Credit History and Qualifications
Your credit score must meet the minimum requirement set by the lender, typically between 620-640 or higher, depending on the type of conventional loan you're applying for. A clear record of reliable payment history will make obtaining a traditional loan more feasible.
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.
Conventional Loan Minimum Credit Score
In most cases, you'll need a credit score of at least 620 to qualify for a conventional loan. When you apply, your lender will check your credit history to determine if you have qualifying credit. If you don't, you might not get approved for the loan.
Conventional loans typically require a 620 minimum credit score and at least 3 percent for a down payment. This type of mortgage comes with a fixed or adjustable interest rate, and can be either conforming or nonconforming.
There are no specific income limits for most traditional mortgage loans, such as conventional loans or FHA loans. Lenders typically focus on your income to qualify for a mortgage by looking at factors like your debt-to-income (DTI) ratio, credit score, and overall financial stability.
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.
Drawbacks include stricter requirements to qualify, large payments if market rates increase, lack of 5% equity requirement, and additional fees if borrower has a less than excellent credit score.
Homes with major condition issues, such as those that impact property's safety, structural integrity, or livability, often don't qualify for conventional financing.
The minimum down payment requirement for a conventional loan is 3% of the loan amount. However, lenders may require borrowers with high DTI ratios or low credit scores to make a larger down payment. Even if it's not required, if you're able to make a higher down payment, you may want to consider doing so.
Conventional conforming loans: 7.6% denial rate. Refinance loans: 24.7% denial rate.
It's often easier to qualify for an FHA loan than for a conventional loan because buyers can have a credit score as low as 580 and a debt-to-income (DTI) ratio of 50% or lower.
Key takeaways
Debt-to-income ratio is your monthly debt obligations compared to your gross monthly income (before taxes), expressed as a percentage. A good debt-to-income ratio is less than or equal to 36%. Any debt-to-income ratio above 43% is considered to be too much debt.
In California, home appraisals are usually required for conventional mortgage loans, especially in purchase scenarios. The appraiser's report gives the mortgage lender better insight into the actual market value of the home.
Yes, there are some potential disadvantages for sellers to consider when choosing a conventional mortgage. First, the seller will have to meet more stringent requirements to qualify for a conventional loan than with an FHA loan, including higher credit scores and larger down payments.
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.
Homes with structural issues / roof issues / non habitable or non insurable will not qualify for a mortgage. Or if there's some contractor lien that isn't resolved.
Lenders look at your income, employment history, savings and monthly debt payments, and other financial obligations to make sure you have the means to comfortably take on a mortgage.
Homes that may not pass an FHA inspection
Structural issues: FHA loans require that the property be structurally sound, so homes with significant structural problems may not pass inspection. This ensures that borrowers are protected from purchasing a property with potentially dangerous or costly structural defects.
Conventional mortgage loans may be “one-of-the-many” loan options for real estate investors but not the most suitable one. The reason being: conventional loans take a long time to process and generally require the borrower to have a great credit score.
Most conventional mortgages — the most popular type of loan — are not assumable. They contain what's called a due-on-sale or due-on-transfer clause, which mandates the mortgage be paid in full whenever the original borrower sells the property or transfers the loan.
According to mortgage company Fannie Mae, a conventional loan usually requires a credit score of at least 620. But you may qualify for a government-sponsored loan with a lower score. Read on to learn more about credit scores and how they impact the home-buying process.
Common Reasons for VA Loan Denial in Underwriting
According to HMDA data, 12.93% of VA loan applications received a denial in 2022, compared to 17.29% of FHA loans and 17.9% of conventional loans. While not uncommon, many scenarios may be preventable.
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.
According to CoreLogic data, approximately 8% of home appraisals come in below the contract price, though this percentage can shift with changing market conditions.