In most cases, conventional loans require a credit score of 580 or higher. Lenders also look for excessive debt or certain negative events on your credit report, such as a bankruptcy or missed payments—which may make it harder for you to qualify for a conventional loan.
However, these loans aren't protected by any government agency backing and don't receive government funds in the case of foreclosure. Therefore, it's often a bit tougher to qualify for them. Here's a closer look at the basic guidelines for most conventional loans.
While a 20% down payment is often recommended, it's not always required. A lender will look at the big picture when evaluating your mortgage application. Depending on your specific situation, you can put down as little as 3% when taking out a conventional mortgage.
Reasons your mortgage application may be denied include a dip in your credit score, increased debt, paperwork errors, a low home appraisal and unverified cash deposits.
The main disadvantage of a conventional loan is the requirement for a down payment, which can be quite large depending on the loan amount and the borrower's financial situation. Additionally, borrowers need to show that they have assets that can be used to pay off the loan as well as reserves in case of a hardship.
Which loan is better: FHA or conventional? To a large extent, that depends on you and your financial profile. Generally, a conventional loan is best for those with strong credit and a bigger home buying budget. If your credit score is below 620, a loan backed by the FHA might be your only option.
Structural Issues
If the appraiser notices problems with the foundation, roof, or load-bearing walls, these issues can lead to a failed appraisal. Common structural problems include: Foundation Cracks: Large or significant cracks in the foundation can indicate serious underlying issues.
While conventional loans allow you to make a slightly smaller down payment of 3%, you must have a credit score of at least 620 to qualify. When you're deciding between a conventional loan versus an FHA loan, it's important to consider the cost of mortgage insurance.
The conforming loan limit determines the maximum a homebuyer can borrow and still qualify for a conventional loan. The baseline conforming loan limit in 2025 for single-family dwellings is $806,500 for most of the United States, but it depends on where you live.
The short answer is yes. A thorough appraisal conducted by a licensed appraiser is almost always required for home loans in California. This is true for conventional, FHA, and VA loans.
From application to approval and closing, getting a mortgage can take anywhere from 30 days to 60 days. However, some home purchases can take longer, depending on factors unique to the purchase transaction and the home loan processing time.
In general, you'll need to move into the property within 60 days of closing. Additionally, you'll need to live in the property for at least 12 months to qualify as an owner-occupant with most lenders. In contrast, you could obtain financing as an absentee owner.
AgSouth Mortgages Home Loan Originator Brandt Stone says, “Typically, conventional home loan programs prefer a debt to income ratio of 45% or less but it's not necessarily a hard stop as other factors can influence the decision (like loan to value and credit profile).
The national conforming loan limit for 2024 for a one-unit property is $766,550.
Forgoing a home inspection does not typically affect the approval of your conventional loan, as the loan is primarily based on your creditworthiness and the property's appraisal value. However, it could impact your future financial situation if significant property issues are discovered later.
Here's how it breaks down. Federal Housing Administration loans: 14.4% denial rate. Jumbo loans: 17.8% denial rate. Conventional conforming loans: 7.6% denial rate.
The process can take from several days to a week. Conventional loan appraisals have a slightly longer timeline, and vary based on factors such as property complexity, location, and the workload of the chosen appraiser. On average, conventional loan appraisals may take around two to four weeks.
A lower credit score means more risk for your lender. Because of that, they'll charge you more to cover that risk, especially since a conventional loan doesn't have a government agency as a safety net. Once your score dips below 680, you could find that government-backed options offer more competitive rates.
Your monthly payment for a $300,000 mortgage and a 30-year loan term could range from $1,798 to $2,201, depending on your interest rate and other factors. Learn more about the upfront and long-term costs of a home loan. Aly J. Yale is a personal finance journalist with more than 12 years of experience.
If the title of this article didn't give it away, the minimum down payment you can make for a conventional loan is 3%. Most lenders add private mortgage insurance (PMI) fees to your monthly mortgage payments when your down payment is less than 20%, but that hasn't deterred most Americans.
While you may have the capacity to make your monthly mortgage payments, most lenders won't approve your loan if you don't meet the baseline requirements for a conventional mortgage, including a credit score, verifiable income, and an appealing debt-to-income (DTI) ratio.
Conventional loans generally have lower interest rates than FHA loans and can be easier to qualify for because they don't have minimum credit score requirements. Conventional mortgages tend to have fewer fees compared to FHA loans and offer more repayment options, such as biweekly payments or extended terms.