Conventional Loan Requirements 2024

A conventional home loan does not have backing from a government agency the way an FHA, USDA, or VA loan does. Instead, it’s underwritten by private mortgage lenders. 

Conventional loans appeal to homebuyers with strong financial standing and good credit histories. Terms and conditions of conventional loans vary according to the lender. They may be available with either fixed or adjustable interest rates. 

Here’s a summary of the new qualification limits for a conventional home loan. 

In 2024, a buyer needs a credit score of 620 or higher for a conventional mortgage loan. This is a comparatively low rate, squarely in the middle of the “fair” score range. Scores of 670 or higher are considered “good.” 

Credit scores come from three separate agencies: Experian, Equifax, and TransUnion. Mortgage lenders will consider the single score in the middle. They may approve borrowers with lower credit scores, but that approval will come with more stringent requirements and higher mortgage interest rates. 

There’s a misconception that if a buyer puts down less than 20%, they’ll have trouble repaying their mortgage. This isn’t quite true. The median down payment on a house in the United States in 2024 is 13%, so it’s possible to obtain a loan with a payment of less than 20%. 

Although a higher down payment makes it easier to qualify for a conventional loan, a down payment of at least 3% of the selling price of the home can suffice. This is a good option for first-time homebuyers who can pay monthly mortgage bills but can’t afford a larger down payment. 

With a 3% down payment, homebuyers have a few options for conventional loans, such as a Conventional 97 loan, a Fannie Mae HomeReady loan, or a Freddie Mac Home Possible loan. 

You will have to provide proof of employment. Potential lenders ask for proof of earnings, which can be shown with pay stubs, W-2 forms, tax returns, and bank statements. There is no minimum income for taking out a conventional home loan. 

Lenders often impose a maximum debt-to-income ratio (DTI). Your DTI ratio is an approximation of how much of your regular income pays off existing debts. This is calculated by adding up all of your monthly debts, dividing the sum by your monthly income, and multiplying that by 100 for a percentage. 

Most lenders prefer to see a DTI ratio of 36% or so. Some lenders are willing to lend to those with higher DTI ratios but may impose higher interest rates or require private mortgage insurance. 

Conventional mortgages are generally reserved for residential properties: single-family homes, condominiums, planned unit developments, and more. Before closing, the lender will want to have an appraisal to derive the fair market value. 

If the buyer has agreed to pay a certain amount for the home but the appraiser arrives at a lower value, the borrower could apply the balance toward the down payment. 

A conforming loan limit is the most you can borrow for a home within the parameters set by government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac, along with limits set by the Federal Housing Finance Agency (FHFA). 

For a single-unit home in the continental U.S. that isn’t in high-cost areas, the maximum loan amount one can borrow in 2024 is $766,550. For a similar property located within a high-cost area, the 2024 limit is $1,149,825. High-cost properties are subject to high-balance loan requirements. If the loan amount exceeds the high-cost loan limit, then it is considered a Jumbo loan. 

Conventional home loans are issued for one of two potential purposes. The most common purpose is, of course, to buy a home. However, conventional loans can also cover the refinancing of an existing loan. Here’s how the two differ. 

A conventional loan applies to the original value of the home in question. Homebuyers borrow the balance due after the down payment on their new home and repay the loan over a certain time, usually 15 or 30 years. 

Depending on the type of mortgage, different terms and conditions are offered based on the borrower’s qualifications. But the basic framework of a conventional, unaltered purchase loan is the same: make a down payment, take out the loan, and repay it in monthly installments. 

A homeowner may have the opportunity to change the terms of their original mortgage. They may want to take advantage of lower interest rates, alter the term length, switch between fixed and adjustable rates, or simply consolidate their financial obligations. 

In that case, they might apply for a conventional refinance loan. They can request to switch from a 15-year term to a 30-year term, get a lower interest rate, or arrange a cash-out refinance to merge debts or make home improvements. 

To refinance a home, the owner needs to fill out an online application and consult with their mortgage partners to settle an interest rate. A new appraisal might be required. The final proposal is submitted to an underwriter, who decides whether the new terms are acceptable. If they are, the house is refinanced. 

The specifics of what conventional home loans require may differ, but the overall process is the same. Here are the crucial steps.