Conventional Loan Primary Residence Requirements: Everything You Need to Know

Buying a home to use as your primary residence? If so you’ll likely need a conventional loan. Conventional loans are mortgages that conform to lending standards set by Fannie Mae and Freddie Mac. They offer more flexible qualifying requirements compared to government-backed FHA and VA loans.

When using a conventional loan to purchase a primary residence, there are certain occupancy, property, and underwriting requirements you must meet This article will explain conventional loan primary residence requirements in detail, so you can ensure you choose the right loan program and home

Occupancy Requirements

With a conventional loan, the home you purchase must be occupied as your primary residence. This means you’ll live in the property for the majority of the year.

According to Fannie Mae guidelines, there are two key occupancy requirements for primary residences:

• Move-in deadline: You must move into the home within 60 days of closing. Your lender will verify occupancy by sending an inspection crew to the property around 2 months after closing.

• Occupancy percentage You need to live in the home for at least 9 months out of the year Your primary residence cannot be rented out for extended periods

If you don’t meet these occupancy requirements, it’s mortgage fraud. You may be required to repay the loan or change to an investment property mortgage, which has higher rates and stricter qualification guidelines.

Property Requirements

The home you purchase must meet certain property requirements to qualify for a conventional primary residence loan, including:

• Property type: Single-family homes, condos, and townhomes are eligible. Mobile homes typically don’t qualify.

• Number of units: The home can be a single-unit property, or have up to 4 units. Your unit must be owner-occupied.

• Acreage: Rural properties can have up to 25 acres. If the property has more land, it may be considered agricultural real estate.

• Renovation status: The home must be complete when you purchase it. Conventional loans don’t allow construction financing. Minor renovations are okay if done after closing.

• Resale restrictions: Fannie Mae won’t purchase loans on properties with deed restrictions, which limit future sales prices. Common in affordable housing programs.

• Condo approval: The condo complex must be approved by Fannie Mae. Non-warrantable condos often don’t qualify.

In addition, the home you buy must appraise for at least the purchase price. And it should pass inspection requirements for safety and habitability.

Underwriting Requirements

When applying for a conventional loan, you’ll go through underwriting – the process lenders use to assess your creditworthiness. Underwriting for a primary residence involves evaluating your:

• Income and employment
• Assets and reserves
• Credit history
• Current debts and obligations
• Property appraisal

Income: Lenders like to see stable income from salaried or self-employment. Any large deposits will need sourcing. Overtime and bonus income often requires a 2-year history.

Assets: You’ll need funds for a down payment and closing costs. Liquid assets like checking/savings accounts are preferred. Retirement funds can also be used. Minimum reserves vary by lender.

Credit: Conventional loans require a minimum 620 FICO score. The higher your scores, the better your interest rate. Recent late payments or collections can make approval difficult.

DTI: Your total debt-to-income ratio should be below 45%. Include your new mortgage payment and other monthly debts like car loans.

Appraisal: The appraisal verifies the home’s value. Make sure there are no condition issues that could lead to a low appraisal.

Tips for Meeting Primary Residence Requirements

Here are some tips to ensure you meet all conventional loan requirements when purchasing a primary residence:

• Pick a home: Choose a property that aligns with eligibility rules. Avoid new construction, deed restrictions, excessive acreage, etc.

• Save for down payment: Shop lenders to find the lowest down payment requirements. Fannie Mae allows as low as 3%.

• Mind closing timelines: Don’t schedule a close date too far out. You must move in within 60 days of closing.

• Clean up credit: Pay down balances and resolve any outstanding collections to boost your credit scores.

• Watch your DTI: Reduce other monthly debts as much as possible so your DTI stays below 45%.

• Declutter and clean: Make sure the home shows well so the appraisal comes in at purchase price.

• Document income/assets: Gather 2 months of paystubs, 2 years of tax returns, 2 months of bank statements to prove your finances.

The Bottom Line

When using a conventional loan to buy a primary residence, meeting occupancy, property, and underwriting requirements is essential. Violating any rules could put your financing – or even ownership of the home – at risk. By understanding these requirements upfront, you can take the right steps to ensure your primary residence loan goes through smoothly.