The Quick Read: To meet conventional loan requirements for a primary home, you need five things in decent shape: a down payment that fits the program, a credit score above the lender’s floor, a debt load the automated system accepts, documented cash, and a plan to live in the home. Most buyers need less down than they expect. Eligibility is subject to lender guidelines and full file review, and nothing here is a commitment to lend.
What “Conventional” Actually Means
A conventional loan is a mortgage that follows the standards set by Fannie Mae and Freddie Mac. It is not backed by FHA, VA, or USDA. Think of it as the default lane for buyers with steady income and decent credit.
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.
Those two companies publish the rulebook. Lenders that follow it can sell the loan afterward. That is why the rules look similar from lender to lender, and why they still differ at the edges.
Lendmire is a mortgage broker, not a lender. It arranges conventional loan programs through wholesale lenders. Across the programs the brokerage places files with, the same five factors decide almost every file.
A “primary home” is the place you will actually live. Lenders treat it differently from a second home or an investment property because owner-occupied loans carry the least risk. That is why the best leverage goes to primary residences.
Key takeaways:
- A primary home can qualify with as little as 3% down for some first-time buyers and 5% for most others.
- Mortgage insurance applies above 80% loan-to-value and can be cancelled later.
- Automated underwriting weighs your whole file. No single number decides it.
- Occupancy is a requirement, not a label.
The Five Requirements at a Glance
| Factor | What lenders look for | Where it can flex |
|---|---|---|
| Down payment | 3% or 5% on most primary purchases | Gift funds allowed |
| Credit | Wholesale floor starts at 620 | Automated findings |
| Debt ratio | Up to 50% on automated files | Reserves, score |
| Cash | Down payment, closing costs, reserves | Documented gifts |
| Occupancy | You live there | Co-borrower rules |
Every figure is subject to lender guidelines. Some lenders add their own stricter rules, called overlays. A loan can meet agency rules and still get declined by one lender.
How Much Down Do You Need?
Not 20%. On a one-unit primary home with a fixed rate, the leverage limit is 97% loan-to-value (LTV), meaning 3% down. That applies when at least one borrower is a first-time buyer, defined as having no ownership interest in a residence in the previous three years. Fannie Mae lays out the conditions in its 97% LTV FAQs. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
Everyone else on a primary purchase generally tops out at 95% LTV, meaning 5% down. Two- to four-unit primary residences also go to 95%. Second homes reach 90%. Investment properties are lower, at 85% for one unit and 75% for two to four units. The takeaway is simple: occupancy decides the leverage.
The Fannie Mae Eligibility Matrix is where these limits live. It also covers reserves and the manual debt limits.
Income-limited affordable programs, such as HomeReady and Home Possible, cap borrower income at 80% of area median income. They can add flexibility on income sources. Ask whether your file fits.
Mortgage Insurance: The Cost of Putting Less Down
Put less than 20% down and you pay mortgage insurance. Mechanically, it protects the lender, not you. It is charged on the loan balance each year, and published typical annual premiums run from 0.58% to 1.86% of the balance. That is a range, never a quote. Your credit score and down payment drive where you land. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
The good news is that conventional mortgage insurance does not last forever.
- You can request cancellation at 80% of the home’s original value. Expect to need good payment history, no second liens, and no drop in the home’s value.
- The servicer must end it automatically at 78% of original value under the Homeowners Protection Act, if you are current.
You can reach 80% by paying the balance down on schedule or by making extra principal payments. Either way, you must ask in writing. The CFPB explains the cancellation steps in plain terms.
Credit: One Floor, Many Variables
The wholesale conventional programs the brokerage uses start at a 620 decision score. Manually underwritten adjustable-rate loans start at 640. Some lenders set a higher floor. That is overlay territory.
Here is the part most guides skip. Fannie Mae has no single minimum score. Per its credit score requirements, the minimum depends on the score together with the loan’s LTV, purpose, unit count, amortization type, and debt ratio. Files run through Desktop Underwriter, Fannie Mae’s automated system, are judged on the full risk profile rather than a hard cutoff.
In practice, the automated finding governs most files. A higher score also lowers mortgage insurance cost, so it pays twice.
Past 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.
Documented extenuating circumstances can shorten those. Those are agency rules, not brokerage rules.
Debt-to-Income: The Math Underwriters Run
Debt-to-income (DTI) is your total monthly debts divided by your gross monthly income. The debts include the new mortgage payment with taxes, insurance, and any HOA dues, plus car loans, student loans, and minimum card payments.
Run it in words. Add up all monthly obligations, including the proposed housing payment. Divide by monthly income before taxes. The result is a percentage.
Under the Fannie Mae DTI rules, automated files go up to 50%. Manually underwritten loans cap at 36%, and can stretch to 45% when your score and reserves meet the Eligibility Matrix. Debts with only a few payments left may be treated differently, so ask your loan officer.
Two cautions:
1. Passing the cap is not approval. The automated system weighs everything.
2. The old 43% figure is gone as a hard limit. It was a former qualified-mortgage cap that has since been replaced with a price-based test.
Picture a buyer whose income is steady but whose car payment and student loans are heavy. Paying off the car loan before applying can cut DTI more than any other single move. Paying down a card helps too. Opening a new card does the opposite.
Income and Employment: What You Document
Lenders verify the income of every borrower used to qualify. Underwriters look for a reliable two-year pattern. A shorter history can work if other strengths offset it.
For a salaried borrower, expect to provide:
- A recent paystub, dated within 30 days of your application, showing year-to-date earnings.
- W-2s for the most recent one or two years.
- Bank statements for the accounts that hold your funds.
Self-employed borrowers generally need two years of earnings history and signed federal personal tax returns for the past two years. The employment documentation standards are the same whether the loan is automated or manual.
Cash, Gifts, and Reserves
You need cash for the down payment, closing costs, and often reserves. Reserves are months of the new housing payment you could cover with assets left after closing. How many you need depends on the transaction, the unit count, and the underwriting method. Manual files follow the Matrix, and the automated system sets its own for each file.
Gift funds are allowed on a primary residence. They can cover the down payment, closing costs, or reserves, subject to minimum contribution rules. The donor must be acceptable and the gift documented. Gifts of equity cannot count as reserves, though eligible cash gifts can.
One trap: contributions from interested parties, such as a seller or builder, cannot fund your down payment or reserves. Seller credits toward closing costs are a separate matter.
Occupancy: The Requirement Most Guides Skip
Occupancy is a promise. You are telling the lender this is where you will live. Fannie Mae recognizes three types, primary residence, second home, and investment property, and each carries different leverage. Your loan documents will set the move-in timing and a minimum stay. Confirm the exact terms with your loan officer.
Some practical points:
- With several borrowers, generally at least one must occupy the home and take title.
- A non-occupant co-borrower’s income can count, but the occupying borrower may face a lower ratio cap.
- A service member on active duty who is temporarily absent is treated as an owner-occupant.
- A two- to four-unit home can be a primary residence if you live in one unit.
- Misstating occupancy is misrepresentation. Do not do it.
If your plans may change soon after closing, tell your loan officer before you apply. A different program, or a different property, may fit better.
Property and Appraisal
Eligible primary homes include single-family houses, condos, and two- to four-unit properties. Condition matters: the home must be safe, sound, and marketable.
For most loans, the lender requires an appraisal. Some eligible one-unit loans qualify for value acceptance, meaning no appraisal, but only when the lender chooses it. Manually underwritten loans do not qualify. Neither do gift-of-equity deals.
A low appraisal changes your LTV. The loan is based on the lower of the price or the appraised value. If the home appraises under the contract price, you can renegotiate, bring more cash, or walk away under your contract terms.
Loans also have a county-based size limit. Above it, the loan becomes jumbo and falls outside the Fannie and Freddie framework. The Federal Housing Finance Agency sets these limits each year, and Orrick’s summary of the FHFA announcement shows how they vary by county and unit count. They are not quoted here because they change. Check FHFA’s current release for your county.
What Happens From Application to Closing
Here is the sequence in plain steps.
1. Application. The lender must send a Loan Estimate within three business days. It is a standardized summary of your terms and costs.
2. Credit and documents. The lender pulls credit and collects pay, tax, and asset records.
3. Appraisal or value acceptance. The property gets valued.
4. Underwriting decision. The automated system returns a recommendation, then a person reviews it.
5. Closing Disclosure. It must arrive at least three business days before closing so you can compare it to the Loan Estimate.
New debt or reduced income before closing can force the lender to recalculate your DTI. A result over the limit can sink the loan. Do not finance a car or open a card between application and closing.
If You Fall Short: Fixes by Factor
| Weak factor | Practical move |
|---|---|
| Low score | Pay cards down, fix errors, avoid new credit |
| High DTI | Pay off small debts, add a co-borrower |
| Thin cash | Documented gift, extend your savings window |
| Short job history | Add a letter and offsetting strengths |
| Low appraisal | Renegotiate price or bring more cash |
Each fix takes time, and some take months. A conversation with a loan officer before you shop for homes is cheaper than a denial after you have a contract.
Conventional vs. Government Loans for a Primary Home
FHA, VA, and USDA loans are not conventional. They follow different rules. Conventional tends to fit best when your credit is solid and you want mortgage insurance that can come off. Government programs can fit better with lower scores or specific eligibility. The right call depends on your file.
If you later own and want equity, see Lendmire’s guide on whether a primary home meets conventional cash-out refinance eligibility. On a one-unit primary home, conventional cash-out tops out at 80% LTV. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Key Terms Defined
LTV (loan-to-value): the loan amount as a percentage of the home’s price or appraised value, whichever is lower.
DTI (debt-to-income): your total monthly debts divided by gross monthly income.
Mortgage insurance: a charge on loans above 80% LTV that protects the lender if you default. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Reserves: money left after closing, counted in months of the housing payment.
Overlay: a lender rule that is stricter than the agency rule.
Value acceptance: an appraisal waiver used on certain eligible loans.
Frequently Asked Questions
Do I really need 20% down for a conventional loan?
No. A primary home can go to 97% LTV for qualifying first-time buyers and 95% for most others. You pay mortgage insurance above 80% LTV, and it can be cancelled later. Subject to lender guidelines.
What credit score do I need?
The wholesale programs start at 620, and some lenders require more. Fannie Mae itself has no single minimum, since it depends on LTV, loan purpose, and debt ratio. A higher score also helps with mortgage insurance cost.
What is the maximum debt-to-income ratio?
Automated files go up to 50%. Manual files are 36%, or 45% with enough reserves and score. A ratio under the cap does not guarantee approval.
Can a parent co-sign if they will not live in the home?
Often yes, as a non-occupant co-borrower, and their income can count. The occupying borrower may face a lower ratio cap, so the structure needs review before you apply.
Does mortgage insurance ever go away?
Yes. You can request cancellation at 80% of original value with good payment history and no second liens. The servicer must end it automatically at 78% if you are current.
Next Step
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. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage serving homeowners and home buyers in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. Fannie Mae FAQs: 97% LTV Options
2. Fannie Mae Eligibility Matrix
4. Fannie Mae Selling Guide B3-5.1-01, Credit Scores
5. Fannie Mae Selling Guide B3-6-02, Debt-to-Income Ratios
6. Fannie Mae Selling Guide employment documentation
7. Orrick InfoBytes: FHFA announces conforming loan limit increases
This article is part of Lendmire’s conventional loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Conventional Loan Requirements for Removing PMI Early · Keep vs Sell Your Current Home When Buying With a Conventional Loan · How a Conventional Loan Lender Counts Income and Debt on 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
Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.