How to Qualify for a Conventional Loan

What you need to know about how to qualify for a Conventional loan

To qualify for a Conventional loan, you generally will need a minimum credit score of 620, a debt-to-income ratio of 43% or lower, and a down payment of 3% to 20% of the home sale price. Lenders will also want to see a stable employment history and reliable income. 

Conventional loans are one of the most popular and widely used home loans on the market. There are many things that go into qualifying for any home loan, but here are some details for the basic qualifications needed for a Conventional loan.

Conventional loan credit score

Lenders typically require a minimum credit score of 620 to qualify for a Conventional loan, but a score of 680 or higher may get you more favorable terms and conditions on your loan.

Improve your score by paying bills on time, keeping credit utilization low, and avoiding new credit accounts. Regularly check your credit report for errors and dispute any inaccuracies to boost your score.

Conventional loan debt-to-income ratio (DTI)

Your DTI compares your monthly debt payments to your income. In general you want to aim for a DTI of 43% or lower for a Conventional loan. Lenders may accept a DTI as high as 50% under certain circumstances.

You can lower your DTI by paying off debts or increasing your income. Consider consolidating high-interest debts to reduce monthly payments and improve your DTI.

Conventional loan down payment

Conventional loans typically require a down payment of 3% to 20% of the home’s price. While 3% is the minimum required to qualify, a 20% down payment can help you avoid private mortgage insurance (PMI).

If you are able to save for a larger down payment, lenders will often see you as a more reliable borrower and the larger your down payment the more favorable your loan terms and conditions may be.  

Income and employment qualifications for Conventional loans

Lenders prefer a stable employment history, ideally two years in the same field. Self-employed applicants should provide additional documentation like tax returns and profit and loss statements. Consistent income is crucial, so avoid job changes or gaps in employment if possible.

Financial assets and mortgage reserves for Conventional loans

Lenders look for liquid assets to ensure financial stability. Having enough money reserved to be able to cover two to six months of mortgage payments can help you manage any unexpected expenses and will signal to lenders that you are a reliable borrower.

Conventional loan-to-value ratio (LTV)

A lower LTV (80% or less) is ideal for Conventional loans as it eliminates the need for PMI. Higher LTVs may still qualify but will require PMI. A lower LTV can also make you a more attractive borrower to lenders and may get you for favorable terms and conditions on your loan like potentially lower interest rates.

Appraisal requirements and property condition for Conventional loans

In order for a Conventional loan to be approved, the property must meet the lender’s property standards. An appraisal will determine the home’s value, and any significant issues may need to be addressed. This lets the lender make sure that the loan amount accurately matches the value of the property.