Conventional loans are mortgage products that are not backed by a government agency. They are sold by private lenders and follow the underwriting standards set by Fannie Frenzy and Freddie Mac. Because they are not insured, lenders rely more heavily on the borrower’s credit profile, income stability, and down payment size.

Credit‑score expectations

Most conventional lenders look for a credit score of at least 620. Scores in the 620‑680 range are considered “fair,” and borrowers in this band can still qualify, but they usually face stricter terms such as higher interest rates, larger down payments, or additional documentation.

Down‑payment requirements

When credit is below the ideal 700+ level, lenders often raise the minimum down payment to protect themselves against risk. A down payment of 10% is common for borrowers with scores between 620 and 680, while many lenders still prefer 20% to avoid private mortgage insurance (PMI) and to secure better loan terms.

Private mortgage insurance (PMI)

If the borrower puts down less than 20% of the purchase price, most conventional loans require PMI. This insurance protects the lender if the borrower defaults and adds a monthly cost to the loan payment. The insurance can be cancelled once the loan balance falls below 80% of the home’s original value.

Debt‑to‑income (DTI) and other underwriting factors

• lenders typically cap the total DTI at about 43%, though some may allow higher ratios with compensating factors such as a larger cash reserve.
• Documented employment history (usually two years) and stable income are essential.

Vermont‑specific considerations

Vermont commonly uses attorney‑conducted closings rather than title‑company closings. This means a local attorney will review the title, prepare the deed, and oversee the signing of loan documents, which can add a few days to the closing timeline but provides an extra layer of legal protection.

The Vermont Housing Finance Agency (VHFA) runs a first‑time‑buyer assistance program that can provide down‑payment grants or low‑interest loans to eligible buyers. While these programs are often paired with FHA or USDA loans, some lenders will allow the assistance to be combined with a conventional loan, reducing the amount of cash you need to bring to the table.

Improving your chances

• Pay down existing credit‑card balances to lower your credit utilization.
• Correct any errors on your credit report before applying.
• Save for a larger down payment to offset a lower credit score.
• Consider a co‑borrower with stronger credit, if allowed by the lender.

This article provides general information about conventional loan options in Vermont for borrowers with less‑than‑perfect credit. It is not personalized financial advice; you should consult a qualified mortgage professional to discuss your specific situation.