.
Cash-out and rate-and-term refinances. These carry different leverage caps and pricing, and a program like Home Possible doesn’t allow cash-out. Lendmire’s piece Fannie Mae Cash-Out Refinance Guidelines for a Primary Home covers that lane.
Loan size. Above the county limit, jumbo rules take over. They are lender-level, not agency-level.
Fannie Mae vs. Freddie Mac: Does It Matter?
For most borrowers, the lender picks the agency, and the file looks the same either way. A few differences show up in practice.
| Factor | Fannie Mae | Freddie Mac |
|---|---|---|
| Automated system | Desktop Underwriter | Loan Product Advisor |
| Low-down-payment program | HomeReady | Home Possible, HomeOne |
| Minimum score logic | Set in Eligibility Matrix | None for LPA Accept |
| Valuation offer | Value acceptance | ACE |
The practical point: if one automated system returns a poor finding, a lender sometimes can run the other. Whether that helps depends on the file.
Why One Lender Says Yes and Another Says No
Agencies set the floor. Lenders sit on top of it. A lender that has been forced to repurchase loans may add overlays, like a higher score minimum or a tighter DTI. Those overlays aren’t published in the agency guide, which is why two lenders can read the same borrower differently.
That’s the case for working with a broker. A mortgage broker like Lendmire arranges these loans through multiple wholesale lenders, so a file that hits one lender’s overlay can be placed with another whose overlay doesn’t apply. It doesn’t change the agency rules. It changes which lender applies them.
Worked Walk-Through
Consider a first-time buyer purchasing a one-unit home to live in, fixed rate, with 3% down. Run it through the tests in order. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
- Occupancy: principal residence, so the 97% tier is available.
- Income program? If the household earns under 80% of area median income for the property’s location, HomeReady or Home Possible may apply.
- Credit: the automated finding governs, and a 620 decision score is the wholesale starting point.
- DTI: the new payment plus existing debts must fit under the 50% automated ceiling.
- Mortgage insurance: required, because LTV is above 80%.
- Property: it must appraise at or above the price and meet condition standards.
- Reserves and documentation: two years of steady income, and assets to cover the down payment and any reserves.
If the file fails, the usual fix is the DTI. Paying down a card or adding a co-borrower often moves it more than anything else. If the DTI is the problem, a bigger down payment alone won’t solve it.
Common Mistakes and Myths
- “I need 20% down.” No. Mortgage insurance applies above 80% LTV, and it can be removed later.
- “PMI lasts forever.” Not on conventional loans.
- “There’s one DTI limit.” There are several.
- “The appraisal is always required.” Not when the system offers value acceptance.
- “The loan limit is the same everywhere.” It varies by county and unit count.
- “Opening new credit before closing is fine.” It can force a re-run of the file.
Frequently Asked Questions
Can I get a conventional loan with a credit score under 620?
It’s difficult. The wholesale conventional programs Lendmire works with start at a 620 decision score, and some lenders set higher floors. Freddie Mac says no minimum Indicator Score is required for LPA Accept loans, and nontraditional credit paths exist, but those are narrow and lender-dependent.
What’s the lowest down payment on a conventional purchase?
Three percent, on a one-unit principal residence with a fixed rate, when at least one borrower is a first-time buyer. Other buyers on a principal residence generally put down 5%. Second homes and rentals require more. Everything is subject to lender guidelines and full file review.
Does a higher DTI always mean denial?
No. Automated underwriting allows up to 50%, while manual underwriting runs 36% or 45%. Strong credit, reserves, and stable income help a high-DTI file. Weak ones sink it.
When does PMI come off a conventional loan?
You can ask for cancellation at 80% of original value, and the servicer must end it automatically at 78% if you are current. Confirm cancellation in writing before you stop paying.
Can a lender be stricter than Fannie Mae or Freddie Mac?
Yes. Those stricter rules are called overlays, and they explain why one lender approves a file another declines.
If you are buying a home and want to see whether a conventional loan fits your file, Lendmire can help you compare the options and what each one asks of the file.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire, NMLS# 2371349, is a mortgage brokerage with consumer lending licenses in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending partners, and each application is reviewed individually by the lender. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Fannie Mae Eligibility Matrix
2. Fannie Mae Selling Guide B3-5.1-01: Credit Scores
4. Fannie Mae Selling Guide B3-6-02: Debt-to-Income Ratios
5. CFPB
This article is part of Lendmire’s conventional loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How to Get a Pre-Approval for a Conventional Loan · Fannie Mae Cash-Out Refinance Appraisal Requirements · Freddie Mac Cash-Out Refinance Requirements for a Primary Home
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.