Conventional Loans in Texas: Your Complete 2026 Guide
Conventional loans offer flexible terms, competitive rates, and options as low as 3% down for Texas homebuyers. Learn about requirements, benefits, and how conventional loans compare to FHA and other programs.
What Are Conventional Loans?
Conventional loans are mortgages not insured or guaranteed by the federal government. They are backed by private lenders and typically follow guidelines set by Fannie Mae and Freddie Mac, the government-sponsored enterprises that purchase mortgages.
Conventional loans offer flexibility in down payment amounts, loan terms, and property types. They are ideal for borrowers with good credit and stable income who want competitive rates and lower overall costs.
Key Benefits
- Down payments as low as 3%
- No upfront mortgage insurance premium
- PMI can be removed once you reach 20% equity
- Lower overall costs for qualified borrowers
- Flexible loan amounts up to high-balance limits
- Available for primary homes, second homes, and investment properties
Conventional Loan Requirements in Texas
Credit Score Requirements
- Minimum 620 credit score required
- 640+ recommended for better rates
- 700+ qualifies for excellent rates
- 740+ earns the best available pricing
Down Payment Options
- 3% down minimum for primary residences (HomeReady/HomePossible programs)
- 5% down standard conventional
- 10% down for second homes and investment properties
- 20% down to avoid PMI
- 25% down typical for investment properties
Debt-to-Income Ratio
- Maximum 43% DTI standard
- Up to 50% DTI possible with strong compensating factors
- Lower DTI ratios qualify for better rates
- Includes all monthly debt obligations
Income and Employment
- 2 years employment history preferred
- Stable income required
- Recent job changes require explanation
- Self-employed need 2 years tax returns
- Multiple income sources allowed
Types of Conventional Loans
Conforming vs Non-Conforming
Conventional loans are divided into two categories:
Conforming Loans
Follow Fannie Mae and Freddie Mac guidelines and stay within loan limits:
- 2026 limit: $806,500 in most Texas counties
- Higher limits in designated high-cost areas
- Standard underwriting guidelines
- Generally lower interest rates
Non-Conforming Loans (Jumbo)
Exceed conforming limits or do not meet standard guidelines:
- Loan amounts above $806,500
- Stricter credit and income requirements
- Larger down payments required (typically 20%+)
- Competitive rates for qualified borrowers
Fixed-Rate vs Adjustable-Rate
Fixed-Rate Mortgages
- Interest rate never changes
- Predictable payments
- 15, 20, or 30-year terms
- Popular choice for stability
Adjustable-Rate Mortgages (ARMs)
- Lower initial rate
- Rate adjusts after fixed period
- Common: 5/1, 7/1, 10/1 ARMs
- Good for short-term ownership
Private Mortgage Insurance (PMI)
Conventional loans with less than 20% down require private mortgage insurance to protect the lender in case of default.
PMI Costs and Removal
- Typically costs 0.3% to 1.5% of loan amount annually
- Example: $100-$150/month on $300,000 loan
- Can be removed once you reach 20% equity
- Automatically terminates at 22% equity
- No PMI required with 20%+ down payment
PMI on conventional loans is more flexible than FHA mortgage insurance, which remains for the life of the loan on purchases with less than 10% down.
Conventional vs FHA Loans
| Feature | Conventional | FHA |
|---|---|---|
| Minimum Credit Score | 620 | 580 (500 with 10% down) |
| Minimum Down Payment | 3% | 3.5% |
| Upfront MI Premium | None | 1.75% of loan |
| Monthly MI/PMI | Removable at 20% equity | Life of loan (with low down) |
| Loan Limits | $806,500+ | $498,257 (most TX counties) |
| Property Standards | Standard appraisal | Stricter property requirements |
| Best For | Good credit, stable income | Lower credit, smaller down payment |
Low Down Payment Programs
Several conventional programs allow down payments as low as 3%:
HomeReady (Fannie Mae)
- 3% down payment
- Income limits apply (80% of area median income)
- First-time and repeat buyers eligible
- Allows non-borrower household income to qualify
- Homebuyer education required
Home Possible (Freddie Mac)
- 3% down payment
- Income limits apply (80% of AMI in most areas)
- First-time and repeat buyers eligible
- Flexible income sources accepted
- Online homebuyer education required
Conventional 97
- 3% down payment
- No income limits
- First-time buyers only
- At least one borrower must be first-time buyer
- Fixed-rate mortgages only
Frequently Asked Questions
What credit score do I need for a conventional loan in Texas?
The minimum credit score is 620, but 640+ is recommended for approval and better rates. Scores of 740+ qualify for the best rates and terms.
Can I get a conventional loan with 3% down?
Yes. HomeReady, Home Possible, and Conventional 97 programs allow 3% down for qualified buyers. You will need PMI until reaching 20% equity.
How do I remove PMI from my conventional loan?
PMI automatically terminates when you reach 22% equity through payments. You can request removal at 20% equity. Refinancing or paying down principal accelerates PMI removal.
Are conventional loans better than FHA loans?
Conventional loans are often better for borrowers with 620+ credit and 3-5% down. They have lower total costs and removable PMI. FHA is better for credit scores below 620 or when you need more flexible qualifying.
Ready to Apply for a Conventional Loan?
Ken Harmon specializes in conventional mortgages throughout Texas. From 3% down first-time buyer programs to jumbo loans, we will find the right conventional loan for your needs.
Get pre-approved today and take advantage of competitive conventional loan rates.