Guide to Conventional Loans and How They Work

Just because you’ve used a VA loan once doesn’t mean it has to be your only option the next time around. For some Veteran repeat homebuyers, a conventional loan might actually fit better, especially if your VA entitlement is already in use or you want to avoid paying the VA Funding Fee again.

Conventional loans can offer more flexibility with property types and certain program requirements. The traditional loan type is a strong option to consider when weighing your loan choices for your next home.

Wondering if a conventional mortgage makes sense for you? Here’s a closer look at how they work and when they might be a smart move.

Types of Conventional Mortgages

The types of conventional loans available to you can vary by lender, but most fall into a few key categories. Here’s a closer look:

Once you’ve narrowed down the loan type, you’ll also need to choose between a fixed-rate and an adjustable-rate mortgage (ARM):

• Fixed-rate conventional loans offer consistent payments over the life of the loan. These are ideal if you want long-term predictability.
• Adjustable-rate conventional loans typically start with a lower rate, but that rate and your payment can change over time based on the economic market.

The right fit depends on your budget, how long you plan to stay in the home and your comfort level with potential rate changes.

Conventional Loan Requirements for 2026

Since the government doesn’t guarantee them, conventional loans may not be as easy to qualify for as other loan types. But that doesn’t mean they’re out of reach, especially if you’ve already bought a home and understand the process.

While the exact requirements vary by lender, below are the typical requirements Veterans can expect when applying for a conventional mortgage:

Conventional Down Payment

You may have heard that you need a 20% down payment for a conventional loan, but that’s actually not true. The minimum down payment requirement for conventional loans is typically 5% for repeat homebuyers and 3% for first-time homebuyers.

However, if you put down less than 20%, you’ll likely be required to pay private mortgage insurance (PMI). This cost protects the lender in case of default. PMI costs can vary, but My Home by Freddie Mac estimates it usually adds $30 to $70 per month for every $100,000 borrowed.

Conventional Credit Score

To qualify for a conventional loan, you usually need a credit score of at least 620. A higher score can help you qualify for better interest rates or even reduced PMI, potentially saving you thousands over the life of your loan.

In addition to your score, lenders look closely at your credit history. Any missed payments, defaults, bankruptcies or foreclosures can hurt your approval chances for a mortgage and impact the interest rates you qualify for.

Conventional Debt-to-Income Ratio

Lenders use your debt-to-income ratio (DTI) as a key number to assess your ability to manage monthly mortgage payments. It shows the percentage of your gross monthly income that goes toward paying debts, including your new mortgage.

For example, say your monthly debts (like credit cards, auto loans, student loans and your future mortgage payment) total $2,400, and your gross income before taxes is $6,000.

$2,400 ÷ $6,000 = 0.40 or 40% DTI

For most conventional loans, lenders look for a DTI of 43% or lower. But depending on your financial picture, it’s sometimes possible to qualify with a DTI as high as 50% with strong compensating factors, such as a large down payment or high credit score.

Conventional Income Guidelines

Lenders want to see that you have a reliable income stream that’s consistent and likely to continue. Like a VA loan, most conventional loans require at least two years of steady employment or income history.

That doesn’t mean you need to have the exact same job for two years. What matters most is overall stability. For example, moving from one salaried job to another in the same field is usually fine, and gaps in employment may not be deal breakers as long as you explain them.

Acceptable income sources may include:

• Salaried or hourly wages (with or without overtime)
• Bonuses or commissions
• Freelance or contract work
• Self-employment income
• Other reliable sources, such as Social Security, alimony or child support (as long as it's documented and expected to continue)

Your lender will review pay stubs, W-2s, tax returns and sometimes bank statements to ensure your income is stable and likely to continue.

Compared to VA loans, conventional lenders may be a little less flexible on non-traditional income. So if you’ve changed jobs recently or work for yourself, be ready to document everything clearly.

Conventional Loan Limits

The Federal Housing Finance Agency (FHFA) sets certain limits to cap most conventional loans. These vary by location and change annually based on home prices, incomes and other economic data.

The current conforming loan limit for single-family homes in most of the U.S. is $832,750, and it can reach $1,299,500 in high-cost housing markets. If you need a loan larger than this, look into a jumbo loan.

Conventional Property Requirements

Conventional loan property standards are slightly more flexible than the VA’s, but the home must still meet some criteria.

To qualify, the property must generally be:

• 1 to 4 unit residential property
• Structurally sound and move-in ready
• Equipped with safe, working systems
• Code compliant and accessible
• Free of ownership issues or liens
• At least 51% owner-occupied, if buying a condo

Conventional loans also open the door to financing second homes and investment properties. However, the requirements are a bit tighter:

• Higher credit scores and larger down payments are typically required
• You may need to show reserves (savings to cover a few months of mortgage payments)
• Rental income may or may not count toward your qualifying income, depending on documentation

Lenders require an appraisal to check whether the home meets these requirements, as well as to assess the property’s value. They use this number to determine how much you can potentially borrow and to ensure the home is a sound long-term investment.

Veterans United Conventional Loan Guidelines

Veterans United Home Loans offers more than just VA loans, including conventional mortgage options for eligible homebuyers.

While every loan situation is unique, here are some of the key requirements for conventional loans:

• A minimum FICO credit score of 620 for a one-unit primary residence and second homes or investment properties with at least 20% down
• At least a 720 FICO credit score if putting down less than 20% on a second home or investment property
• 25% down payment required for investment properties with 3 to 4 units
• DTI ratio under 50%

Most repeat buyers need at least 5% down for a conventional loan. If you want to avoid private mortgage insurance (PMI), which adds to your monthly payment, you must put down 20% or more. For homes priced above the conforming loan limit, your loan-to-value (LTV) ratio can’t exceed 95% on a one-unit primary residence.

In rare cases, income from legal cannabis-related employment may be considered, but only if you’re a W-2 employee (not an owner), the work is legal in your state and Fannie Mae backs the loan.

Veterans United conventional loans are offered with fixed-rate loan terms of 15, 20, 25 or 30 years. Reach out to a Veterans United Home Loan Specialist today to run the numbers for your situation.

VA Loan vs Conventional Loan When Buying Again

VA loans are one of the most powerful mortgage options available to Veterans with competitive rates, no PMI and zero down required, so it might seem surprising to consider anything else when you’re eligible.

But if you’re buying a second home, relocating or have your VA entitlement tied up, a conventional loan might actually fit better.

The right answer depends on your personal situation and goals, though. The table below highlights when a VA loan may be best and when a conventional loan is likely the better option.

Let’s walk through a common example for repeat homebuyers. Say a Veteran bought their first home with a VA loan in 2020. A few years later, they’re ready to move into a larger home before selling the original one. Because some of their VA entitlement is still tied to the first property, the Veteran doesn’t have enough remaining entitlement to purchase the new home with a VA loan.

Instead of making a large down payment to cover the gap, they chose a conventional loan to finance the new property. Conventional loans don’t require VA entitlement, so the move isn’t delayed.

Once the first home sells and the Veteran’s full VA entitlement is restored, they can refinance the conventional loan into a VA loan. This allows them to remove the conventional loan’s private mortgage insurance (PMI) and potentially lower their interest rate, reducing their monthly payment.

For more help deciding which loan type is best for you, check out the full comparison of how VA loans compare to conventional loans.

How to Apply for Your Next Home With a Conventional Loan

If you’ve bought a home with a VA loan before, you’re already familiar with the mortgage process. However, things differ a little with conventional loans, so it’s important to be prepared before diving in. Here’s what to expect when applying for a conventional mortgage loan.

1. Determine Your Financial Strategy

Before starting your application, take a moment to revisit your budget and your overall homebuying plan. How much are you comfortable spending each month on a mortgage? How much can you put down, and where will those funds come from?

If you have at least 20% equity in your home, you may be able to access that with a HELOC, home equity loan or cash-out refinance, and then put those funds toward your conventional loan’s down payment to help avoid PMI.

You also want to look at your DTI if your debts or income have changed since you last applied for a loan, and be sure to factor in your new mortgage payment. You’ll need this number when vetting lenders and loan options.

2. Find a Trusted Lender

You can work with the same lender you used for your first loan or compare other options. If you do shop around, make sure you get a fair comparison. That means asking about the same loan type and terms from each lender to accurately compare rates, costs and terms.

Be careful when comparing closing costs, prepayment penalties, loan program availability and lender reviews. Services and products can vary widely from one lender to the next.

3. Get Preapproved With a Strategy in Mind

You’ve been through preapproval before, so you know it’s more than just a formality. This time around, it’s about setting a clear financial path for your next purchase.

With a conventional loan, preapproval also helps surface details that may not have been factors in your VA loan experience. For example, if you plan to carry two mortgages temporarily, your lender needs to understand how and when you’ll access the proceeds from your home sale. That insight affects how much home you can qualify for and helps prevent overextending your budget in the short term.

If your offer includes contingencies, like needing to close on your current home first, your preapproval should reflect that strategy. It gives sellers a clearer picture of your timeline and positions you as a serious buyer, even in a competitive market.

4. Time Your Home Sale and Purchase Effectively

Buying and selling a house at the same time can feel like a juggling act, but with a little planning, it’s totally doable. If you sell your current home before buying the next one, timing is everything.

You’ll want to work closely with your real estate agent to coordinate when your home hits the market, when it closes and when you hand over the keys. That way, you’re not scrambling for a place to stay in between. If there's likely to be a gap, it helps to have a temporary housing plan.

If you buy first, make sure you’ve thought through what comes next for your current place. Maybe you’ll list it right after closing on the new home, or maybe you're considering renting it out temporarily. Either way, having a solid plan helps you avoid the stress and expense of juggling two mortgage payments longer than you must.

Be sure your lender and agent are on the same page so your closings line up just right. A smooth handoff between the sale and the purchase means fewer surprises and more peace of mind as you move into your next chapter.

5. Finalize and Close Your New Conventional Loan

Once you’re under contract, your lender will order an appraisal and move your loan into underwriting. This part might feel familiar if you’ve been through it before, but every loan is different, so stay close with your loan officer throughout the process.

They may ask for updated documents or clarification on something in your file, and quick responses can help keep everything on track.

If you’re planning a simultaneous closing, confirm early that both your lender and title company can coordinate the timing. That way, there’s less risk of a last-minute hiccup that could delay one transaction and impact the other.

It’s also a good time to start thinking through move-day logistics. Consider when and how you’ll move your belongings, whether you need storage or help with transport, and when to schedule utilities at your new place. The more you prep now, the smoother your closing day will feel.

Start Your Next Home Purchase

You’ve bought a home before, so you know the drill. But when you explore a new type of loan, like a conventional mortgage, having the right guidance can make all the difference. From timing your sale and purchase to choosing a lender who understands your goals, every decision plays a part in how smoothly your next move goes.

If you’re starting to plan your next home purchase, reach out to a Veterans United Home Loan Specialist at 855-870-8845 or get started online today.