What is a Conventional Mortgage?
A conventional loan is a type of mortgage that is not backed or insured by the federal government. Instead, it is offered by private lenders such as banks, credit unions, and mortgage companies. Most conventional loans are “conforming loans” which means their lending standards are set by the government-sponsored entities Fannie Mae and Freddie Mac, who buy the loans on the back end.
Conventional Loan Requirements 2026
Each lender sets its own standards for conventional loans, so we will start with the minimum standards set by Fannie and Freddie before going into more detail:
- No minimum credit score as of November 2025
- Minimum down payment of 3% with mortgage insurance required for down payments less than 20%
- Total debt-to-income ratio below 50%
- 2 years of consistent employment history
Most conventional lenders have less flexible guidelines than Fannie and Freddie allow and require approval from an Automated Underwriting System (AUS) so we will lay out the credit score, down payment, and debt-to-income ratio you need to qualify for a conventional loan and which property types are eligible.
What is AUS?
Automated Underwriting Systems (AUS) are algorithms used by lenders to automatically approve borrowers for mortgage loans. The algorithms weigh the risk of approving a borrower primarily based on their credit score, down payment, and debt-to-income ratio.
A borrower with good credit, a large down payment, and a low debt-to-income ratio has a very high chance of being approved by AUS. But borrowers who are weaker in one area can still qualify by showing strength in other areas. For example, a borrower with a lower credit score can still qualify if they make a larger down payment and have a low debt-to-income ratio.
Credit Score
While Fannie Mae and Freddie Mac no longer set a minimum credit score as of November 2025, conventional lenders still tend to set their minimum credit score at 620 with some lenders having higher requirements.
Down Payment
Borrowers can make a down payment of 3% when buying a primary property if:
- At least 1 borrower is a first-time homebuyer
- Borrower’s combined income is 80% or lower of the Area Median Income
Otherwise, the minimum down payment is 5% but borrowers will be required to take out a mortgage insurance policy if they make a down payment lower than 20%. A family member or domestic partner can gift you the funds required to cover your down payment and additional costs.
Debt-to-Income Ratio (DTI)
A borrower’s DTI is the third major factor used in the conventional loan process. Your DTI can be calculated by dividing your total monthly debt payments (including the payment on your new home) by your gross monthly income. Forever Home Financing has a convenient calculator to help you calculate both.
Borrowers can qualify for a conventional loan with a debt-to-income ratio as high as 50% if their application is strong otherwise. However, it can become more difficult to qualify with a DTI higher than 45%.
Property Types
Conventional loans are available for residential property of the following kinds:
- Single Family Homes
- 2-4 unit residential property
- Warrantable Condos
- Planned Unit Developments
- Manufactured Homes
The following types of property are ineligible:
- Vacant land
- Agricultural land
- Non-warrantable condos
Conventional or FHA loans
An alternative to purchasing with a conventional loan is to utilize an FHA loan. Unlike conventional loans, FHA loans are sponsored by the Federal Housing Authority which gives them a few advantages such as:
- Minimum credit score of 500
- Minimum down payment of 3.5% for borrowers with a credit score of 580 or higher (10% for scores below 580)
- FHA loans usually have lower interest rates than conventional loans