Whether you already live in Texas or are dreaming of it, finding the right financing for your new home in the Lone Star State can make all the difference. A conventional loan Texas is a popular option for homebuyers and comes with competitive interest rates and terms, all while offering flexibility to buy your dream home. These loans are so popular, in fact, that 73% of new single-family houses sold in 2023 were financed using a conventional loan.
No matter where you are in your homebuying journey, understanding how a conventional loan works can be your key to settling down in Texas. Our guide explores everything you need to know and factors to consider, so you can find out if a conventional loan Texas is right for you.
What Are Texas Conventional Loans?
A conventional loan in Texas is a type of mortgage that isn’t insured or guaranteed by government agencies, but is still required to meet the minimum lending standards set by the Consumer Financial Protection Bureau (CFPB). They typically come with flexible terms and competitive interest rates, making them a great choice for those who can qualify.
Since conventional loans have to follow the strict CFPB lending requirements, they’re considered to be qualified mortgage (QM) loans. These requirements can make it more difficult for those who don’t follow the traditional path and may have unique income sources. If you’re having trouble qualifying for a conventional loan, consider getting a non-QM (non-qualified mortgage) loan instead with more flexible qualification criteria.
Conventional Loans in Texas: What You Need to Know
In 2022, Texas became the second state to ever hit a population of 30 million residents or more, only second to California. Between 2000 and 2024, Texas gained just over 9 million new residents – more than any other state during this time period. By 2036, the Lone Star State is expected to gain another 3-5 million residents, meaning population growth isn’t expected to slow down anytime soon.
With consistently high population growth, there’s no surprise that the Texas housing market has grown too. The median sale price of a Texas home has increased a whopping 46.5% between January 2020 to August 2024 and is only expected to get higher as the population continues to grow. There’s no better time than now to dip your feet into the housing market, enjoy your dream home, and reap the potential benefits of appreciating home values in the future.
Conventional Loan Texas Requirements
Conventional loan requirements in Texas are fairly standard across the board, but can vary slightly depending on the lender. When applying, you can expect these requirements from most lenders:
- Minimum FICO score of 620+
- Down payment of 3-20%
- Private mortgage insurance (PMI) if the down payment is less than 20%
- Debt-to-income (DTI) ratio of 43% or lower
- Proof of income documentation (e.g. W2s, pay stubs, tax returns, bank statements)
- Proof of asset documentation (e.g. savings, retirement funds)
Conventional Loan Texas Limits
Conventional loan limits are set by the Federal Housing Finance Agency (FHFA) by county and are updated each year. In order for a conventional loan to be considered “conforming,” it cannot exceed the loan limit in the county where it’s located. In 2024, the conforming loan limit for all counties in Texas is $766,550.
For homebuyers looking to buy a more expensive home that surpasses this limit, consider getting a jumbo loan instead. A jumbo loan is a type of financing designed specifically for more expensive properties that are priced higher than the conforming loan limit. But keep in mind that because of the larger loan amount, qualification requirements tend to be more strict.
Conventional Loan Texas Lenders
If you’re looking for a conventional loan lender in Texas, you can start by searching online to compare rates, fees, and loan terms across different lenders. Try finding a lender that offers personalized service and has experience with conventional loans to help you through the process with confidence.
We at Defy Mortgage offer tailored loan solutions for every kind of borrower – whether you’re traditionally employed, self-employed, or investing in real estate. Want to learn more? Give us a call at (615) 622-1032 or book a consultation with us for a chat with one of our mortgage experts.
Conventional Loan Texas Interest Rates
Interest rates for conventional loans are currently ranging between 5-7% as of September 2024. Depending on your credit score and down payment amount, the exact interest rate you’re offered could vary. With a higher credit score and down payment, you’re more likely to secure a lower rate.
Conventional Loan Texas Down Payment
The minimum down payment amount for a conventional loan could range between 3-20%. For those who have a high credit score, a lender is more likely to offer the minimum 3% down. But if your credit score is less-than-perfect, you can expect a higher minimum down payment requirement. Keep in mind that if you put down less than 20% for a conventional loan, private mortgage insurance (PMI) is required until you hit 20% equity in your home.
Pros and Cons of a Conventional Loan
Pros:
- No upfront insurance premium required (unlike government-backed loans)
- PMI only required until 20% equity is reached
- Different loan terms and interest rate options available
- Competitive interest rates, especially if you have a high credit score and down payment
- Widely available
Cons:
- 20% down may be required for those with lower credit scores
- Stricter qualification requirements for second homes and investment properties
- PMI required if you put down less than 20%
Conventional Loan Texas Alternatives
Qualifying for a conventional loan can be challenging, especially if your situation doesn’t fit the traditional mold. For those struggling to qualify for a conventional loan, consider some of these non-QM loan alternatives:
- Bank Statement Loan: Use your bank statements to qualify rather than traditional income documents like W2s, tax returns, and pay stubs.
- P&L (Profit & Loss Statement) Loan: Use your business’ CPA-prepared P&L statements to qualify.
- DSCR (Debt-Service Coverage Ratio) Loan: Use your rental property’s income to qualify.
At Defy Mortgage, we offer all of these loan options and more. Book a call with us and we can help you find the perfect loan solution.
Conventional Loan Texas FAQs:
- What is a conventional loan, and how does it benefit homebuyers in Texas?
A conventional loan is a type of mortgage that isn’t insured by the federal government, but is still required to follow lending standards set by the Consumer Financial Protection Bureau (CFPB). A conventional loan benefits homebuyers in Texas by offering competitive rates, flexible terms, and no mandatory private mortgage insurance (PMI) with a 20% down payment.
- What are the credit score requirements for a conventional loan in Texas?
Generally, you can expect most lenders in Texas to require a minimum credit score of around 620 for a conventional loan. But keep in mind that a higher credit score can help you secure better interest rates and terms.
- How much down payment do I need for a conventional loan in Texas?
The minimum down payment for a conventional loan Texas is around 3-5% of the home’s purchase price. While this is the bare minimum, putting down at least 20% can help you avoid paying private mortgage insurance (PMI).
- Are there specific loan limits for conventional loans in Texas?
In 2024, the conventional loan limits for all counties in Texas are $766,550. These limits are set by the Federal Housing Finance Agency (FHFA) and vary by county across the U.S.
- What types of properties can I buy with a conventional loan in Texas?
With a conventional loan Texas, you can buy a wide range of property types – from single-family primary residences to multi-unit investment properties. The one thing to keep in mind is that requirements for a conventional loan tend to be stricter for second homes and investment properties. This is where many people turn to non-QM (non-qualified mortgage) loans that offer more flexible qualification criteria.
- How do interest rates for conventional loans in Texas compare to other loan types?
Conventional loan interest rates are competitive and often lower than other types of loans, especially if you have a high credit score. Despite more competitive rates, they can still vary based on market conditions and your individual qualifications.
- Can I use a conventional loan in Texas to buy a vacation home or investment property?
Yes, you can use a conventional loan to buy a vacation home or investment property in Texas. However, you can expect stricter qualification requirements compared to a conventional loan that’s being used for a primary residence. If you’re having difficulty qualifying for a conventional loan, consider non-QM loans to help you achieve your homeownership goals.
- What are the closing costs associated with a conventional loan in Texas?
Closing costs for a conventional loan usually range from 2-5% of the loan amount, which includes fees for appraisal, title insurance, loan origination, and more. As a homebuyer, you could try negotiating some of these costs with the seller or the lender. Some lenders may also give you the option to roll them into the mortgage.
