What Are the Requirements for a Conventional Loan? | Colorado Homebuyer Guide
What Are the Requirements for a Conventional Loan?
A Mortgage Tool Bus Guide for Colorado Homebuyers
🚌 Stop #1: The Credit Score Number That Just Changed
For nearly 20 years, 620 was the hard line for a conventional loan. Below it, you were out, no matter how strong the rest of your file looked. That's no longer automatically true.
As of November 15, 2025, Fannie Mae removed the fixed 620 minimum for loans that run through its automated system, Desktop Underwriter (DU) — which is how the large majority of conventional loans get approved. Instead of a score cutoff, DU now weighs a fuller risk picture: reserves, debt levels, property type, and loan purpose.
Here's the part worth being honest about, because it's easy to overstate: this isn't “credit score doesn't matter anymore.”
A credit score still has to be pulled and included on every loan sold to Fannie Mae — that requirement didn't go away.
Fannie Mae itself said it expects this change to have a negligible effect on how many loans actually get approved.
Manually underwritten loans (the ones that don't run through DU) still have a firm 620 minimum. That part didn't change.
Most lenders still set their own internal floor, often still close to 620, regardless of what Fannie Mae technically allows.
So the honest version: there's more room than there used to be for a borrower with a thinner or lower score to get a fair look — especially if the rest of the file is strong. But “no minimum score” isn't the same as “score doesn't matter.” A lower score is a “not yet,” worth a real conversation, not an automatic no.
🚌 Stop #2: The Down Payment Reality
Here's the one that surprises people the most: conventional loans do not require 20% down.
Fannie Mae allows a 3% down payment (97% loan-to-value) for a 1-unit primary residence purchase — but there's a catch worth knowing about. That 3% down option requires at least one borrower on the loan to qualify as a first-time homebuyer. Fannie Mae's own definition of that term is specific: it means you
haven't had an ownership interest in a residential property, alone or jointly, during the three years before your purchase. So if you owned a home eight years ago but have rented since, you still count as a first-time buyer under this rule.
If nobody on the loan meets that three-year window, the standard minimum moves up to 5% down.
Below 20% down, you'll be required to carry private mortgage insurance (PMI). That's not a penalty — it's what makes the low down payment possible in the first place. More on how PMI actually works, and when it goes away, in Stop #4.
🚌 Stop #3: The Debt-to-Income Ratio
Your debt-to-income ratio, or DTI, compares your monthly debts (including your new mortgage payment) to your gross monthly income.
For manually underwritten conventional loans, Fannie Mae caps DTI at 45%. If your loan runs through Fannie Mae's automated underwriting system (Desktop Underwriter), you may qualify with a higher DTI depending on your full credit and reserve picture — but 45% is the number to know as your general planning target, and manual underwriting is the hard ceiling.
Every lender's overlays are a little different here too, so your actual approved DTI depends on your full file, not just this one number.
🚌 Stop #4: The PMI Myth Nobody Corrects
This is the one worth slowing down for.
Most people assume PMI just falls off once they hit 20% equity. It doesn't — not automatically. According to the Consumer Financial Protection Bureau, reaching 20% equity (80% loan-to-value, based on your home's original value) only gives you the right to request cancellation in writing. Your servicer isn't required to remove it on their own at that point.
PMI does terminate automatically, but not until your loan balance reaches 78% of the original value — and only if you're current on your payments. If you're behind, the automatic termination is delayed until you catch up.
So the real takeaway: 20% down was never a requirement to buy. And once you're in the home, 20% equity isn't a finish line that removes PMI for you — it's the point where you get to raise your hand and ask.
Helpful Tools
FAQ
Do I need 20% down for a conventional loan?
No. First-time buyers can qualify with as little as 3% down. Repeat buyers typically need at least 5%. Anything below 20% down means you'll carry PMI until you reach enough equity to request its removal.
What credit score do I need for a conventional loan?
As of November 2025, Fannie Mae no longer sets a fixed minimum score for loans processed through its automated system, which covers most conventional loans. A score is still pulled and still affects your rate and PMI cost, and most lenders keep their own internal floor, typically around 620. Manually underwritten loans still require a 620 minimum.
What counts as a “first-time homebuyer” for the 3% down payment option?
Fannie Mae's definition: you haven't had an ownership interest in a residential property, on your own or jointly, during the three years before your purchase. That means you can qualify even if you've owned a home before, as long as it's been more than three years.
Is there a maximum debt-to-income ratio for a conventional loan?
For manually underwritten loans, Fannie Mae caps DTI at 45%. Loans run through automated underwriting may allow more flexibility depending on your full credit and reserve picture.
What's the conventional loan limit in El Paso County for 2026?
$832,750 for a single-family home. That covers the large majority of home prices in Colorado Springs — above that amount, you'd be looking at jumbo financing instead.
Will my PMI automatically go away once I hit 20% equity?
Not automatically at 20%. You have the right to request cancellation in writing once you reach 80% loan-to-value based on your home's original value. PMI does terminate on its own at 78% loan-to-value, as long as you're current on payments.
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— Kat Fish
Mortgage Tool Bus
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