Conventional Loan Requirements for a Primary Home Purchase

The Quick Read: A conventional loan for the home you live in rests on five things: your down payment, your credit profile, your debt load against income, the cash you can document, and your promise to occupy the property. The wholesale programs Lendmire places files with allow 3% down for qualifying first-time buyers and 5% down for most other buyers. Mortgage insurance applies above 80% loan-to-value and can be removed later. Every figure here is subject to lender guidelines and full file review, and nothing is a commitment to lend.

What Makes a Loan “Conventional”?

A conventional loan is not insured by FHA, VA, or USDA. It follows Fannie Mae or Freddie Mac standards, so the lender can sell it after closing. Those standards set the limits on leverage, credit, ratios, and property type.

Lendmire is a mortgage broker, not a lender. It arranges conventional loan programs through wholesale lenders. Across the files we place, the agency rules set the outer boundary and the individual lender decides how close to that boundary it will go. A lender can add its own rules on top of the agency’s. That is why two lenders can give different answers on the same file.

Requirements at a Glance

How Much Down Do You Need?

You do not need 20% down. The wholesale programs allow 97% loan-to-value, which is 3% down, on a one-unit principal residence with a fixed rate when at least one borrower is a first-time buyer. First-time here means no ownership interest in a residence in the previous three years. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.

Everyone else generally puts down at least 5%, which is 95% loan-to-value. Two- to four-unit principal residences also go to 95%. The Fannie Mae Eligibility Matrix lays out these limits by occupancy and unit count. The 97% tier carries conditions in the matrix, so a lender confirms eligibility before you count on it.

Income-limited programs such as HomeReady and Home Possible cap borrower income at 80% of area median income. They can also allow gifts, grants, and community seconds as sources of funds.

Hold this thought: a bigger down payment lowers mortgage insurance and strengthens the file. A smaller one keeps cash in your pocket for repairs and reserves. Neither is automatically better.

What Credit Score Do You Need?

The wholesale conventional programs start at a 620 decision score. An adjustable rate under manual underwriting starts at 640. Most files run through automated underwriting, and that finding governs the result.

Fannie Mae no longer imposes a fixed minimum score inside its automated system. Even so, lenders keep their own floors, and pricing still moves with your score and your down payment. A higher score paired with more equity earns better terms. A lower score paired with a thin down payment costs more, or may push you toward another program.

Credit events carry agency waiting periods:

• Four years from a chapter 7 discharge.
• Seven years from a foreclosure.
• Four years from a short sale or deed-in-lieu.

Shorter waits may apply with documented extenuating circumstances.

How Debt-to-Income Works

Debt-to-income (DTI) is your total monthly obligations divided by your gross monthly income. Obligations include the new housing payment, which covers principal, interest, taxes, insurance, mortgage insurance, and any association dues. They also include car loans, student loans, and minimum card payments.

The ceilings are higher than many buyers assume. Automated findings allow a total ratio up to 50%. Under Selling Guide section B3-6-02, manually underwritten loans run at 36% or 45%, depending on the reserves and score factors in the Eligibility Matrix. If a new debt turns up before closing and pushes you past the ceiling, the loan is no longer eligible as structured.

Here is a scenario without dollar figures. Picture a buyer whose housing payment alone would use a modest slice of income, but who carries a car loan and student debt. The new payment pushes the total ratio toward the upper range. The automated system may still approve it with strong credit and reserves. The same file underwritten by hand might not clear 45%. Paying down a card or a car loan before applying can change which side of the line you land on.

What Does “Primary Residence” Actually Require?

Primary residence means you will live in the home as your main address. Under the standard security instrument, you move in within 60 days of signing and stay at least a year. That is a legal promise on the loan, not a suggestion.

Lenders re-verify occupancy because owner-occupied loans get the best leverage and pricing. Misstating it is a serious problem, not a technicality. If your plans are genuinely uncertain, say so before applying, and look at what a second-home lane asks. In short, occupancy decides the leverage: second homes go to 90%, and the owner-occupied numbers above do not carry over.

A few edge cases exist. Fannie Mae’s Top Trending Selling FAQs explain that some homes count as a principal residence even when the borrower will not live there, such as housing for a disabled adult child or a parent. With several borrowers, one occupant can be enough. A two- to four-unit purchase works as a primary home if you live in one unit.

Money Rules: Reserves, Gifts, and Large Deposits

Lenders want to see where your cash came from. Expect to provide recent bank statements, and expect questions about any single deposit larger than half of your monthly qualifying income. Borrowed funds must be accounted for.

Gift funds generally need a gift letter and proof the money moved. Seller credits are capped by a sliding scale tied to your down payment, and they cannot be used for your down payment or reserves. Retirement assets can count too, and documentation of actual withdrawal may not be required when the account holds well above what you need.

Practical tip: Keep large, unusual transfers out of your accounts while a file is open. Moving money between your own accounts is fine, but a paper trail makes the difference.

Mortgage Insurance: When It Applies and How It Ends

Mortgage insurance is required above 80% loan-to-value. It protects the lender, not you, and is built into the monthly payment. Published typical annual premiums run from 0.58% to 1.86% of the balance. That is a range, not a quote, and your actual cost depends on score and leverage.

Unlike some government loans, conventional insurance is not permanent. The Consumer Financial Protection Bureau explains the two exits:

1. You request cancellation when the balance is scheduled to reach 80% of the original value. You need a good payment history, no subordinate liens, and no decline in value.

2. The servicer must terminate it automatically at 78% of the original value, if you are current.

The 80% and 78% marks are measured against the original value, not today’s market value. Rising prices alone do not trigger them under the federal rule.

Loan Limits and Property Types

Conforming loans must fit under a county limit set annually by the Federal Housing Finance Agency. Most counties share a baseline, and high-cost counties sit higher. Look up your own county’s limit before you shop. Above that limit, you are in jumbo territory, where the wholesale lanes ask for a 660 decision score and allow leverage up to 90%. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.

Eligible properties include single-family homes, two- to four-unit buildings, condos, and planned communities. Manufactured housing has its own rules.

Appraisal and Closing Documents

Most purchases need an appraisal. Some loans qualify for value acceptance, where the lender may skip it based on the contract price and the agency’s data. Even then, the lender must order an appraisal if something suggests one is warranted. An appraisal checks value and condition for the lender. It is not a home inspection, so budget for an inspection separately.

Two federal disclosures guide you through the process. The Loan Estimate arrives within three business days of your application. The Closing Disclosure must reach you at least three business days before closing. Compare the two line by line, because rate, points, and credits can change until your rate is locked.

Is Conventional Right for You?

Conventional fits best when your credit is solid, your debts are manageable, and you want mortgage insurance that can come off. It may not fit as well with a lower score, a recent credit event, or a very thin down payment. In those cases FHA or VA, if you are eligible, can be easier to qualify for.

Another thing to weigh: if you can put 20% down, you avoid mortgage insurance entirely. But draining your savings to do it can leave you exposed after closing. Many buyers are better served keeping a cushion. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.

If you fall short today, the fixes are concrete:

• Credit: pay down card balances and avoid new accounts.
• DTI: retire small debts or add a qualifying co-borrower.
• Funds: build a documented savings history, or explore gifts and income-limited programs.

For related reading, Lendmire’s piece Conventional Cash-Out Refinance Requirements on a 2-4 Unit Primary Home covers the multi-unit side in more depth.

Key Terms Defined

Loan-to-value (LTV): The loan amount divided by the home’s value or price, whichever is lower.

Debt-to-income (DTI): Your total monthly debts divided by your gross monthly income.

Conforming loan: A loan that fits agency standards and stays under the county loan limit.

Overlay: An extra rule a lender adds on top of the agency’s minimum.

Value acceptance: An option that lets a lender use the agency’s data in place of a full appraisal on eligible loans.

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 broker that arranges FHA, VA, conventional and jumbo home purchase and refinance financing in 16 states through wholesale lenders. Every option is subject to the lender’s guidelines and full underwriting. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. Fannie Mae Eligibility Matrix

2. Fannie Mae Selling Guide B3-6-02, Debt-to-Income Ratios

3. Fannie Mae Top Trending Selling FAQs

4. Consumer Financial Protection Bureau