Shopping for a home in Texas often starts with a tough question: should you use a government-backed loan or go with a conventional mortgage that lets you drop mortgage insurance down the road?
This 2026 guide breaks down how conventional mortgages in Texas work, from 3% down payment options like HomeReady and Home Possible to credit score rules, debt-to-income caps, seller concession limits, and the $832,750 conforming loan limit across all 254 counties.
Check Your Texas Conventional Loan Eligibility
By the end, you will know exactly what it takes to qualify for a conventional loan in Texas and how to compare your numbers side by side against FHA financing.
What Is a Conventional Mortgage in Texas?
A conventional loan in Texas is a mortgage that is not insured or guaranteed by a federal agency like the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), or the U.S. Department of Agriculture (USDA). Instead, most conventional mortgages are "conforming" loans, meaning they meet the underwriting rules and dollar limits set by Fannie Mae and Freddie Mac (overseen by the Federal Housing Finance Agency, or FHFA).
Conventional loans can finance a principal residence, a second home, or an investment property. For buyers comparing all of their Texas Home Loan Options, conventional financing stands out for two big reasons: flexible 3% down payment paths for qualified buyers and private mortgage insurance (PMI) that cancels once you build enough equity.
Texas Conventional Loan Requirements (2026)
When you review the core Requirements to Buy a House in Texas, conventional guidelines depend heavily on whether your loan is evaluated by an automated underwriting system—Fannie Mae's Desktop Underwriter (DU) or Freddie Mac's Loan Product Advisor (LPA)—or underwritten manually by a human underwriter.
Credit Score Rules: Automated vs. Manual Underwriting
Many buyers hear that you must have a 620 credit score for any conventional mortgage, but the official rules draw a sharp line between automated and manual underwriting:
- Fannie Mae Desktop Underwriter (DU) loans: According to Fannie Mae Selling Guide topic B3-5.1-01 (dated April 22, 2026), a minimum numeric credit score is not required for loan casefiles run through DU. Instead, DU assesses the borrower's overall credit risk profile itself. (Note: While the Selling Guide states DU has no minimum score, Fannie Mae's separate Eligibility Matrix and individual lender overlays may apply specific credit score minimums depending on your loan profile, so always confirm with a participating lender.)
- Fannie Mae manually underwritten loans: If your loan is manually underwritten, Fannie Mae requires a minimum credit score of 620 for fixed-rate loans and 640 for adjustable-rate mortgages (ARMs). Higher scores may be required under the Eligibility Matrix based on your loan-to-value (LTV), combined LTV (CLTV), or home equity combined LTV (HCLTV).
- Freddie Mac Home Possible (LPA vs. manual): According to Freddie Mac's February 2026 Home Possible fact sheet, loans run through LPA are acceptable with an LPA "Accept" risk class (no numeric minimum is listed in the fact sheet). For manually underwritten Home Possible loans on a 1-unit property, the minimum indicator score is 660 for a fixed-rate purchase, and 680 for a 1-unit ARM, a no-cash-out refinance, or a manufactured home. For 2-to-4-unit properties, the manual minimum is 700. Borrowers without credit scores can also be underwritten up to 95% LTV under Home Possible rules.
Debt-to-Income (DTI) Ratio Limits
Your debt-to-income (DTI) ratio compares your total monthly debt obligations (including your new Texas mortgage payment, property taxes, homeowners insurance, HOA dues, and other debts) to your gross monthly income. According to Fannie Mae Selling Guide B3-6-02:
- Desktop Underwriter (DU) loans: The maximum allowable total DTI ratio is 50%.
- Manually underwritten loans: The baseline maximum total DTI ratio is 36% of your stable monthly income. That cap can increase up to 45% if the borrower meets the specific credit score and cash reserve requirements in Fannie Mae's Eligibility Matrix (confirm the exact score and reserve tiers with your lender).
Check Your Texas Conventional Loan Eligibility
3% Down Payment Options for Texas Homebuyers
You do not need 20% down to get a conventional loan in Texas. Qualified buyers purchasing a one-unit primary residence have three distinct 3% down payment (97% LTV) options backed by Fannie Mae and Freddie Mac.
| Feature | Fannie Mae Standard 97% LTV | Fannie Mae HomeReady | Freddie Mac Home Possible |
|---|---|---|---|
| Minimum Down Payment | 3% (95.01% to 97% LTV) | 3% (up to 97% LTV per Eligibility Matrix) | 3% (97% max LTV on 1-unit fixed-rate) |
| First-Time Buyer Required? | Yes (at least one borrower must have had no ownership interest in the last 3 years) | Not part of the standard 97% rules; extra education rules apply if all occupying borrowers are first-time buyers | Extra education rules apply if all occupying borrowers are first-time buyers |
| Income Limit | None stated in B2-1.3-01 | Max 80% of Area Median Income (AMI) for the property's location | Max 80% of Area Median Income (AMI) for the property's location |
| Max CLTV / TLTV with Eligible Second Lien | Up to 105% CLTV with Community Seconds | Up to 105% CLTV with Community Seconds | Up to 105% TLTV with Affordable Seconds (fixed-rate first lien only) |
| Loan Type & Underwriting | Fixed-rate up to 30 years; DU required (no ARMs or high-balance loans) | Follows Selling Guide B5-6-01 | Fixed-rate up to 97% LTV; ARMs and manufactured homes capped at 95% LTV |
| Homeownership Education | Not specified in B2-1.3-01 | Required for purchases when all occupying borrowers are first-time buyers | Required before the note date when all occupying borrowers are first-time buyers (or when credit relies only on noncredit payment references) |
1. Fannie Mae Standard 97% LTV (First-Time Homebuyers)
Fannie Mae's standard 97% LTV option (Selling Guide B2-1.3-01) lets you buy with 3% down if you meet all of these rules:
- First-time buyer rule: At least one borrower on the loan must be a first-time homebuyer. On the mortgage application (Form 1003), at least one borrower must truthfully answer "No" to having had an ownership interest in a property during the last three years.
- Property and occupancy: Must be a one-unit principal residence.
- Loan structure: Must be a fixed-rate mortgage with a term up to 30 years, and it must be underwritten through DU. Adjustable-rate mortgages (ARMs) and high-balance loans are not allowed.
- Subordinate financing: If you pair the loan with an eligible Community Seconds subordinate lien, your combined loan-to-value (CLTV) can reach up to 105%.
2. Fannie Mae HomeReady in Texas
For buyers searching for HomeReady Texas options, Fannie Mae's HomeReady mortgage (Selling Guide B5-6-01) has its own eligibility rules, separate from the standard 97% LTV requirements.
- 80% AMI income limit: Your total annual qualifying income on the loan may not exceed 80% of the Area Median Income (AMI) for the property's location. Lenders verify this using the AMI figures built into DU or Fannie Mae's AMI lookup tool. Because AMI numbers adjust annually, confirm the current limit for your Texas census tract with a participating lender.
- LTV and Community Seconds: HomeReady allows up to 97% LTV (with extra requirements above 95% LTV), and the CLTV can go up to 105% when paired with a Community Seconds subordinate lien.
- Homeownership education: If all occupying borrowers on a purchase transaction are first-time homebuyers, homeownership education is required.
3. Freddie Mac Home Possible in Texas
Freddie Mac's counterpart, often searched as Home Possible Texas, also offers a 3% down payment for borrowers whose qualifying income is at or below 80% of the area median income. According to the February 2026 Freddie Mac Home Possible fact sheet and product page:
- 80% AMI income limit: Total annual qualifying income is capped at 80% of AMI for the property's location, which lenders check using Freddie Mac's Home Possible Income and Property Eligibility Tool.
- LTV and property caps: For a 1-unit fixed-rate mortgage, the maximum LTV is 97%, the Total LTV (TLTV) is 105% when paired with an Affordable Seconds subordinate loan (available on fixed-rate first liens only), and the Home Equity TLTV (HTLTV) is 97%. Affordable Seconds can supply 100% of the 3% down payment. For ARMs and manufactured homes, the maximum LTV is 95%. If a manually underwritten loan includes non-occupying co-borrowers, the LTV is capped at 90%.
- Homeownership education: On a purchase where all occupying borrowers are first-time homebuyers, at least one occupying borrower must complete homeownership education before the note date. Education is also required whenever credit for all borrowers rests solely on noncredit payment references.
Check Your Texas Conventional Loan Eligibility
Buying a Home for a Parent or Disabled Adult Child
Many Texas families ask if they can get primary-residence conventional financing when buying a house for an aging parent or a disabled adult child. Under Fannie Mae Selling Guide B2-1.1-01 (Occupancy Types), Fannie Mae treats two specific family arrangements as principal-residence (owner-occupied) transactions rather than second homes or investment properties:
- Parent or legal guardian buying for a disabled adult child: When a parent or legal guardian buys a home for a handicapped or disabled adult child who is unable to work or does not have sufficient income to qualify for a mortgage on their own, the parent or legal guardian is considered the owner/occupant.
- Adult child buying for a parent: When an adult child buys a home for a parent who is unable to work or lacks sufficient income to qualify for a mortgage on their own, the child is considered the owner/occupant.
While lenders and financial blogs often call this the "Family Opportunity Mortgage," Fannie Mae's Selling Guide does not use that product name—it is simply an occupancy-type rule within standard conventional guidelines. Because individual lenders may require specific documentation to verify income or inability to work, talk with a participating lender about how they document this occupancy rule.
Private Mortgage Insurance (PMI) & When It Cancels
Low-down-payment conventional loans carry private mortgage insurance (PMI). For example, on Freddie Mac Home Possible 1-unit fixed-rate loans with a term of 20 years or less, standard mortgage insurance coverage levels are 6% for LTVs over 80% to 85%, 12% for LTVs over 85% to 90%, and 25% for LTVs over 90% to 97% (longer terms, ARMs, and manufactured homes use 12% / 25% / 25% / 25% standard coverage, and custom reduced coverage is available for a fee).
The biggest long-term advantage of a conventional mortgage over an FHA loan is that PMI is temporary. Under the federal Homeowners Protection Act (as summarized by the Consumer Financial Protection Bureau, or CFPB), you have three built-in exit ramps from PMI:
- Borrower-requested cancellation at 80% LTV: You have the right to ask your loan servicer to cancel PMI once your principal balance reaches 80% of the home's original value (the initial date you are scheduled to reach 80% appears on your PMI disclosure at closing). To cancel at 80%, you must submit your request in writing, be current on your payments with a good payment history, certify that there are no junior liens (such as a second mortgage or HELOC) on the home, and if required by the lender, provide evidence (such as an appraisal) that the property's value has not declined below its original value.
- Automatic termination at 78% LTV: Even if you never send a letter, your servicer generally must end PMI automatically on the date your principal balance is scheduled to reach 78% of the home's original value, provided you are current on your monthly payments. If you are behind on payments on that date, automatic termination waits until you bring the loan current.
- Final termination at the midpoint: If PMI has not ended earlier, the servicer must terminate it the month after the loan reaches the midpoint of its amortization schedule—for example, just after year 15 on a 30-year mortgage—as long as you are current on your payments.
2026 Conforming Loan Limits in Texas
Every year, the FHFA sets the maximum dollar amount for a conventional loan that Fannie Mae and Freddie Mac can purchase. On November 25, 2025, the FHFA announced the 2026 baseline conforming loan limit for a one-unit home at $832,750, an increase of $26,250 from 2025.
According to FHFA's final 2026 county loan limit list, no Texas county is designated as a high-cost area in 2026. All 254 Texas counties—including major metros like Harris, Dallas, Tarrant, Bexar, Travis, Collin, Denton, Williamson, and Fort Bend—use the standard baseline limits:
| Property Units | 2026 Texas Conforming Loan Limit (All 254 Counties) |
|---|---|
| 1-Unit | $832,750 |
| 2-Unit | $1,066,250 |
| 3-Unit | $1,288,800 |
| 4-Unit | $1,601,750 |
For reference, FHFA's 2026 high-cost ceiling for a one-unit home is $1,249,125 (150% of the baseline), but no Texas county qualifies for it.
Because conforming limits change every year, confirm current figures with your lender and check our complete guide to Texas Conforming Loan Limits by County (2026).
Check Your Texas Conventional Loan Eligibility
Seller Concession Limits on Conventional Loans
In Texas real estate negotiations, buyers frequently ask the seller to help pay closing costs. Fannie Mae calls these Interested Party Contributions (IPCs).
Under Fannie Mae Selling Guide B3-4.1-02, the maximum seller concession depends on your occupancy type and your LTV/CLTV ratio, calculated on the lower of the sales price or the appraised value (with a specific exception for HomePath properties):
| Occupancy Type | LTV / CLTV Ratio | Maximum Seller Concession (IPC) |
|---|---|---|
| Principal Residence or Second Home | Greater than 90% (less than 10% down) | 3% |
| Principal Residence or Second Home | 75.01% to 90% (10% to 24.99% down) | 6% |
| Principal Residence or Second Home | 75% or less (25% or more down) | 9% |
| Investment Property | All LTVs | 2% |
Keep that 3% cap in mind if you are putting 3% or 5% down on a Texas home, since an LTV above 90% falls in the lowest concession tier.
Conventional vs. FHA Loans in Texas (2026 Comparison)
Many first-time and repeat buyers weigh a conventional mortgage against FHA Loans in Texas. Both offer low down payments, but they handle credit scores, mortgage insurance, seller concessions, and loan limits very differently.
Here is how conventional loans compare to the current Texas FHA Loan Requirements (2026) based on official Fannie Mae, Freddie Mac, FHFA, and HUD Handbook 4000.1 guidelines:
| Feature | Conventional Mortgage (Fannie Mae / Freddie Mac) | FHA Loan (HUD Handbook 4000.1) |
|---|---|---|
| Minimum Down Payment | 3% (Standard 97% LTV for first-time buyers, HomeReady, or Home Possible) | 3.5% (with a Minimum Decision Credit Score of 580+) or 10% (with a score of 500 to 579) |
| Minimum Credit Score | DU: No required numeric minimum in B3-5.1-01 (confirm with your lender); Fannie Manual: 620 fixed / 640 ARM; Home Possible Manual (1-unit): 660 fixed purchase / 680 ARM, refi, or manufactured home | 580+ for 96.5% LTV (3.5% down); 500–579 for 90% LTV (10% down); under 500 is ineligible (borrowers with no credit score must be manually underwritten) |
| Upfront Mortgage Insurance | None required | 1.75% UFMIP of the Base Loan Amount (may be financed) |
| Ongoing Mortgage Insurance & Cancellation | PMI on low-down-payment loans; borrower can request cancellation at 80% LTV and it auto-terminates at 78% LTV (if current) | Annual MIP (e.g., 0.55% per year on a typical 3.5% down 30-year loan at or under $726,200). Lasts the entire mortgage term if initial LTV is over 90%, or 11 years if initial LTV is 90% or less |
| Max Debt-to-Income (DTI) Ratio | DU: Up to 50%; Fannie Manual: 36% baseline, up to 45% with credit score and reserve requirements | TOTAL Scorecard: Set by automated "Accept"; Manual: 31/43 baseline, up to 40/50 for 580+ with two compensating factors |
| 2026 1-Unit Texas Loan Limit | $832,750 in all 254 Texas counties | $541,287 floor in 229 counties; $557,750 in San Antonio metro; $563,500 in DFW metro; $571,550 in Austin metro |
| Seller Concessions Cap | 3% (LTV over 90%), 6% (75.01%–90% LTV), 9% (75% or less LTV), 2% (investment) | Up to 6% of the sales price across all LTVs |
| Eligible Occupancy | Principal residence, second home, or investment property | Owner-occupied principal residence only (1–4 units; move in within 60 days and intend to live there at least 1 year) |
Notice the huge gap in 2026 loan limits: in the Houston metro (Harris, Fort Bend, Montgomery, Brazoria, and Galveston counties), the 1-unit FHA limit is at the $541,287 national floor, and even in Austin, DFW, and San Antonio, Texas FHA Loan Limits by County (2026) top out between $557,750 and $571,550. A conventional mortgage gives you up to $832,750 in borrowing power for a single-family home anywhere in Texas without stepping into jumbo loan territory.
If you are buying a fixer-upper that needs repairs rolled into the mortgage, you can also compare conventional options against FHA 203(k) Loans in Texas, or explore 0% down options like VA Loans in Texas for eligible veterans and service members and USDA Loans in Texas (2026) in designated rural areas.
Pairing a Conventional Loan with Texas Down Payment Assistance
Fannie Mae's 97% LTV option, HomeReady, and Freddie Mac's Home Possible all allow eligible subordinate liens—called Community Seconds (Fannie Mae) or Affordable Seconds (Freddie Mac)—up to 105% CLTV/TLTV. On Freddie Mac Home Possible fixed-rate loans, Affordable Seconds can even supply 100% of your 3% minimum down payment.
Some Texas buyers look at pairing a conventional first mortgage with state or local down payment assistance (DPA), which must meet both the conventional product rules and the assistance program's own rules. When exploring 58 Texas First-Time Home Buyer Grants & Programs (2026), you can check your eligibility for statewide options such as:
- The My Choice Texas Home Program and the My First Texas Home Program (administered by the Texas Department of Housing and Community Affairs, or TDHCA)
- The Home Sweet Texas Home Loan Program and Homes for Texas Heroes (administered by the Texas State Affordable Housing Corporation, or TSAHC)
Keep in mind that state and city assistance programs set their own eligibility rules and Texas Homebuyer Income & Purchase Price Limits, and their interest rates are set daily by the program. Buyers apply for TDHCA and TSAHC programs through a participating lender—our team helps you check your eligibility, compare conventional and DPA options side by side, and get connected with the right path for your budget.
Once you close on a primary residence in Texas, do not forget to lower your annual property tax bill by filing through our Texas Homestead Exemption Guide (2026).
Next Steps for Texas Homebuyers
Whether you are a first-time buyer putting 3% down under Fannie Mae's 97% LTV rule, a household under 80% AMI comparing HomeReady and Home Possible, or a move-up buyer financing up to the $832,750 conforming limit, a conventional mortgage gives you strong borrowing power and a clear timeline to eliminate PMI. Because interest rates change daily and individual lenders may apply their own credit or DTI overlays, the smartest first step is to review your numbers before you start touring homes.
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