What Is a Conventional Loan?
A conventional loan is any mortgage that's not backed by a government agency (FHA, VA, or USDA). Most conventional loans are "conforming" — meaning they meet the guidelines set by Fannie Mae or Freddie Mac, which buy loans from lenders on the secondary market. This is the most common loan type in America, and for Houston buyers with decent credit, it's often the best deal.
Conventional loans can be used for primary residences, second homes, and investment properties — more flexibility than government-backed loans, which are limited to primary residences.
Conventional Loan Requirements in Houston
Credit Score
Minimum 620 to qualify. But your credit score directly impacts your rate and PMI cost:
- 740+: Best rates and lowest PMI. This is the sweet spot.
- 700-739: Good rates, reasonable PMI.
- 680-699: Slightly higher rates. Compare against FHA at this range.
- 620-679: Higher rates and PMI. FHA often wins here on total cost.
Down Payment Options
- 3% down: Available through Conventional 97 and Fannie Mae HomeReady programs. Must be a first-time buyer (no ownership in past 3 years).
- 5% down: Standard minimum for repeat buyers.
- 10% down: Lower PMI, stronger offer in competitive situations.
- 20% down: No PMI required at all. On a $400K Houston home, that's $80,000.
Debt-to-Income Ratio
Standard maximum is 43% DTI for conventional loans, though Fannie Mae's automated underwriting can approve up to 50% with strong compensating factors (high credit score, significant reserves, low LTV).
Conforming vs. Jumbo Loans in Houston
The 2026 conforming loan limit for Harris County is $832,750. This covers the vast majority of the Houston market. Loans above this amount are "jumbo" loans with different requirements:
- Conforming (up to $832,750): Standard rates, 3-20% down, 620+ credit
- Jumbo (above $832,750): Slightly higher rates, typically 10-20% down required, 700+ credit preferred, stricter reserve requirements
For Houston's luxury markets — River Oaks, Memorial, West University, Tanglewood — jumbo loans are common. For most of the metro, conforming limits are more than adequate.
PMI: How It Works and When It Drops Off
Private Mortgage Insurance is required on conventional loans with less than 20% down. Unlike FHA's mortgage insurance, conventional PMI has a clear exit path:
- Automatic cancellation: PMI is automatically removed when your loan balance reaches 78% of the original purchase price.
- Request removal at 80%: You can request PMI removal once you hit 80% LTV, either through payments or home appreciation.
- Refinance option: If your home has appreciated significantly, you can refinance to remove PMI even sooner.
PMI costs vary by credit score and down payment. Typical range: $50-$200/month per $100,000 borrowed. A 740+ credit score with 10% down might pay $60/month per $100K. A 660 score with 5% down could pay $180/month per $100K.
If you have 720+ credit and 10%+ down, conventional loans almost always beat FHA on total cost. No upfront mortgage insurance premium (saving 1.75% upfront), lower monthly insurance that drops off automatically, and typically better interest rates. We run both scenarios for every buyer.
Conventional vs. FHA: Quick Comparison
- Credit 720+, 10%+ down: Conventional wins. Lower total cost.
- Credit 680-719, 5-10% down: Close call. Run both numbers.
- Credit below 680, 3.5% down: FHA usually wins. Lower rates and easier qualification.
- Investment property: Conventional is your only conforming option.
- Condo: Conventional has fewer project approval requirements than FHA.
Property Types: Where Conventional Shines
Conventional loans offer more property flexibility than government loans:
- Single-family homes: Primary, second home, or investment
- Condos: Fewer project restrictions than FHA (many Houston condos are conventional-only)
- Townhomes: Full financing available
- 2-4 unit properties: Live in one unit, rent the others. 15-25% down.
- Second homes: 10% down minimum for vacation or weekend properties
Rate Buydowns and Seller Concessions
In Houston's current market, seller concessions are a valuable tool for conventional buyers:
- Less than 10% down: Sellers can contribute up to 3% of the purchase price
- 10-25% down: Up to 6% in seller concessions
- 25%+ down: Up to 9% in seller concessions
Seller concessions can be applied to closing costs, rate buydowns (paying points to lower your rate), or prepaid items. A 2-1 buydown using seller concessions is a popular strategy right now — it lowers your rate by 2% in year one and 1% in year two.
Houston Market Context
The median home price in Houston sits around $330,000 — well within the conforming limit. Conventional loans are the workhouse of the Houston market, especially in mid-range and upper neighborhoods. With the mortgage calculator, you can see exactly what your monthly payment looks like with Houston's property tax rates factored in.
Get Pre-Qualified for a Conventional Loan
We compare rates from multiple lenders to find you the best conventional deal. Whether you're buying your first home, upgrading, or investing, we'll show you the real numbers — rate, PMI, total monthly payment — before you commit. Start with our free mortgage analyzer or Houston Buyer Guide.
Ben Helstein | NMLS# 2544498 | InSync Homes & Loans