Conventional Loans

Conventional mortgages are not government-backed, like a USDA or FHA loan. However, in order for a home loan to qualify as a conventional mortgage, it must comply with lending rules set by Fannie Mae and Freddie Mac. These rules require:

• ◉ A minimum credit score of about 620 to qualify, depending on the loan amount, debt-to-income ratio, and other factors
• ◉ A debt-to-income ratio under 43%—may be lower for borrowers with lower credit scores
• ◉ No major credit report issues, like bankruptcy or foreclosure
• ◉ A down payment of 3% or more (20% if you don’t want to buy mortgage insurance)
• ◉ A total loan amount of $510,400 or less (in most areas — $765,600 in higher-cost areas)

The loan limit for conventional mortgages varies by location. For 2020, the limit in most areas is $510,400. However, for higher-cost areas, the limit can be as high as $765,600.

Standard qualification requirements include:

• ◉ A debt-to-income ratio under 43% (potentially lower if you don’t have great credit)
• ◉ A minimum credit score of about 640
• ◉ A down payment of at least 3% (20% if you want to avoid paying for mortgage insurance)

Because many conventional loans are sold to government entities, lenders often assume little risk on individual loans, which means that borrowers can often get the lowest interest rates available—especially if they have good or excellent credit and household incomes over $60,000 to $75,000 per year.

A conventional loan is ideal for:

• ◉ Those with stable full-time jobs that provide regular, consistent paystubs
• ◉ Self-employed people with three or more years of consistent, reliable income
• ◉ Married couples with moderate to high household income and little debt