By Duane Buziak, Mortgage Maestro, NMLS#1110647
A $400,000 home with 5% down means a $380,000 loan. If a stronger file helps you price 0.375% better, the principal and interest difference is roughly $84 per month – about $5,040 over five years before tax treatment or any extra principal payments. That is why conventional loan requirements matter so much: the difference between barely qualifying and qualifying cleanly can change both approval odds and monthly cost.
OG Title: Conventional Loan Requirements Explained OG Description: Learn conventional loan requirements for credit, down payment, DTI, reserves, and closing costs with real numbers for buyers in VA, TN, GA, and FL. OG Image: https://premiummortgages.com/wp-content/uploads/2025/06/conventional-loan-requirements.jpg
Table of Contents
- What conventional loan requirements usually include
- Minimum credit score, down payment, and debt ratio
- Property, appraisal, and reserve requirements
- Conventional loan requirements by scenario
- Quick comparison table
- 5-step approval roadmap
- FAQ
- Legal disclaimer
What conventional loan requirements usually include
Conventional loans are mortgages that follow agency rules, typically Fannie Mae or Freddie Mac, rather than government-insured programs like FHA or VA. The approval decision usually comes down to six core areas: credit score, down payment, debt-to-income ratio, income documentation, property standards, and available assets for closing and reserves.
For most buyers in Richmond, Glen Allen, or Midlothian, the practical question is not whether a conventional loan exists. It is whether the file is strong enough to get approved with competitive pricing and manageable mortgage insurance. A buyer with a 760 score, stable W-2 income, and 10% down is a very different risk profile than a buyer at 620 with recent late payments and 3% down.
Current conforming loan limits matter too. In 2025, the baseline conforming loan limit for a one-unit property is $806,500, with higher limits in designated high-cost areas according to FHFA: https://www.fhfa.gov. For many buyers across VA, TN, GA, and FL, that means a standard conventional loan still covers a large share of the market before jumbo financing enters the picture.
Local pricing affects qualification more than many people expect. In Henrico County, the median listing home price has been reported around the mid-$400,000s by Realtor.com market data, which gives useful context for down payment and cash-to-close planning: https://www.realtor.com/realestateandhomes-search/Henrico-County_VA/overview. In tighter submarkets near Short Pump or around West Broad Village, low inventory can force stronger offers, which often means buyers need cleaner underwriting and fewer financing weak spots.
Minimum credit score, down payment, and debt ratio
Most conventional loan requirements start with credit. A 620 FICO score is a common minimum for many conforming loans, but that is not the same as a strong approval. Better scores generally improve both eligibility and price. Around 680 to 700, options often expand. At 740 and above, pricing is usually meaningfully better.
Down payment depends on occupancy and borrower profile. First-time buyers may find 3% down conventional options, while many repeat buyers use 5% down. Investment properties and multi-unit homes usually require more. If you put down less than 20%, private mortgage insurance typically applies.
Debt-to-income ratio, or DTI, measures how much of your gross monthly income goes toward monthly debt obligations. Many automated approvals can work into the mid-40% range, and sometimes up to 50%, but that depends on the full file. A borrower with high reserves and a 780 score can get more flexibility than a borrower with minimal savings.
Credit, cash, and ratio benchmarks
| Factor | Common conventional benchmark | What stronger looks like | |—|—:|—:| | Minimum credit score | 620 | 740+ | | Primary residence down payment | 3% to 5% | 20%+ | | Typical max DTI | 45% to 50% with approval findings | Under 43% | | Closing costs | About 2% to 5% of purchase price | Lower with seller credit or lender credit | | Reserves | Often 0 to 2 months on simpler files | 6+ months on complex or investment files |
Closing costs remain one of the biggest surprises. On a $400,000 purchase, a 2% to 5% range means roughly $8,000 to $20,000, depending on lender fees, escrows, title charges, prepaid taxes, and insurance. The CFPB overview remains a solid baseline for what is included in closing costs: https://www.consumerfinance.gov/owning-a-home/closing-disclosure/.
Property, appraisal, and reserve requirements
Conventional financing is not just about the borrower. The property has to qualify too. The home must meet minimum habitability standards, and the appraisal must support value. If the appraisal comes in low, the borrower may need to renegotiate, bring extra cash, or change loan structure.
Reserve requirements vary. For a straightforward single-family primary residence, reserves may be minimal or not required by findings. For second homes or investment properties, lenders often want extra liquid assets after closing. That can mean two to six months of the full housing payment, and in some layered-risk files, even more.
Condos can be trickier. Project review, HOA budget strength, insurance coverage, and owner-occupancy ratios all matter. A borrower who qualifies personally can still hit a condo eligibility problem.
Cash needed at closing on a sample file
| Item | Example on $400,000 purchase with 5% down | |—|—:| | Down payment | $20,000 | | Estimated closing costs at 3% | $12,000 | | Initial escrows/prepaids | Included above, varies by tax and insurance | | Suggested post-close reserves | $6,000 to $12,000 | | Total practical cash target | $32,000 to $44,000 |
Conventional loan requirements by scenario
For a first-time buyer, conventional loan requirements can actually be more forgiving than people assume, especially with stable W-2 income and decent credit. The challenge is usually cash to close, not the program itself.
For self-employed borrowers, the requirements feel stricter because income documentation carries more weight. Lenders often average qualifying income from tax returns, and business write-offs can reduce what counts. In those cases, conventional may still work, but bank statement or non-QM options can sometimes make more sense.
For investors, the bar usually rises. Higher down payments, stronger reserve requirements, and pricing adjustments are common. A borrower buying in a competitive market like parts of Richmond or near Chesterfield County growth corridors may still prefer conventional if rental income, credit, and liquidity are strong. If not, DSCR may deserve a look instead.
Quick comparison table
| Loan type | Typical minimum down payment | Credit flexibility | Mortgage insurance or funding fee | Best fit | |—|—:|—|—|—| | Conventional | 3% to 5% primary | Moderate to strong score preferred | PMI if under 20% down | Buyers with solid credit and documented income | | FHA | 3.5% | More flexible on lower scores | Upfront and monthly MI | Buyers needing more forgiving credit standards | | VA | 0% | Flexible with eligible service | Funding fee may apply, no monthly MI | Eligible veterans and active-duty buyers | | USDA | 0% | Moderate | Guarantee fee applies | Rural-eligible buyers with income limits |
Compared with retail-heavy lenders or large call-center models such as Rocket, Movement, or Veterans United, the borrower experience often differs more in document strategy and speed than in the basic agency rules themselves. Conventional guidelines are the same framework, but fee structure, overlays, responsiveness, and preapproval quality can vary materially from lender to lender.
5-step approval roadmap
- Review credit before you shop. A soft-pull prequalification can help identify score-sensitive issues without a credit score impact.
- Calculate true cash to close, not just down payment. Include lender fees, title, escrows, insurance, and a reserve cushion.
- Verify income the way underwriting will. W-2, salaried, bonus, commission, self-employed, and rental income all calculate differently.
- Keep DTI realistic using actual taxes, insurance, and HOA dues. Online calculators often understate the real payment.
- Match the loan to the property. Condo, multi-unit, second home, and investment purchases each change the requirement set.
FAQ
What is the minimum credit score for a conventional loan?
620 is a common floor, but stronger pricing usually starts much higher. Many borrowers see meaningful improvement around 680, 700, and 740.
How much do I need down on a conventional loan?
Some first-time buyers may qualify with 3% down. Many standard purchases use 5% down. Investment and multi-unit properties typically require more.
Are conventional loans harder to get than FHA loans?
Usually yes, especially on credit and debt ratio. But if your score is solid, conventional can be cheaper over time because mortgage insurance may be lower and eventually removable.
Do conventional loans require reserves?
Sometimes no, sometimes several months. It depends on occupancy, property type, total financed properties, and automated underwriting findings.
Can I use gift funds?
Often yes, especially for primary residences. The exact amount and sourcing rules depend on down payment size, occupancy, and loan structure.
What closing costs should I expect?
A practical range is 2% to 5% of the purchase price. Taxes, insurance escrows, discount points, and title charges can move that number quickly.
What if my appraisal comes in low?
You may renegotiate price, challenge the appraisal with better comps, bring extra cash, or restructure the loan. There is no single fix that works in every case.
Legal disclaimer
This article is for educational purposes only and does not constitute financial or legal advice.
If you are weighing conventional against FHA, VA, jumbo, or non-QM, the best next move is not guessing from a payment app. It is lining up your credit, income, and cash position before you write the offer so the numbers work when the contract gets real.
Duane Buziak, Mortgage Maestro | NMLS: 1110647 | Licensed in VA · FL · TN · GA | UWM PRO ELITE 2025 | UWM Top 20 Purchase LO Virginia 2025 | UWM Speed to Close Industry Leading 2025 | Scotsman Guide Top Originator 2025 & 2026 | VA Broker of the Year 2024-2025 | Top 1% Nationwide | Coast2Coast Mortgage | DuaneBuziakMortgageMaestro.com | duane@coast2coastml.com | (804) 212-8663