Conventional Loan Requirements: The Complete Guide for First-Time Buyers in 2026

A conventional loan is the most common type of mortgage in the United States, making up roughly 80% of all home loans. Unlike FHA, VA, or USDA loans, conventional mortgages aren't backed by a government agency — they follow rules set by Fannie Mae and Freddie Mac, the two government-sponsored enterprises that buy most mortgages on the secondary market.

For first-time buyers, conventional loans offer some real advantages: competitive rates, the ability to drop mortgage insurance once you build equity, and flexibility in property types. But qualifying can be tighter than government-backed loans.

Here's exactly what you need.

What Is a Conventional Loan?

A conventional loan is any mortgage that isn't insured or guaranteed by the federal government. Most conventional loans are "conforming," meaning they meet Fannie Mae and Freddie Mac guidelines for loan amounts and underwriting standards.

There are also "non-conforming" conventional loans (jumbo loans) for amounts above conforming limits, but this guide focuses on conforming conventional loans since those are what most first-time buyers use.

Conforming Loan Limits for 2026

The Federal Housing Finance Agency (FHFA) sets conforming loan limits annually:

• Standard limit (most counties): $806,500 for a single-family home
• High-cost areas: Up to $1,209,750 (places like San Francisco, New York City, parts of Hawaii and Alaska)

If you need to borrow more than the conforming limit for your county, you'd need a jumbo loan, which has stricter requirements.

Conventional Loan Requirements at a Glance

Let's break each one down.

Credit Score Requirements

Minimum: 620

Most conventional lenders require a minimum FICO score of 620. But "minimum" and "competitive" are very different things.

Here's how your credit score affects your conventional loan:

620–639: You'll qualify, but expect higher interest rates (possibly 0.5%–1.0% above the best rates) and higher PMI costs. Some lenders may require a larger down payment.

640–679: Better rates and PMI pricing, but still above the best available.

680–719: Solid territory. Good rates and reasonable PMI. Most lenders are comfortable here.

720–739: Near-optimal pricing. You're getting close to the best rates available.

740+: Best rates, lowest PMI costs. This is where you want to be if possible.

The difference matters more than you'd think. On a $300,000 30-year mortgage, the rate spread between a 640 and a 740 credit score can cost you $40,000–$60,000 in extra interest over the life of the loan.

How to Improve Your Score Before Applying

If your score needs work, focus on these high-impact actions:

1. Pay down credit card balances. Get utilization below 30%, ideally below 10%. This is the fastest way to boost your score.
2. Don't open new accounts. Each application triggers a hard inquiry that temporarily lowers your score.
3. Dispute errors. Pull your free reports from AnnualCreditReport.com. About 1 in 5 reports contain errors.
4. Don't close old accounts. Length of credit history matters. Keep old cards open, even if you don't use them.
5. Become an authorized user. If a family member has a long-standing account with perfect payment history, being added as an authorized user can help.

Allow 3–6 months for meaningful improvement. Don't rush into a mortgage application with a borderline score if you can wait.

Down Payment Requirements

Minimum: 3% for First-Time Buyers

First-time homebuyers (defined as someone who hasn't owned a home in the past 3 years) can put down as little as 3% through Fannie Mae's HomeReady or Freddie Mac's Home Possible programs, as well as standard 97% LTV programs.

On a $300,000 home, that's $9,000 down.

The 20% Threshold

If you put down 20% or more, you avoid [private mortgage insurance](/blog/mortgage-insurance-pmi-guide) (PMI) entirely. On that same $300,000 home, that's $60,000 — a lot of money, but it eliminates a monthly PMI cost of roughly $100–$250.

How Down Payment Affects Your Loan

PMI costs vary based on credit score, loan amount, and LTV ratio. Higher credit scores and larger down payments mean cheaper PMI.

[Acceptable Down Payment Sources](/blog/mortgage-down-payment-sources)

• Savings and checking accounts
• Investment accounts (stocks, bonds, mutual funds)
• Gift funds from family members (with a gift letter)
• [Down payment assistance](/blog/down-payment-assistance-programs) programs (many state and local programs exist)
• Sale of assets (vehicle, other property)
• 401(k) loans (not ideal, but allowed)

What's not acceptable: unsecured borrowed funds. You can't take out a personal loan for your down payment.

Debt-to-Income Ratio (DTI)

Your DTI measures how much of your gross monthly income goes toward debt payments.

[How to Calculate DTI](/blog/debt-to-income-ratio-guide)

Add up all monthly debt obligations:

• Proposed mortgage payment (principal, interest, taxes, insurance, PMI)
• Car payments
• Student loans
• Credit card minimum payments
• Personal loans
• Child support or alimony
• Any other recurring debt

Divide that total by your gross monthly income (before taxes).

Example: $2,500 in total monthly debts ÷ $7,000 gross monthly income = 35.7% DTI

Maximum DTI: 45%–50%

Fannie Mae and Freddie Mac allow DTI ratios up to 50% in some cases with strong compensating factors (high credit score, large cash reserves, significant down payment). Most lenders prefer to stay at or below 45%.

For the best rates and easiest approval, aim for a DTI under 36%.

Tips to Lower Your DTI

• Pay off smaller debts before applying (credit cards, small personal loans)
• Don't take on new debt (no new car loans!)
• Consider a less expensive home
• Increase your income (overtime, side work, ask for a raise)
• Pay down student loans if balances are small enough to eliminate monthly payments

Income and Employment Requirements

Two-Year Employment History

Lenders want to see at least 2 years of steady employment. This doesn't mean 2 years at the same job — it means 2 years of consistent income in the same field or line of work.

What Counts as Income

Easy to document:

• W-2 salary or hourly wages
• Military income
• Social Security or pension income
• Consistent overtime (2-year average)

Harder to document (but possible):

• Self-employment income (need 2 years of tax returns showing consistent or increasing income)
• Commission or bonus income (2-year average)
• Rental income from other properties
• Part-time or seasonal work (2-year history needed)
• Gig economy income (2-year history, documented on tax returns)

Documents You'll Need

• Pay stubs (most recent 30 days)
• W-2s (last 2 years)
• Federal tax returns (last 2 years) — especially if self-employed, commission-based, or have rental income
• Bank statements (last 2–3 months)
• 1099 forms if applicable

Private Mortgage Insurance (PMI)

If you put less than 20% down, you'll pay PMI. Here's what you need to know.

How Much Does PMI Cost?

PMI typically ranges from 0.2% to 2.0% of the loan amount per year, depending on your credit score and LTV ratio. Most borrowers with decent credit pay 0.5%–1.0%.

On a $291,000 loan (97% of a $300,000 home), PMI at 0.7% costs about $2,037/year or $170/month.

The Big Advantage Over FHA

Unlike FHA mortgage insurance (which typically lasts the life of the loan for borrowers who put less than 10% down), conventional PMI is cancellable.

You can request PMI cancellation when your loan balance reaches 80% of the original [home value](/blog/appraisal-process-explained). Your servicer must automatically cancel it at 78%.

If your home appreciates significantly, you can get a new appraisal and request early PMI removal based on the current value — some lenders allow this after just 2 years.

PMI Payment Options

• Monthly PMI: Most common. Added to your mortgage payment.
• Single-premium PMI: Pay the entire PMI cost upfront at closing (can sometimes be financed).
• Lender-paid PMI (LPMI): The lender pays PMI in exchange for a slightly higher interest rate. You can't cancel it since it's baked into the rate, but it might make sense in some situations.
• Split-premium PMI: Pay part upfront, part monthly.

Property Requirements

Conventional loans are flexible on property types:

• Single-family homes
• Condos (must be in a Fannie Mae or Freddie Mac warrantable project)
• Townhomes
• 2–4 unit properties (you can buy a duplex, triplex, or fourplex and live in one unit)
• Manufactured homes (with restrictions)
• Second homes and investment properties (higher down payment and rate requirements)

The property must be appraised by a licensed appraiser. The appraisal confirms the home is worth at least the purchase price and meets basic safety and livability standards.

Conventional Loan Types

Fixed-Rate Mortgages

• 30-year fixed: Lowest monthly payment, most popular choice. You'll pay more interest over time, but the payment never changes.
• 15-year fixed: Higher monthly payment, but you pay off the home in half the time and save significantly on interest. Rates are typically 0.5%–0.75% lower than 30-year rates.
• 20-year fixed: A middle ground. Less common but available.

Adjustable-Rate Mortgages (ARMs)

• 5/1 ARM: Fixed rate for 5 years, then adjusts annually
• 7/1 ARM: Fixed for 7 years, then adjusts
• 10/1 ARM: Fixed for 10 years, then adjusts

ARMs start with lower rates than fixed mortgages but carry the risk of rate increases later. They make sense if you're confident you'll sell or refinance within the fixed period.

How to Get the Best Conventional Loan Rate

1. Get your credit score to 740+ — this is the threshold where you unlock the best pricing
2. Put down at least 20% if you can — eliminates PMI and gets better rates
3. Shop multiple lenders — get quotes from at least 3-4 lenders. Rates vary more than you'd expect
4. Consider paying [discount points](/blog/mortgage-points-explained) — paying 1% of the loan amount upfront typically lowers your rate by 0.25%. Worth it if you'll keep the loan 4+ years
5. Lock your rate at the right time — once you're under contract, lock your rate. Don't gamble on rates dropping

Frequently Asked Questions

Can I get a conventional loan with a 620 credit score?

Yes, 620 is the minimum for most lenders. But your rate and PMI costs will be significantly higher than someone with a 740+ score. If you can wait 3–6 months and boost your score, you could save tens of thousands over the life of the loan.

Is a conventional loan better than FHA?

It depends on your situation. If your credit score is 720+, conventional is almost always better because of lower mortgage insurance costs and the ability to cancel PMI. If your credit score is below 680, FHA might offer better rates and more lenient approval.

How long does it take to close a conventional loan?

Typically 30–45 days from application to closing. Some lenders offer expedited processing in as few as 21 days.

Can I use gift money for my entire down payment?

Yes, for primary residences with 20% or more down. If you're putting less than 20% down, at least 5% must come from your own funds for some loan programs, though many first-time buyer programs allow 100% gift funds.

What's the difference between pre-qualification and pre-approval?

Pre-qualification is a rough estimate based on self-reported information — it carries little weight. Pre-approval involves the lender pulling your credit, verifying income and assets, and issuing a conditional commitment. Sellers take pre-approval letters seriously.

Can I buy a condo with a conventional loan?

Yes, but the condo project must be warrantable — meaning it meets Fannie Mae or Freddie Mac requirements for owner-occupancy ratios, financial health of the HOA, and other factors. Your lender will review the condo project as part of the approval process.

What happens if I miss a conventional loan payment?

Most lenders offer a 15-day grace period. After that, you'll be charged a late fee (typically 4–5% of the payment). If you miss 90+ days, it's reported to credit bureaus and can severely damage your score. Contact your servicer immediately if you're struggling — forbearance and modification options exist.

Bottom Line

Conventional loans are the gold standard of home mortgages for a reason: competitive rates, flexible terms, cancellable mortgage insurance, and wide availability. If you have a credit score of 680+ and can manage at least 3–5% down, a conventional loan is likely your best path to homeownership.

Start by checking your credit score, calculating your DTI, and getting pre-approved with a lender. The sooner you know where you stand, the sooner you can create a plan to buy your first home.

Related Articles

• Conventional Loan Requirements 2026: Complete Guide
• [[Down Payment Assistance Programs](/blog/first-time-homebuyer-grants-2026) in 2026: Complete Guide](/blog/down-payment-assistance-programs)
• How to Get a 700 Credit Score: Step-by-Step Plan