Conventional loans fund more than half of all mortgages in the United States. They're the default. The standard. The loan type most people picture when they think about buying a house.
And yet, most buyers — and honestly, some loan officers — get the basics wrong.
They think you need 20% down. They think you need a 740 credit score. They think conventional is only for people with perfect finances. None of that is true, and those misconceptions keep qualified buyers sitting on the sidelines for years longer than they need to.
I'm Ben Eddy with Colt Lending, a mortgage broker serving Fort Worth, Dallas, DFW, Austin, Leander, Georgetown, Houston, and all of Texas. I close conventional loans every week, and I want to give you the real picture — what conventional actually requires, where it beats FHA, and the features most people don't know exist.
What Is a Conventional Loan?
A conventional loan is any mortgage that isn't backed by a government agency. No FHA insurance. No VA guarantee. No USDA backing.
Most conventional loans are "conforming" loans, meaning they meet the guidelines set by Fannie Mae and Freddie Mac — the two government-sponsored enterprises that buy mortgages from lenders and sell them to investors. When your loan conforms to their guidelines, it gets better pricing because it's easier for lenders to sell on the secondary market.
For 2026, the conforming loan limit in Texas is $832,750 for a single-family home. Every county in Texas uses the same limit — no high-cost exceptions. If your loan exceeds that amount, you're in jumbo territory, which has different guidelines and pricing.
You Don't Need 20% Down (And You Probably Shouldn't Wait to Save It)
This is the myth that costs more buyers more money than any other misconception in the mortgage industry.
A recent Veterans United survey found that 46% of prospective homebuyers believe a conventional loan requires more than 5% down. A Bankrate study found that nearly 20% of Americans think 20% is a hard requirement.
The reality: conventional loans are available with as little as 3% down.
Fannie Mae's HomeReady program and Freddie Mac's Home Possible program both allow 3% down for borrowers whose income is at or below 80% of the area median income. The Conventional 97 program allows 3% down for first-time buyers regardless of income.
With 5% down, conventional loans are available to virtually any qualified borrower — first-time or repeat — with no income restrictions.
On a $350,000 home in the Fort Worth or Austin area, the difference between a 3% down payment ($10,500) and 20% ($70,000) is almost $60,000. That's years of savings for most families. And while home prices appreciate, that family is still renting instead of building equity.
Here's the math most people don't run: a buyer who purchases with 5% down and the home appreciates 4% annually has built more net wealth in three years than the buyer who waited three years to save 20% — because the home's value increased while they were saving.
Is there a cost to putting less than 20% down? Yes — you'll pay private mortgage insurance (PMI). But PMI on a conventional loan is temporary. Once you reach 20% equity, you can request to have it removed. At 22% equity, the lender must remove it automatically. That's a fundamentally different structure than FHA mortgage insurance, which stays for the life of the loan on most FHA borrowers.
The PMI Advantage: Why Conventional Insurance Is Different
This is one of conventional lending's biggest advantages over FHA, and it doesn't get talked about enough.
When you put less than 20% down on a conventional loan, you pay PMI. PMI rates depend on your credit score, loan-to-value ratio, and the insurer — but they typically range from $50-$200 per month on a $300,000 loan.
Here's what makes conventional PMI better than FHA MIP:
PMI is cancelable. Once you reach 20% equity — through payments, appreciation, or a combination — you can request that your lender remove PMI. At 22% equity based on the original value, it drops off automatically. With FHA, if you put down less than 10%, MIP stays for the life of the loan.
PMI is credit-score-sensitive. If you have a 740+ score, your PMI rate can be remarkably low — sometimes as little as $30-50/month on a $300,000 loan. FHA MIP is a flat rate regardless of credit score.
You can pay PMI upfront. Some borrowers choose to pay PMI as a single premium at closing instead of monthly payments. Others use lender-paid PMI, where the lender covers the insurance in exchange for a slightly higher interest rate. These options don't exist with FHA MIP.
For buyers with credit scores above 700, conventional with PMI is almost always cheaper than FHA with MIP when you factor in total cost over the first 5-7 years of the loan.
Credit Score Requirements: What You Actually Need
Conventional loans require a minimum 620 credit score from most lenders. Technically, Fannie Mae and Freddie Mac eliminated their hard 620 minimum in late 2025 as part of the transition to new credit scoring models — but virtually every lender still uses 620 as their internal floor.
Here's how credit score affects your conventional loan experience:
760+: Best available rates. Minimal loan-level price adjustments (LLPAs). Lowest PMI rates. This is the sweet spot.
740-759: Excellent rates. Very close to the top tier pricing.
720-739: Strong rates. PMI is still very affordable.
700-719: Good rates. LLPAs start to increase slightly.
680-699: Rates are higher. LLPAs are noticeable. PMI costs increase. This is the zone where you should compare conventional against FHA — FHA may be cheaper overall.
660-679: Conventional is still available, but pricing gets aggressive with LLPAs. FHA often wins on total monthly cost at this range.
620-659: You'll qualify with most lenders, but your rate and PMI will reflect the risk. Definitely compare against FHA.
The important thing: don't assume a 650 credit score means you can't go conventional. It might mean FHA is cheaper for you, or it might mean conventional is still the better choice depending on your down payment, DTI, and loan amount. I run both scenarios for every client in this range.
The Programs Most People Don't Know About
Conventional lending isn't just "one product." There are multiple programs under the conventional umbrella, and some of them are specifically designed for the buyers who think they can't qualify.
HomeReady (Fannie Mae): 3% down, income capped at 80% of area median income. Allows non-occupant co-borrowers. Can use rental income from a boarder or roommate to help qualify. Reduced PMI rates. No minimum personal contribution required for the down payment — 100% can come from gifts or grants. Available for 1-4 unit properties.
Home Possible (Freddie Mac): Very similar to HomeReady. 3% down, 80% AMI income cap. Allows sweat equity for down payment on certain properties. Also available for multi-unit.
Conventional 97: 3% down for first-time buyers (defined as not having owned a home in the past three years). No income limits. Slightly broader eligibility than HomeReady and Home Possible but without some of the enhanced features.
Standard conventional with 5% down: No income restrictions. No first-time buyer requirement. Available for primary residences. This is the bread-and-butter conventional product for repeat buyers who don't meet the income caps on the 3% programs.
For buyers in the Fort Worth, Austin, and Houston markets, the HomeReady income limits are worth checking. The 80% AMI threshold varies by county and has increased for 2026. Many buyers earning middle-class incomes in these areas still qualify.
Conventional vs. FHA: The Real Comparison
This is the question I get asked more than any other: "Should I go FHA or conventional?"
The answer depends on your specific numbers, not on which one "sounds better." Here's the framework I use:
Conventional usually wins when: your credit score is 700+, you can put 5%+ down, your DTI is comfortably under 45%, and you want PMI that cancels. The higher your score, the more conventional's pricing advantage compounds.
FHA usually wins when: your credit score is below 680, you have minimal savings (3.5% is all you can do), your DTI is above 45%, or you have credit events that make conventional lenders nervous. FHA's base rate is often lower, and the more flexible underwriting absorbs things that conventional overlays reject.
The gray zone (680-720 credit, 3-5% down): This is where a lazy loan officer just picks one and moves on. A good mortgage professional runs both scenarios, compares the total monthly payment (principal, interest, taxes, insurance, and mortgage insurance), and shows you which one is actually cheaper in year one, year five, and year ten.
As a broker, I can price your scenario with conventional and FHA lenders simultaneously across my network. You don't have to guess which is better — I'll show you the math.
Texas-Specific Conventional Advantages
A few things about conventional lending that matter specifically for Texas buyers:
Cash-out refinancing works. Unlike FHA and VA cash-out refinances, which are prohibited in Texas under Section 50(a)(6) of the Texas Constitution, conventional cash-out refinances are allowed. If you're a Texas homeowner looking to access your equity, conventional is your path. The LTV cap is 80%, and lender fees are capped at 2% of the loan amount.
No property condition requirements beyond appraisal. Conventional appraisals are less stringent than FHA appraisals. There's no FHA-specific health and safety checklist. The appraiser evaluates market value and basic habitability, but you won't get flagged for peeling paint or missing handrails the way an FHA appraisal might. This makes conventional a smoother option for older homes and as-is purchases in Fort Worth, DFW, and Houston.
Conforming limit covers most of the market. The $832,750 limit in Texas applies statewide and covers the vast majority of homes sold in DFW, Austin, and Houston. Unless you're buying in Westlake, Southlake, or the higher-end pockets of those metros, you're likely within conforming territory.
The Bigger Picture
Conventional loans aren't the "rich person's mortgage." They're the most versatile, most widely available mortgage product in the country — with options that go as low as 3% down, credit scores down to 620, and PMI that disappears once you build equity.
The key is working with someone who knows all the conventional programs, can compare them against FHA for your specific situation, and doesn't just default to whatever their bank happens to push.
That's what I do for buyers across Fort Worth, Dallas, DFW, Austin, Leander, Georgetown, Houston, and all of Texas every day.
Wondering whether conventional or FHA is the right move for your situation? I'm Ben Eddy with Colt Lending — I run both scenarios for every client so you see the real numbers side by side. Serving Fort Worth, DFW, Austin, Leander, Georgetown, Houston, and all of Texas. Schedule a call and let's compare your options.
