Minimum Down Payment for Conventional Mortgage | Credit Requirements
The biggest factors that determines the minimum down payment for conventional mortgage is occupancy type, property type, and credit profile. Conventional loan credit requirements are determined during the pre-approval process by running credit, capacity, and collateral through an Automated Underwriting System (AUS). Every case scenario will vary, but there are guidelines for down payment options and the credit score needed for a conventional loan.
Occupancy Type – Primary, Secondary, and Investment
Occupancy type plays a major role in the minimum down payment for conventional loans. Interest rates also have pricing adjustments depending on if the property is a primary residence, secondary residence, or investment property. The minimum down payment for conventional loan for a 1 unit property is:
- Primary or principal residence require a minimum down payment of 3% with conventional grants available.
- Second homes require a minimum down payment of 10%.
- Investment properties require a minimum down payment of 15%.
The number of units play a major roll in down payment options for conventional loans.
Property Type – Number of Units
For conventional loans, they require a larger down payment than FHA or VA loans when it comes to 2 to 4 unit properties. FHA requires a minimum down payment of 3.5% up to 4 units.
- For a primary residence, the minimum down payment is 5%, but there can be income limits depending on the location of the property.
- For investment properties, the minimum down payment for conventional loan is 25% for 2 to 4 units.
Even though there are guidelines on the minimum down payment for conventional loan, conventional loan credit requirements are determined by your overall credit profile.
Credit Score Needed for Conventional Loan
Conventional loan credit requirements are determined by an Automated Underwriting System (AUS). The minimum credit score needed for a conventional loan is 620 FICO. The guidelines are published in:
- Selling Guide: Fannie Mae Single-Family.
- Seller/Servicer Guide: Freddie Mac Single-Family.
Just because the guidelines are published, not all lenders follow their guidelines. Lenders can have an additional guideline on top of already established rules called an overlay.
Streamlined Process through an Automated Underwriting System
Understanding all guidelines can often be confusing to even mortgage and real estate professionals. The process is streamlined through an Automated Underwriting System (AUS) that is run during the pre-approval process.
Fannie Mae and Freddie Mac Down Payment Matrix
Principal residence:
- 1 unit – 3% down payment with grants available.
- 2 to 4 unit – 5% down payment option available.
Second homes:
- 1 unit – 10% down payment.
Investment:
- 1 unit – 15% down payment.
- 2 to 4 unit – 25% down payment.
Debt-Service Coverage Loan with No Personal Income
Investment options are available with no personal debt-to-income ratios. The DSR loan requires a minimum of 15% down and terms are based on the cash flow of the property.
Max Cash Out on Investment Property
Minimum down payment for conventional mortgage and max cash out on investment property is determined by credit, capacity, and collateral.
- Max cash out on an investment property for a 1 unit is 75% loan-to-value for traditional loans.
- 2 to 4 units max cash out on an investment property is 70% loan-to-value.
- Higher max cash out on investment property loan-to-values are made available through Non-QM loans.
