Conventional Loan Requirements 2026: Credit, Down Payment, DTI, Income and Debt

How I look at a conventional file

When a file comes in, I don't start with "do you qualify." I start with "is conventional your cheapest option." A borrower can easily qualify for conventional and still be better off with FHA, VA or USDA. So I check the requirements below, then price the alternatives. You should never have to guess which one I chose or why.

Credit

No fixed minimum for automated approvals at Fannie Mae or Freddie Mac. Lenders typically set 580 to 620. Your score drives your rate and PMI cost more than with government loans.

Down payment

3% for first time buyers on standard loans or income qualified buyers on HomeReady and Home Possible. 5% for most others. 10% for second homes, 15% for a single unit investment property. See down payment and gifts.

Debt to income

Up to 50% with a strong automated approval. Conventional effectively requires that automated approval, since almost no lenders manually underwrite conventional loans.

Income and employment

Stable, documented income, typically a two year history. Self employed borrowers sometimes qualify with one year of returns.

Reserves

Many primary home purchases don't require reserves. Second homes, investment property, multi unit homes and owning several financed properties often do.

Property

Primary homes, second homes and investment property, one to four units. Condos must meet project standards. See condos and appraisals.

Waiting periods

Longer than government loans: generally 4 years after Chapter 7 and 7 years after foreclosure. See after bankruptcy or foreclosure.

Residency

U.S. citizens, permanent residents and many non permanent residents with lawful status can qualify. That's a key difference from FHA, which since 2025 requires citizenship or permanent residency.

Strong credit, 5% down

Priya had a 760 score and 5% saved. She priced FHA and conventional.

Conventional came out cheaper monthly and its PMI could be removed later, while FHA's mortgage insurance would have lasted the life of the loan. She chose conventional.

Conventional Loan Credit Score Requirements and Pricing

The minimum changed

Fannie Mae removed its 620 minimum for automated approvals in November 2025, and Freddie Mac had already dropped its fixed minimum. Approval now rests on the full risk picture. Lenders still set floors, and some private mortgage insurers do too. I work with lenders who go to 580.

Why pricing matters more

Conventional loans carry pricing adjustments based on your credit score and down payment, and PMI premiums are priced by score as well. The difference between a 640 and a 760 can mean a noticeably higher rate and PMI cost. At lower scores, FHA is often cheaper. Around 740 and above, conventional often wins.

How pricing adjustments work

Fannie Mae and Freddie Mac charge loan level pricing adjustments based on risk. The two biggest factors are your credit score and your down payment. Others include the property type, like condos and multi unit homes, cash out refinances and investment property. Lenders pass these through as a slightly higher rate or as points.

Some buyers get a break. First time buyers at or below their area's median income, and HomeReady and Home Possible borrowers, can have many of these adjustments waived. See HomeReady and Home Possible.

Conventional pricing improves as credit scores rise; FHA pricing changes less

620

660

700

740

780

FHA cost stays flatter

Relative cost of conventional pricing and PMI

Illustration only, not actual pricing. Credit score on the bottom.

Why conventional gets cheaper as your score rises.

Why I always price both

On a 660 score with 5% down, conventional can carry enough pricing adjustment and PMI that FHA wins. On a 760 with the same down payment, conventional usually wins easily. The conventional vs FHA calculator shows the break even for your quotes.

Collections, charge offs and late payments

On a single unit primary home, conventional guidelines generally don't require older collections or charge offs to be paid off, though lenders may. Recent late payments and new collections affect the automated decision.

No credit score

Some conventional loans can be approved with limited or nontraditional credit, though options are narrower than FHA. Ask early.

Raising your score fast

Paying revolving balances down below about 30% of the limit, and ideally lower, often moves scores quickly. A rapid rescore after paying down can update your report in days.

A 640 vs a 700

Deshawn had a 640 score. Conventional pricing and PMI put his payment above an FHA quote.

He paid two cards down, a rapid rescore lifted him to 702, and the conventional quote dropped below FHA with removable PMI.

Conventional Loan Debt to Income Limits and Automated Underwriting

Automated approval: up to 50%

With a strong file, automated approvals can allow total debt up to 50% of income. Credit, down payment and reserves all affect how high you can go.

Manual underwriting: effectively doesn't exist

Fannie Mae and Freddie Mac guidelines technically allow manual underwriting, but in practice almost no lenders offer it. For all practical purposes, a conventional loan needs an automated approval. Unlike FHA, VA and USDA, a conventional refer means restructuring the file, running it under the other agency, or moving to another program. See automated vs manual underwriting.

What the automated system weighs

Debt ratio is one input among many. Desktop Underwriter and Loan Product Advisor also weigh your credit history, down payment, reserves, the loan type and the property. A 48% ratio with a 760 score, 10% down and six months of reserves can be approved. The same ratio with a 640 score, 3% down and no savings often won't be.

Why reserves help

Reserves are money left after closing, counted in months of house payments. Retirement accounts can count, usually at a discount. Even when reserves aren't required, showing them often strengthens an automated approval.

What counts

Your new payment including PMI and HOA, plus minimum payments on cars, cards, student loans, personal loans and support.

How conventional compares

VA uses residual income and can go higher. FHA can reach the mid 50s. USDA is tightest. See debt to income by loan.

Fannie Mae vs Freddie Mac

More on this in Fannie Mae vs Freddie Mac.

The two agencies' automated systems don't always agree. A file that's borderline in one can approve in the other, especially when student loans or variable income are involved. It's one reason a broker who can look at both can help.

Lowering your ratio

Pay off a debt with only a few payments left, pay down revolving balances, add a co borrower, or choose a lower price.

48% and approved

Jordan's ratio was 48%. With a 760 score and six months of reserves, the automated system approved the loan. A borrower with a 640 score and no savings at the same ratio might not be.

Reserves made the difference

Two borrowers I worked with had nearly identical income and a 47% ratio. One had a 401k balance worth about eight months of payments. Her file approved. The other had almost nothing saved and referred. Same ratio, different outcome.

Conventional Loan Income Rules

Salary and hourly

Recent pay stubs and W2s. A two year work history is typical, but it doesn't have to be one job.

Overtime, bonus and commission

Usually averaged over two years. Less history can sometimes work with a strong file. A declining trend is a concern.

Self employed

Typically two years of tax returns, after expenses. With an automated approval, one year of self employment can sometimes work when you have a strong prior history in the same field. Heavy write offs lower your qualifying income. See self employed options and bank statement loans.

Employment gaps and new jobs

Gaps are usually fine with an explanation. A new job in the same field generally counts right away, and a signed offer with a near start date can sometimes work.

Rental income

See how lenders calculate Schedule E.

Lenders typically use 75% of rent from leases or the appraiser's estimate, to allow for vacancy and costs. See two to four units and investment property.

A note for self employed borrowers and investors

I know this one personally. The same write offs that save you taxes reduce the income lenders can use. Depreciation on rentals and some one time expenses can be added back, which helps. But if your returns are lean, the honest answer may be a bank statement or DSCR loan instead of conventional. I'll show you both before you decide.

Rental income from a home you're leaving

If you're keeping your current home as a rental, lenders can often count part of the new lease, usually 75%, with a signed lease and proof of the deposit. If you've never been a landlord, expect a reserve requirement.

Retirement, Social Security and disability

Count with documentation. Non taxable income may be grossed up.

Child support and alimony

Counts with a history of receipt and at least three years of continuance.

Compare programs

See how VA, FHA and USDA treat income.

One year self employed

Melissa left a salaried design job to freelance in the same field. After one year, her automated approval accepted one year of self employment income because of her long history in the industry.

Conventional Debt Rules

Student loans

Fannie Mae: uses the payment on your report. A documented $0 income driven payment can be used as $0. If no payment is reported, lenders use 1% of the balance or a calculated payment.** Freddie Mac:** uses the reported payment, or 0.5% of the balance if the payment is $0 or deferred.

That difference alone can decide an approval, which is why the choice between Fannie and Freddie matters. See Fannie Mae vs Freddie Mac. Compare FHA, VA and USDA rules.

Debts with 10 or fewer payments left

Installment debts with 10 or fewer payments remaining can generally be left out. Leases, like car leases, usually still count.

Debts someone else pays

A debt you co signed that someone else pays can be excluded with about 12 months of proof they made the payments.

Collections and charge offs

On a single unit primary home, older collections and charge offs generally don't need to be paid off. Rules are stricter on multi unit homes and second homes.

Authorized user accounts

Often excluded when you're not responsible for the debt.

Alimony, child support and business debt

Support you pay counts as a monthly debt. Debts in your name that your business pays can often be excluded with about 12 months of business account records showing the payments.

Co signed for your kids?

Parents co sign car loans and student loans all the time, and then wonder why their own mortgage ratio is high. If your child has been making the payments from their own account, about 12 months of bank records can usually get that debt excluded. Gather them before you apply.

Credit cards

The minimum payment counts. Paying down balances helps your ratio and your score.

Fannie vs Freddie

Tony had $80,000 in deferred student loans. Under Freddie Mac's 0.5% rule, that added $400 a month. With a documented income driven payment of $0 accepted under Fannie Mae, his ratio fit.

A car loan almost out

Ray had nine payments left on a $520 car loan. Under conventional's rule for installment debts with 10 or fewer payments left, the lender excluded it, and his ratio dropped from 47% to 40%.