Conventional Loans
THE MOST COMMON LOAN, EXPLAINED PLAINLY
A conventional loan isn’t backed by a government agency — it follows the standards set by Fannie Mae and Freddie Mac. It’s the program most Texas buyers end up using, and the one where a few widely believed myths cost people money.
Start Here
What Makes a Loan “Conventional”
Every mortgage falls into one of two buckets: government-backed, or not. FHA, VA and USDA loans are insured or guaranteed by a federal agency, which is what lets them relax certain requirements. A conventional loan carries no such backing. Instead it follows the underwriting rules published by Fannie Mae and Freddie Mac — the two entities that buy the overwhelming majority of American mortgages.
That single difference drives everything else on this page: who qualifies, how much you put down, what the mortgage insurance costs and how long it lasts, and what kind of property you’re allowed to buy.
Conventional loans also cover the widest ground. Primary home, second home, rental property, single-family, condo, townhome, or a house on acreage — the conventional box is the biggest one, which is part of why most borrowers land in it.
Down Payment
Twenty Percent Was Never the Rule
The most persistent myth in home buying is that a conventional loan requires 20% down. It does not, and it hasn’t for a long time. Twenty percent is the point at which you avoid mortgage insurance — a meaningful difference, but a very different thing from a requirement. Waiting to save it has kept plenty of people renting through years of rising prices.
3%
Available on specific conforming programs built for first-time and moderate-income buyers. Income limits and other conditions apply, so eligibility has to be confirmed — it isn’t automatic.
5%
The common starting point for a standard conventional loan on a primary residence, with no first-time-buyer requirement attached.
10–15%
Reduces the monthly mortgage insurance premium and can improve pricing. A middle path if 20% isn’t realistic but you have more than the minimum.
20%
No mortgage insurance at all. The reason the number stuck in everyone’s head — but a target, not an entry fee.
Second homes and investment properties require more down than a primary residence, and multi-unit properties more again. Those are separate conversations worth having early.
Mortgage Insurance
PMI Is Temporary — and That Matters More Than People Realize
Put down less than 20% on a conventional loan and you’ll pay private mortgage insurance, usually as part of the monthly payment. PMI protects the lender, not you. Nobody enjoys it. But conventional PMI has a feature that’s easy to overlook when you’re comparing programs: it ends.
You can ask for it to come off
Once the loan balance reaches 80% of the home’s original value, you can request that PMI be cancelled. There are conditions — a solid payment history, and in some cases a current appraisal — but the request is yours to make.
And it comes off on its own regardless
Federal law requires the servicer to terminate PMI automatically once the balance reaches 78% of the original value, provided payments are current. You don’t have to ask, and you don’t have to refinance.
The comparison people miss
FHA loans carry their own mortgage insurance, and on the lowest down payments it generally stays for the life of the loan — removing it usually means refinancing into a different program. That difference can outweigh a lower FHA rate over the years you actually keep the loan. It’s the single most useful thing to weigh when you’re choosing between the two.
Extra principal payments accelerate all of this, since both thresholds are based on the loan balance. Chet can show you where your particular loan would cross them.
Structure
Fixed Rate or Adjustable
Conventional loans come in both. Which one fits depends far less on the rate itself than on a question only you can answer: how long do you realistically expect to keep this loan?
Fixed Rate
The interest rate never changes. Terms are commonly available at 30, 20, 15 and 10 years.
- 30-year — the lowest monthly payment, and by far the most common choice.
- 20- and 15-year — a higher payment, but a lower rate and far less total interest. Equity builds noticeably faster.
- 10-year — the fastest payoff, best suited to borrowers with room in the budget and a short horizon.
Predictability is the whole point. Your principal and interest stay put for the life of the loan — though taxes and insurance in your escrow can still move.
Adjustable Rate (ARM)
A fixed rate for an initial period, then periodic adjustments tied to an index. Current conventional ARMs are commonly written as 5/6, 7/6 and 10/6.
- The first number is the years the rate stays fixed.
- The second means it can adjust every six months after that.
- Caps limit how much the rate can move at each adjustment and over the life of the loan.
An ARM can make sense if you expect to sell or refinance before the fixed period ends. If you’re planning to stay put, the certainty of a fixed rate is usually worth more than the lower start.
Qualifying
What Underwriting Actually Looks At
These are general starting points, not cutoffs. Conventional underwriting weighs the whole file — a strength in one area often offsets a weakness in another, which is precisely the judgment a conversation adds and a webpage can’t.
Credit
620 is the usual starting point for conventional financing. Higher scores don’t just help you qualify — on a conventional loan they directly affect pricing and your mortgage insurance premium, more so than on government-backed programs.
Debt-to-income
Your monthly obligations measured against gross monthly income. Conventional guidelines allow more room than most people expect when the rest of the file is strong — reserves, credit and down payment all factor in.
Income and employment
Generally a two-year history, though not necessarily with one employer — school, military service and a career change can all count toward it. Self-employed income is documented differently, and if tax returns understate what you actually earn, a bank statement program may be the better route.
Funds and reserves
Your down payment and closing costs need to be documented and sourced. Depending on the property and program, you may also need reserves — months of payments left over after closing. Gift funds from family are allowed within the rules.
The property
An appraisal establishes value and confirms the home meets program standards. Conventional loans are generally less prescriptive about property condition than FHA, which can matter on an older home or a rural property — a real consideration in the Hill Country.
Loan Limits
How Large a Conventional Loan Can Be
Conventional loans that Fannie Mae and Freddie Mac will buy are capped at what’s called the conforming loan limit. For 2026 that baseline is $832,750 for a one-unit property, which is the figure that applies across most Texas counties. Limits are higher for two-, three- and four-unit properties, and higher again in a small number of designated high-cost areas.
The limit is reset every year by the Federal Housing Finance Agency and is tied to the loan amount, not the purchase price — so your down payment affects which side of the line you land on. Confirm the current figure for your county with Chet before you assume.
Borrowing above the limit?
A loan larger than the conforming limit is a jumbo loan. Different rules on credit, down payment and reserves, and a different set of lenders — and one Chet shops the same way.
Local Detail
What Conventional Buyers in Texas Should Plan For
The program rules are national. How they land on you here is not.
- Escrow is a bigger share of your payment than you expect. Texas has no state income tax, and property tax rates are correspondingly higher than in much of the country. Taxes and insurance are collected monthly alongside principal and interest, so the total payment often runs well above what a simple mortgage calculator suggested. Budget from the full number, not the principal-and-interest figure.
- File your homestead exemption. On your primary residence it reduces the taxable value and caps how fast the assessment can rise. It is not automatic and it is free to file — a step that quietly saves money every year you own the home.
- Acreage and rural properties need earlier attention. A well, a septic system, outbuildings, or a large parcel all affect the appraisal and how the property is treated. Conventional financing is generally more flexible here than FHA, but the details are worth raising before you’re under contract.
- Conventional is the only route to a Texas cash-out refinance. Under the Texas Constitution, cash-out refinances on a homestead are limited to conventional loans — FHA and VA loans are not eligible. If tapping equity later is part of your thinking, that shapes the program you choose now.
- Second homes and investment property are on the table. FHA, VA and USDA are primary-residence programs. If you’re buying a river place, a weekend house, or a rental, conventional is generally the door you go through.
If This Isn’t Quite Your Situation
Other Programs Worth a Look
FHA Loans
If your credit has a few dings or your debt runs higher than conventional guidelines allow, FHA is built for exactly that.
Learn More →VA Loans
Eligible veterans and service members can often buy with no down payment and no monthly mortgage insurance at all.
Learn More →All Loan Options
USDA, jumbo, bank statement and reverse mortgage — the full set of programs side by side.
See the Overview →Conventional Loan Questions
Do I really need 20% down for a conventional loan?
How long do I have to pay PMI?
Is a conventional loan better than FHA?
What credit score do I need?
Can I use a conventional loan for a rental or a second home?
What happens if I need to borrow more than the conforming limit?
Can I use gift money for the down payment?
Chet’s full Mortgage FAQs page covers credit, closing costs, appraisals and what to expect at every step.
See What You Qualify For
No cost, no obligation, and no pressure — just a clear answer on where you stand.
