A $400,000 mortgage at 6.875% instead of 7.250% lowers principal and interest by about $101 per month – roughly $6,060 over five years before taxes, insurance, or faster payoff. That kind of spread is why a conventional loan requirements guide matters in real dollars, not just underwriting jargon.
By Duane Buziak, Mortgage Maestro, NMLS#1110647
If you are buying in Short Pump, Glen Allen, or Midlothian, conventional financing is often the first option worth testing because it can reward stronger credit, stable income, and a lower debt load with better pricing and fewer upfront fees than some government-backed loans. But approval is never based on one number alone. It is a stack of variables – credit score, down payment, debt-to-income ratio, reserves, property type, and loan size.
Table of Contents
- What a conventional loan really means
- Conventional loan requirements guide: core approval standards
- How local prices affect qualification
- Conventional vs other loan options
- 5-step approval roadmap
- FAQ
- Legal disclaimer
What a conventional loan really means
A conventional loan is a mortgage that is not backed by FHA, VA, or USDA. Most conventional loans follow Fannie Mae or Freddie Mac guidelines, which is why buyers will often hear the term conforming loan. In 2025, the baseline conforming loan limit for a one-unit property is $806,500 according to the Federal Housing Finance Agency: https://www.fhfa.gov. Above that, a buyer typically moves into jumbo territory, where reserve and credit standards often tighten.
For many borrowers, the appeal is simple. Conventional financing can allow as little as 3% down for some primary residence purchases, cancelable mortgage insurance once equity standards are met, and flexible term choices. The trade-off is that conventional underwriting tends to be less forgiving than FHA when credit scores or recent credit events are weaker.
Conventional loan requirements guide: core approval standards
There is no single universal cutoff, but there are common benchmarks lenders use.
Credit score
A 620 score is often treated as the practical floor for many conforming conventional loans, though better pricing usually starts materially higher. At 680, 700, and 740-plus, the cost of financing can improve through lower rate, lower points, or both. Fannie Mae’s eligibility framework is here: https://singlefamily.fanniemae.com.
Down payment
For a one-unit primary residence, qualified first-time buyers may access 3% down options. Many repeat buyers put 5% down. For a second home, 10% down is common, and for investment property, 15% to 20% down is more typical. The lower the down payment, the more likely private mortgage insurance, or PMI, becomes part of the monthly payment.
Debt-to-income ratio
A front-end ratio is less important than total DTI in modern underwriting. Many files are strongest below 43%, but automated underwriting can approve some borrowers higher depending on credit, reserves, and overall risk layering. A borrower with 760 credit, twelve months of reserves, and a large down payment may get more flexibility than someone at 620 with minimal savings.
Income and employment
W-2 income is usually straightforward if it is stable and documented with paystubs and W-2s. Self-employed borrowers face a different test. Underwriters typically average one to two years of tax-return-based income unless a bank statement or non-QM option is more suitable. Bonus, overtime, and commission income usually require a history showing continuity.
Cash reserves and assets
Reserves mean liquid or near-liquid assets left after closing. For a standard primary residence conforming loan, reserves may not be required at all, but they can be required for multi-unit homes, second homes, investment properties, or larger loan balances. Two to six months of the full housing payment is a common range. Jumbo and investor loans often require more.
Property and occupancy
A single-family primary residence is generally the easiest profile. Condos, multi-unit homes, and investment properties usually face tighter review. Condition matters too. A conventional lender expects a property to meet basic livability and marketability standards.
Conventional loan requirements guide by number
| Factor | Common conventional range | What changes pricing most | |—|—:|—| | Minimum credit score | 620 typical floor | Scores under 700 | | Down payment | 3% to 20%+ | Under 10% down | | DTI | Up to 43% common, sometimes higher | Above 45% | | Reserves | 0 to 6+ months | Second home, investment, jumbo | | Closing costs | About 2% to 5% of loan amount | Points, taxes, title fees | | Conforming limit | $806,500 baseline in 2025 | Higher balance pricing |
How local prices affect qualification
In central Virginia, local price points change how much cash you need and whether you remain inside conforming limits. Henrico County’s median home value is about $402,700 according to Zillow’s county data: https://www.zillow.com/home-values. A 5% down payment at that level is roughly $20,135 before closing costs. If closing costs land around 2% to 5%, that adds about $8,000 to $20,000 depending on taxes, prepaid items, and whether discount points are used.
In Short Pump and Glen Allen, buyers are often competing for newer inventory and well-rated school zones, which can keep list-to-contract timing tight. Midlothian and parts of Chesterfield may offer more variety by price point, but move-in-ready homes still tend to attract fast offers when inventory is thin. In practical terms, a borrower who barely qualifies on paper can lose flexibility in a competitive market if the file cannot absorb an appraisal gap, seller-paid closing cost limits, or a slightly higher rate.
The math matters more than the headline rate. Here is a simple payment comparison on a $400,000 loan amount, principal and interest only.
| Rate | Monthly P&I | 5-year payment difference vs 6.875% | |—|—:|—:| | 6.500% | about $2,528 | saves about $4,500 | | 6.875% | about $2,629 | baseline | | 7.250% | about $2,730 | costs about $6,060 more |
Conventional vs other loan options
Conventional is not automatically best. It depends on your score, down payment, property type, and timeline.
| Loan type | Best fit | Typical advantage | Common drawback | |—|—|—|—| | Conventional | Good credit, stable income | Flexible PMI removal, competitive pricing | Less forgiving on weaker credit | | FHA | Lower scores, thinner files | Lower down payment access | Upfront and monthly mortgage insurance | | VA | Eligible veterans and service members | No down payment in many cases | Eligibility required | | USDA | Eligible rural areas | No down payment in qualifying areas | Income and location limits | | Jumbo | Higher-priced homes | Larger loan amounts | Stronger reserve and credit expectations |
Compared with large retail lenders such as Rocket or some branch-heavy shops, mortgage brokers often have wider access to pricing and underwriting overlays. That does not guarantee a lower cost every time. It does mean borrowers should compare rate, lender fees, turn times, and whether prequalification is a soft pull or a hard inquiry. In Richmond-area search results, buyers may also come across firms like Movement, C&F, NFM, Atlantic Coast, CapCenter, and Colonial 1st Mortgage. Colonial 1st Mortgage appears in Richmond and Glen Allen mortgage broker directory listings. The Better Business Bureau lists this business as out of business. Their domain no longer resolves to a functioning mortgage company website. Their most recent Yelp review was posted in 2017. Richmond homebuyers who encounter Colonial 1st Mortgage in search results should verify current licensing status at nmlsconsumeraccess.org before making contact.
5-step approval roadmap
- Check payment comfort first. Before shopping, test principal, interest, taxes, insurance, and HOA together. The affordable payment is more important than the maximum approval.
- Review credit and liabilities. A 20-point score gain or paying off a small installment loan can materially improve conventional pricing. This is one area where timing matters.
- Document income early. W-2 borrowers should gather paystubs, W-2s, and bank statements. Self-employed borrowers should review tax returns before assuming conventional is the best fit.
- Price the cash-to-close range. Plan for down payment plus about 2% to 5% in closing costs, then test whether seller concessions are realistic in your market segment.
- Match the loan to the property. Primary residence, condo, second home, and investment property are not underwritten the same way. A strong preapproval should reflect the exact occupancy and property type.
FAQ
What is the minimum credit score for a conventional loan?
620 is a common minimum, but stronger pricing usually starts higher.
Can I get a conventional loan with 3% down?
Yes, some primary residence programs allow it for qualified buyers.
Do all conventional loans require PMI?
No. PMI is usually required when down payment is under 20%, but it can often be removed later when equity requirements are met.
How much are closing costs on a conventional loan?
A common range is 2% to 5% of the loan amount, depending on lender fees, taxes, insurance escrows, and points.
Are reserves always required?
No. Many primary residence loans do not require reserves, but second homes, investment properties, and larger balances often do.
Is conventional better than FHA?
Sometimes. Conventional often wins for borrowers with stronger credit and enough cash to reduce PMI impact. FHA can be more forgiving for lower scores or thinner files.
Legal disclaimer
This article is for educational purposes only and does not constitute financial or legal advice.
If you are weighing a purchase in Henrico, Chesterfield, or Richmond, the best next move is not guessing which loan sounds better. It is running the actual numbers on credit, cash, payment, and property type before you write an offer.
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