How it works
Conventional loans follow Fannie Mae and Freddie Mac guidelines, which is why they price better than almost anything else. Income comes from tax returns, W-2s, and paystubs. An automated underwriting engine reads the file and returns an approval with conditions, so the guidelines are unusually predictable — you generally know where you stand before you apply.
A buyer with stable W-2 income may compare a low-down-payment conventional option with FHA. The better choice is not just the interest rate — mortgage insurance, credit-based pricing, cash to close, and how long the borrower expects to keep the loan all matter.
Who it can work well for
Buyers and owners with documentable income and credit in the 620s or better. Also the right answer for investment property when you can document income the traditional way — pricing beats DSCR almost every time.
What lenders actually look at
Lenders focus on automated underwriting findings, verified income and employment, assets, credit history, debts, property eligibility, occupancy, and the overall loan-to-value. A strong file can sometimes overcome one weaker factor.
Illustrative lender guidelines
These are educational examples, not universal approval rules. Exact requirements and maximum leverage vary by lender and complete scenario.
| Scenario | Credit / qualifier | Illustrative leverage |
|---|---|---|
| Primary residence | 620+ | 97% |
| Primary residence | 680+ | 97% |
| Second home | 620+ | 90% |
| Investment purchase | 620+ | 85% |
| Investment, 2-4 unit | 680+ | 75% |
| Cash-out, primary | 620+ | 80% |
What to watch for
PMI is priced on credit score and LTV together, so a 20-point score difference can meaningfully change your payment. Investment property requires more down and prices higher than a primary residence.
Common misconception: “Conventional means 20% down.” It does not. There are low-down-payment conventional options, although mortgage insurance and eligibility rules can apply.
When this may not be the best choice
Conventional may not be the best fit when credit is significantly damaged, debt ratios need more flexibility, income is difficult to document traditionally, or a government/non-QM program solves the problem more efficiently.
Common questions
Related programs
Want to see what may fit your scenario?
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