Conventional: Product, LTV, AUS and Occupancy Drive the Rules
“Conventional” is not one loan. Teach the student to identify Fannie/Freddie eligibility, product, occupancy, LTV, credit/AUS method, DTI, PMI and interested-party contribution limits.
Conventional at a Glance
Seller Contribution Table
| Occupancy | LTV / CLTV | Maximum financing concession |
|---|---|---|
| Principal residence / second home | Greater than 90% | 3% |
| Principal residence / second home | 75.01%–90% | 6% |
| Principal residence / second home | 75% or less | 9% |
| Investment property | All CLTVs | 2% |
IPCs cannot be used for the borrower's down payment, required reserves or minimum borrower contribution. Excess financing concessions can become sales concessions and affect the value basis/LTV calculation.
Front and Back DTI
Fannie Mae's key eligibility ratio is total DTI; there is no universal conventional “front ratio cap” to quote across products. Still calculate the housing ratio as a diagnostic so the LO understands payment shock and affordability.
Subject PITIA ÷ qualifying monthly income.
Subject PITIA + qualifying liabilities ÷ qualifying income.
Manual baseline 36%; may reach 45% with required factors. DU generally caps at 50%.
Credit Score: Teach the 2026 Nuance
As of Fannie Mae's 2026 guidance, DU loan casefiles do not have a single Fannie minimum credit score; DU assesses overall credit risk. Manually underwritten fixed-rate loans generally use a 620 minimum and ARMs 640. Individual lenders can impose overlays. Students should never tell a borrower “620 is the universal conventional minimum” without identifying the underwriting method and lender.
New-LO Checkpoint
- Identify occupancy, units, product and LTV before quoting seller-credit limits.
- Run DU/LPA with accurate income/assets/debts.
- Calculate PMI/payment impact at >80% LTV.
- Know whether the borrower/product is eligible for 97% LTV.
- Separate agency baseline from lender overlays and pricing requirements.