A conventional loan is the most straightforward path to homeownership if you have decent credit and some money saved for a down payment. You don't need 20% down, you don't need perfect credit, and unlike FHA loans, the mortgage insurance doesn't stay with you forever.
If you have a credit score in the mid-600s and can put at least 3% down, a conventional loan is worth looking at seriously. It gives you a clean loan structure with competitive rates, and once you build 20% equity in the home, the private mortgage insurance drops off completely. That alone can save you hundreds of dollars a month compared to an FHA loan where the mortgage insurance premium stays for the life of the loan.
I shop over 100 lenders as a mortgage broker, which means I'm not locked into one bank's rates or guidelines. I find the conventional program that fits your situation and gets you the best terms available.
Conventional Loan at a Glance
Down Payment: As low as 3%
Credit Score: 620-640 minimum, best rates at 680+
PMI: Required under 20% equity, then drops off
Max DTI: 43-45%
Requirements
Conventional loan requirements are more flexible than most people assume. Here's what lenders are actually looking for:
Credit score. The minimum is typically 620 to 640 depending on the lender and the specifics of your file. That said, if your score is 680 or higher, you'll qualify for noticeably better interest rates and lower mortgage insurance costs. The difference between a 640 and a 720 can be meaningful on your monthly payment, so if you're close to that next tier it's worth having a conversation about whether it makes sense to wait a few months and work on your score first.
Down payment. The minimum is 3%, which on a $340,000 home in Houston comes out to $10,200. If you can put 5% or 10% down, your mortgage insurance drops and your monthly payment gets more comfortable. And if you can reach 20%, you skip private mortgage insurance entirely from day one.
Debt-to-income ratio. Lenders generally want your total monthly debts, including the new mortgage payment, to stay below 43% to 45% of your gross monthly income. If you're not sure where you stand on this, that's one of the first things we look at during pre-approval.
Loan limit. The 2026 conforming loan limit in Harris County is $524,225. If you need more than that, you're looking at a jumbo loan, which has different requirements.
PMI: What It Costs and When It Goes Away
If you put less than 20% down on a conventional loan, you'll pay private mortgage insurance. PMI protects the lender, not you, but it's a standard part of the deal for buyers who don't have 20% saved.
The good news is that PMI drops off automatically once you reach 20% equity in the home. You can also request early removal once you hit that threshold. Over the life of a 30-year mortgage, this saves tens of thousands of dollars compared to FHA, where mortgage insurance stays for the entire life of the loan if you put less than 10% down.
Conventional vs FHA
| Feature | Conventional | FHA |
|---|---|---|
| Minimum Down Payment | 3% | 3.5% |
| Minimum Credit Score | 620-640 | 580 |
| Mortgage Insurance | Drops off at 20% equity | Stays for life (under 10% down) |
| Max DTI | 43-45% | 43-50% |
| Best For | 680+ credit, plan to stay long-term | 580-680 credit, limited savings |
The biggest difference is mortgage insurance. With an FHA loan, you pay an upfront mortgage insurance premium of 1.75% plus an annual premium of 0.55%, and if you put less than 10% down, that annual premium stays for the entire life of the loan. It never goes away. With a conventional loan, private mortgage insurance is required if you put less than 20% down, but it drops off automatically once you reach 20% equity. Over the life of a 30-year mortgage, that difference adds up to tens of thousands of dollars.
FHA loans do have a lower credit score floor, starting at 580 compared to the 620 to 640 range for conventional. So if your credit is in the low 600s or below, FHA might be your better path right now. But if your score is 640 or higher and you have at least 3% for a down payment, conventional almost always makes more financial sense in the long run because of how mortgage insurance works.
Read our full comparison: FHA vs Conventional Loans in Houston
Who Should Get a Conventional Loan
Buyers with good credit who want the best long-term deal. If your credit score is in the mid-600s or higher, a conventional loan gives you access to competitive rates and a mortgage insurance structure that actually ends. You're not locked into paying extra for 30 years.
Repeat buyers and people upgrading homes. If you already own a home or have owned one before, conventional is usually the cleanest option. There are no first-time buyer requirements, and the guidelines around using equity from a sale are straightforward.
People refinancing out of FHA. If you bought with an FHA loan a few years ago and you've built up 20% equity, refinancing into a conventional loan eliminates your mortgage insurance entirely. This is one of the most common moves I help Houston homeowners make, and it can drop your monthly payment by $200 or more depending on your loan amount.
Houston Market Context
Houston's median home price is currently in the $320,000 to $340,000 range. Here's what the numbers look like on a $340,000 home with a conventional loan:
At 3% down, your down payment is $10,200. You'll have private mortgage insurance until you reach 20% equity, but on a home that's appreciating in a growing market like Houston, that can happen faster than you'd expect.
At 5% down, you're putting in $17,000 and your monthly mortgage insurance cost is lower than the 3% scenario.
At 20% down, you're putting in $68,000 and skipping mortgage insurance completely from the start.
If you're a first-time buyer who doesn't have 20% saved, that's completely normal and it's not a reason to wait. The 3% and 5% down options exist specifically for buyers in your position, and Houston also has down payment assistance programs that can cover part or all of your down payment depending on your income and the area you're buying in.
Down Payment Assistance
Several down payment assistance programs in Houston work with conventional loans. TSAHC is available for first-time and repeat buyers, and there are additional programs through Harris County that can reduce or eliminate your out-of-pocket costs depending on your income.
Learn more: Houston Down Payment Assistance Programs
The Process
- Pre-approval. This is always the first step, and it happens the same day you reach out. A pre-approval tells you exactly how much you can afford, what your estimated rate and payment will look like, and it shows sellers that you're a serious buyer when you make an offer.
- Finding the right rate. Because I work as a broker with access to over 100 lenders, I'm not quoting you one bank's rate and hoping it works. I shop the market on your behalf and find the combination of rate, closing costs, and loan terms that fits what you're trying to do. Some buyers want the lowest possible rate. Some want the lowest closing costs. Some want to buy down the rate. We figure out what matters most to you and build around that.
- Closing. Conventional loans typically close in 30 to 45 days from contract to keys. The timeline depends on appraisal scheduling, title work, and how quickly you can get your documents in, but there's nothing about the process that needs to be stressful or confusing. I'm available by phone or text at every step, and I make sure you know what's happening and what's coming next before it happens.
What You Should Know
Conventional loans are backed by Fannie Mae and Freddie Mac, and programs like HomeReady and Home Possible offer 3% down options specifically for low-to-moderate income borrowers. Closing costs in Houston typically run 2-4% of the loan amount, and sellers can contribute up to 3-6% in seller concessions depending on your down payment. If you want to lower your rate upfront, discount points and rate buydowns are available. Gift funds from family members can also be used toward your down payment on a conventional loan, and your lender will set up an escrow account to manage property taxes and insurance as part of your monthly payment.
Frequently Asked Questions
What is the minimum down payment for a conventional loan in Houston?
As little as 3%. On a $340,000 Houston home, that's $10,200. There are also down payment assistance programs available in Harris County that can reduce or eliminate your out-of-pocket costs depending on your income.
What credit score do I need for a conventional loan?
The minimum is typically 620 to 640, but you'll get the best rates and lowest mortgage insurance costs with a score of 680 or higher. If your score is on the lower end, we can talk through whether it makes sense to apply now or take a few months to improve your score first.
When does PMI drop off a conventional loan?
Private mortgage insurance drops off automatically when you reach 20% equity in the home. You can also request early removal once you hit that threshold. This is one of the biggest advantages over FHA, where mortgage insurance stays for the life of the loan if you put less than 10% down.
What is the conforming loan limit in Harris County for 2026?
The 2026 conforming loan limit in Harris County is $524,225. If you need more than that, you're looking at a jumbo loan with different requirements.
Can I use gift money for a conventional loan down payment?
Yes. Conventional loans allow gift funds for the down payment from family members, including parents, siblings, grandparents, or domestic partners. The donor must provide a signed gift letter stating the amount, the relationship to the borrower, and that the funds do not need to be repaid. Lenders will also verify that the funds have been transferred to your account before closing. Gift funds typically cannot come from an employer, seller, or unrelated third party.
What are the closing costs on a conventional loan in Houston?
Closing costs on a conventional loan in Houston typically run 2% to 5% of the loan amount. On a $350,000 loan, expect $7,000 to $17,500 in total closing costs, which includes lender fees, title insurance, appraisal, prepaid taxes and insurance, and homeowner's association transfer fees where applicable. Harris County title costs are on the higher end compared to other Texas counties. Your lender is required to provide a Loan Estimate within three business days of application, which itemizes all costs in a standardized format.
Can the seller pay my closing costs?
Yes. Seller concessions are allowed on conventional loans. The amount the seller can contribute depends on your down payment: up to 3% of the purchase price with less than 10% down, up to 6% with 10-25% down, and up to 9% with more than 25% down. Seller concessions are negotiated as part of the purchase offer and must be documented in the purchase contract. In a competitive Houston market, requesting seller concessions can affect the strength of your offer, so weigh this against your cash position.
What is a rate buydown and is it worth it?
A rate buydown means you pay discount points upfront at closing to secure a lower interest rate for the life of the loan. One point equals 1% of the loan amount. To determine if it's worth it, divide the cost of the points by the monthly savings to find your break-even point. For example, if paying $3,000 in points saves $100 per month, you break even in 30 months. If you plan to stay in the home longer than that, the buydown saves money. Builders in Houston's new construction market frequently offer temporary 2-1 buydowns — where the rate is reduced by 2% in year one and 1% in year two — as incentives.
Related Resources
- FHA vs Conventional: Which Is Better in Houston?
- Houston Down Payment Assistance Programs
- First-Time Homebuyer Checklist
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