What You Need to Know About Conventional Loans

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A conventional loan is any mortgage you obtain that is not backed by the federal government. However, most conventional loans are conforming loans, meaning they will follow the guidelines set by Fannie Mae and Freddie Mac.

What You Need to Know About Conventional Loans

Conventional Loan Requirements

Below is a detailed list of what you need to know about conventional loans so you can be prepared to meet the requirements.

Credit Score

For the approval of a conventional loan, you need a credit score above 620. The better your credit score the lower your interest rate will be and the lower your PMI will cost you. If you are a borrower with a credit score over 730 then you will like to get the lowest conventional mortgage rates. When you apply for a mortgage your lender will check your credit score and pull a full credit report. Lenders use your credit history to determine your risk to them.

Down Payment

Conventional loans require at least a 5% down, but it is always advised to put more down. In some cases, a homeowner can put as little as 3% down and still obtain a conventional loan. These are specialized programs like Fannie Mae’s HomeReady and Freddie Mac’s Home Possible. These can be a great choice for first-time homebuyers. As always if you are going to get a conventional loan with less than 20% down then you will be required to have private mortgage insurance.


To continue your approval process for a conventional loan you will need to provide proof of two years of stable income. Your lender will want to see you have been consistent with the same employer. This will lessen your risk factor. You can prove that by showing your salary or hourly income, overtime, bonuses, commission, and self-employment income. Lenders can also include other income sources but everything must be documented using your most recent tax returns, bank statements, and pay stubs. If you are self-employed you will need to show proof of two years of business tax returns.


Lenders will look at your income and compare it to your debt as they work towards approving your loan. They do this by taking the percentage of your gross monthly income that goes towards your monthly debt payments. Lenders want to see your DTI be under 36% but they will approve DTI that is slightly higher if you have a great credit score.

Loan Limits

To get a conventional loan your potential loan amount will need to fall within the limits set by the FHFA. The loan limits will change yearly and depending on where you live. For 2023, the conforming loan limit for a single-family home is $726,200.

Property Requirements

You may not know this but conventional loans have property requirements too. If you are hoping to be approved for a conventional loan the property you are looking to buy needs to meet the following requirements.

  1. Single-family home or multi-unit home (no more than four units)
  2. A residence, not a commercial property
  3. Structurally sound
  4. No claims against the property
  5. Appraisal required

In Conclusion

For more information on the home loan process and to buy, sell, or invest in Palm Desert, contact us. We would be happy to assist you with any of your real estate needs.