Conventional loans are the most common type of mortgage product. Unfortunately, they can be more difficult to qualify for due to stringent requirements that can prevent some types of borrowers from achieving their dreams of homeownership.

    Conventional loans are provided by private lenders, they’re not backed by government agencies. Instead, the requirements for these loans are set by Fannie Mae and Freddie Mac, government-sponsored agencies that operate the secondary mortgage market, purchasing mortgages from lenders and selling them to investors to ensure liquidity in the market.

    Because they’re not backed by government agencies like the Federal Housing Administration (FHA) or the Department of Veteran Affairs (VA), conventional loans are considered riskier investments for lenders, making qualifying for them more challenging.

    If you’re considering a conventional mortgage loan, you should understand the basic requirements to ensure you’ll qualify. Keep reading to learn more about conventional loan requirements and how they can impact your eligibility.


    • Conventional loan qualification requirements can be relatively stringent compared to Non-QM loans and government-backed loans like USDA, FHA, and VA loans.
    • Whether you should choose a conventional or non-conventional loan depends on the requirements and whether you qualify for one or another.
    • Most conventional loans are conforming. They meet certain requirements to be sold on the secondary mortgage market, which provides liquidity and frees up cash flow for lenders to finance more loans.
    • There are several types of conventional loans. The best one for you will depend on your unique financial situation.

    What Is a Conventional Loan?

    A conventional loan is a type of home loan not guaranteed by a government entity like the FHA, VA, or USDA. These loans can either be conforming, meaning they conform to Freddie Mac and Fannie Mae’s guidelines, or non-conforming.

    All conforming loans are conventional loans because they conform to Fannie Mae and Freddie Mac’s guidelines to help make mortgage financing accessible by freeing up cash flow for lenders. However, not all conventional loans are conforming; they don’t have to conform to those guidelines or be sold on the secondary mortgage market.

    When conventional loans are conforming, they must meet certain criteria, making these types of loans stricter than others. Unfortunately, not all borrowers qualify for these types of loans and their benefits. Instead, these loans are best suited for borrowers with fair or better credit, a larger conventional loan down payment amount, a reliable stream of income, and good overall financial stability.

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    But why would anyone apply for a conventional loan if their requirements are so strict? While they may be harder to qualify for, they have several benefits, such as:

    • A streamlined process: Conventional loans typically have a streamlined underwriting process because they require less paperwork. Lenders don’t have to work with government agencies, which can take time. Instead, they work directly with the borrower, who can provide them with all the necessary documentation. Lenders also streamline the process by using automated underwriting systems such as Desktop Underwriter (DU) and Loan Product Advisor (LPA) to quickly assess a borrower’s risk and grant initial approval or denial. In addition to often lacking these efficient underwriting and approval processes, some non-conventional loans require home inspections, which can force the seller to make repairs and delay the process even more.
    • Options: There is no single best type of conventional loan. For instance, you can choose short- or long-term conventional loans, fixed- or adjustable-rate loans, and conforming or non-conforming conventional loans.
    • Low down payment options: It’s a common misconception that you need to make a 20% down payment to qualify for a conventional loan. The minimum down payment for a conventional loan is 3%, meaning you can put down as little as 3% of the home’s value to qualify. However, keep in mind that you’ll be responsible for paying private mortgage insurance (PMI) if you put down less than 20%. In any case, these loans make homeownership more affordable and flexible for the right types of borrowers.
    • Available for different types of homes: With a conventional loan, you can purchase various property types, ranging from primary and secondary to vacation homes and investment properties.
    • Preferred by sellers: Some sellers try to avoid borrowers using government loans that have strict property requirements and can take longer to process. While government-backed loans are typically just as smooth as conventional loans, the seller’s perception of the loan type can affect a borrower’s ability to purchase a home.
    • Potentially cheaper to close: Conventional loans avoid upfront fees associated with many other loan types, making them potentially cheaper to close.

    Conventional Loans vs. Non-Conventional Loans

    In general, conventional loans are offered by private lenders, while non-conventional loans are backed by government agencies. The simplest definition of a conventional loan is any loan that isn’t backed by the government. Examples of non-conventional loans include FHA, VA, and USDA loans, all of which are backed by different government agencies. These are also examples of non-conforming loans, meaning they don’t meet Fannie Mae and Freddie Mac’s guidelines for purchase, so they can’t be sold on the secondary mortgage market.

    Non-Qualified Mortgages (Non-QM loans) are also a type of non-conventional loan. Since conventional loans are qualified, meaning they adhere to certain guidelines to ensure affordability, Non-QM loans are technically not conventional loans.

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    While they’re offered by private lenders, Non-QM loans don’t meet the requirements to be considered qualified mortgages. Instead, they’re a type of non-conforming loan that differs from a traditional conventional loan.

    Each type of non-conventional loan has its own set of lending criteria, making it vastly different from the next. In general, there are differences in requirements pertaining to the following:

    • Type of borrower
    • Down payments
    • Credit scores
    • Debt-to-income (DTI) ratios
    • Interest rates
    • Type of property
    • Documentation

    Let’s take a look at each of the different non-conventional loan types to help you understand how they differ from conventional loans.

    VA loans

    Conventional loans are available to anyone, while VA loans are only available to eligible active duty service members, veterans, and surviving spouses. VA loans don’t require a down payment, allowing you to receive 100% financing. In addition, they allow for lower credit scores and high DTI ratios.

    Unfortunately, unlike conventional loans, VA loans can only be used to purchase a primary residence.

    FHA loans

    FHA loans are more flexible when it comes to qualification requirements, allowing borrowers to have credit scores as low as 500 and down payments of 3.5%. Of course, these numbers vary. For instance, you only qualify with a 500 credit score if you can afford to make a down payment of 10%. With these flexible lending requirements, it’s no wonder FHA loans are a popular alternative to conventional loans for first-time buyers.

    Compared to the conventional loan requirements, which allow for down payments as low as 3%, FHA loans require lower credit scores to qualify, making homeownership more accessible. Keep in mind that both types of loans have insurance if you make a low down payment.

    With FHA loans, you’ll need to pay a mortgage insurance premium (MIP) when you make a down payment of less than 10%. Monthly MIP payments then persist for the entire life of the loan, regardless of how much equity you build in the home.

    On the other hand, with a conventional loan, you’ll need to pay private mortgage insurance (PMI) if you make a down payment of less than 20%. Unlike MIP, PMI can be removed once your loan to original value (LTOV) reaches 80% or lower, meaning you have 20% equity in your home.

    USDA Loans

    Again, conventional loans are available for anyone, anywhere. However, USDA loans are only available for borrowers who wish to purchase property in an eligible rural area. With a USDA loan, you can receive up to 100% financing, meaning zero percent down payment.

    In addition, with the zero percent down payment requirement, USDA loans don’t have PMI. Instead, you’ll pay a guarantee fee either upfront or as part of your monthly payment.

    USDA loans also have a maximum income limit. Your income can’t exceed 115% of the median local income in the area where you wish to purchase the property. Conventional loans don’t have income limits.

    Non-QM loans

    As mentioned, Non-QM loans are non-qualified mortgages, meaning they have different lending requirements than conventional loans. Conventional loans are qualified mortgages.

    For a mortgage to be “qualified,” it must follow certain criteria set in place by the Consumer Financial Protection Bureau (CFPB). The qualities of a qualified mortgage help prevent borrowers from defaulting, ensuring lenders do their due diligence to ensure borrowers can afford to repay their loans.

    Non-QM loans are alternatives to conventional loans, offering more flexibility in how lenders underwrite the loans and verify income and other types of information. These loans are designed for individuals who may not earn a traditional income, such as business owners, self-employed workers, real estate investors, and retirees.

    Lenders can set the requirements for these loans since they can’t be sold on the secondary mortgage market. Therefore, you’ll see a wide range of requirements that vary by lender. Typically, you can expect higher down payment requirements and interest rates because they’re considered riskier investments for the lender.

    However, because they allow borrowers to prove income using alternative methods like bank statements, rental income, and asset verification, they’ve become a popular choice for some types of borrowers.

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    Conventional Loan Types

    Conventional loans can be conforming or non-conforming. The most common types of conventional loans include the following:

    Fixed-rate mortgage

    Fixed-rate mortgage loans are one of the most common loan types because they’re transparent and easy to understand. These mortgages can either be conforming or non-conforming, but the interest rate will remain the same throughout the life of the loan.

    Adjustable-rate mortgage

    An adjustable-rate mortgage (ARM) is an alternative option typically used when borrowers want to save money during the first portion of their loan. With ARMs, you can expect a lower interest rate during the introductory period of 3, 5, or 7 years. After the introductory period ends, your mortgage rate will fluctuate annually based on market conditions.

    Jumbo loan

    Jumbo loans are non-conforming conventional loans, meaning they don’t meet Fannie Mae’s or Freddie Mac’s standards. The only difference between a jumbo loan and a standard conventional loan is the loan limit, or how much you’re allowed to borrow.

    Conventional loan limits are dependent on location, with higher limits in areas with higher costs of living. If you must exceed those limits to purchase a property, you may need a jumbo loan that exceeds conforming conventional loan limits.

    Investment property loan

    Investment property loans are also considered conventional loans because they’re not backed by the federal government and don’t require you to use the loan for primary residences only. Instead, you can purchase just about any property with a conventional loan, whether you plan to live in it or not.

    Investment property loans are typically fixed-rate mortgages that come with higher interest rates because they’re higher-risk investments.

    Conventional Loan Requirements

    Most of the time, when we’re talking about conventional loans, we’re talking about conforming loans that adhere to the guidelines to be sold on the secondary mortgage market. As such, these loans have stricter requirements for borrowers, making them potentially more challenging to secure. When determining eligibility for a conventional loan, lenders review the following criteria:

    Credit score

    Conventional loan credit score requirements are often stricter than non-conventional loans. In most cases, lenders want to see a credit score of at least 620, Fannie Mae and Freddie Mac’s minimum requirement. Unlike non-conventional loans, there’s no flexibility. You won’t qualify for the loan without a score of at least 620.

    Keep in mind that 620 is just Fannie Mae and Freddie Mac’s requirement. Your lender may require an even higher score to qualify.

    In any case, a higher credit score can help you get better terms. Typically, the higher the credit score, the lower the interest rate, which can help you save thousands of dollars over the life of the loan and when it comes time to pay your monthly mortgage bill.

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    Down payment

    There are benefits to making a down payment of 20% when using a conventional loan, but it’s not absolutely necessary. Fannie Mae and Freddie Mac only require a down payment of 3%. However, when you put down less than 20%, you’ll need to pay private mortgage insurance (PMI), which can drastically increase your monthly payments.

    In addition, not everyone qualifies for a 3% down payment. To qualify for the lowest minimum down payment, one of the borrowers must be a first-time buyer. Otherwise, you’ll need to make no more than 80% of the median income in your area for a down payment of 5%.

    Conventional loan down payment requirements also vary by property type. For instance, if the property has more than one unit or is a second home, you may need a higher down payment.

    The more you put down, the more you can potentially save in the long run because it reduces the loan amount. With a lower loan amount, you’ll pay less in interest over the life of the loan, and most lenders will give you a more competitive interest rate because you’re not borrowing as much.

    DTI ratio

    Your DTI represents the percentage of gross monthly income that goes toward paying your monthly debts. Most lenders like to see a DTI of no more than 50%, with 43% or lower being ideal. However, DTI requirements vary by lender, with some having more flexible requirements than others. For instance, you may be able to qualify with a higher DTI if you make a larger down payment or have a high credit score.

    You should calculate your DTI before contacting a lender to ensure you meet the eligibility requirements for conventional loans. To find DTI, divide your monthly debts by your gross monthly income and multiply the decimal by 100 to get a percentage.

    The lower your DTI, the more likely you are to be approved for a conventional mortgage loan because it tells lenders that you manage your debt well and have very little debt that can compromise your ability to pay your mortgage.

    Loan limits

    Conventional loan limits vary by county, with higher loan limits available in areas with higher costs of living and more competitive real estate markets. If you need a loan that exceeds those limits, you may still qualify for a jumbo loan. Since jumbo loans are non-conforming, the requirements are set by the lender.

    On the other hand, if your loan amount falls within conforming limits, the requirements are set by Fannie Mae and Freddie Mac. You can find loan limits on the Federal Housing Finance Agency (FHFA) website.

    In order to secure a conventional conforming mortgage, your loan amount must not exceed the limit. If it does, you won’t qualify for the loan at all.

    Is It Hard to Get Approved for a Conventional Loan?

    It can be harder to qualify for a conventional loan than some other loan types, but it largely depends on your unique circumstance. In most cases, borrowers will need a fair or better credit score and be able to prove stable employment and income. In addition, these requirements are stringent because they’re mandated by Fannie Mae (FNMA) and Freddie Mac (FHLMC), meaning there’s absolutely no flexibility.

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    Compared to government-backed loans, conventional loans may be harder to qualify for, but it mainly depends on your borrower profile. Not everyone qualifies for a FHA, USDA, or VA loan. Even if you do qualify for those loans, they have strict location and property requirements the property itself might not meet. Therefore, neither conventional or non-conventional loans are harder to qualify for because they’re each designed for a particular type of borrower.

    In general, as long as you have a credit score of 620 and can prove your ability to repay the loan, getting approved for a conventional loan isn’t as challenging as it may seem. Lenders can determine your ability to repay using traditional or alternative methods. For instance, we can use everything from pay stubs and W-2s to bank statements and tax returns to ensure you earn enough to repay the loan on a monthly basis.

    To apply for a conventional loan with Griffin Funding, all you have to do is contact us or complete our online application. The general process of working with Griffin Funding looks like this:

    • Discovery: Our mortgage experts prefer to meet with you in person or remotely to discuss your unique financial situation and help you determine whether a conventional loan is right for you.
    • Pre-approval: Once you’ve determined whether a conventional loan is the right mortgage program, you can apply for pre-approval to give you a starting point and set expectations for how much you may qualify to borrow. A pre-approval doesn’t guarantee the loan, but it can help during house hunting by helping you shop within your budget while ensuring you have a competitive edge.
    • Loan application: Once you’ve made an offer on a property, you can complete the full loan application either online or over the phone. We’ll provide you with a checklist for the types of documentation we need to ensure you meet the conventional loan requirements.
    • Underwriting: During the underwriting process, we review your information and documents to determine whether you’re eligible for a conventional loan while setting the loan amount and interest rate. We’ll also order an appraisal to ensure you’re paying the right price for the property.
    • Approval: Once your loan is approved, we’ll schedule the closing and fund your loan.

    This is the same process we use for all of our mortgage offerings, whether you’re choosing a government-backed, traditional, or Non-QM loan.

    Of course, whether or not it’s more challenging to get a conventional loan depends on your unique financial situation. If, for some reason, we determine a conventional loan is not the right fit for you, you may still qualify for another type of mortgage loan.

    See If You Meet the Requirements for a Conventional Loan

    Conventional loans are common and popular because they’re straightforward and offer benefits like competitive interest rates, streamlined approval, and down payment flexibility. However, they still have more stringent requirements than non-conventional loans.

    Unfortunately, not everyone will qualify for a government-backed loan. But there are still options. Griffin Funding is a premier mortgage lender that can help you find the best mortgage loan based on your unique situation. Contact Griffin Funding to learn more about our mortgage programs.

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    Bill Lyons

    Bill Lyons is the Founder, CEO & President of Griffin Funding. Founded in 2013, Griffin Funding is a national boutique mortgage lender focusing on delivering 5-star service to its clients. Mr. Lyons has 22 years of experience in the mortgage business. Lyons is seen as an industry leader and expert in real estate finance. Lyons has been featured in Forbes, Inc., Wall Street Journal, HousingWire, and more. As a member of the Mortgage Bankers Association, Lyons is able to keep up with important changes in the industry to deliver the most value to Griffin's clients. Under Lyons' leadership, Griffin Funding has made the Inc. 5000 fastest-growing companies list five times in its 10 years in business.