Conventional Loans in Texas: The 3%, 5%, 10%, and 20% Down Paths

Conventional loans are the most common mortgage product in Texas, accounting for roughly 70% of all purchase loans in the state in recent years. Within the “conventional loan” category, there are four distinct down payment tiers: 3%, 5%, 10%, and 20%. Each one produces a meaningfully different monthly payment, PMI cost, and qualification profile. Knowing the tradeoffs before you apply can save you thousands over the life of your loan.

I’m Anthony Ferrando, a mortgage loan originator licensed across Texas (NMLS# 1919613). I work with buyers at all down payment levels, from first-time buyers putting down the minimum to move-up buyers bringing equity from a prior sale. Here’s a clear breakdown of each path.

What Makes a Loan “Conventional”?

A conventional loan is any mortgage not backed by a government agency such as the FHA, VA, or USDA. Most conventional loans today are “conforming,” meaning they meet the guidelines set by Fannie Mae (FNMA) and Freddie Mac (FHLMC). In 2026, the conforming loan limit for most Texas counties is $806,500 for a one-unit property. Loans above that threshold are jumbo loans and carry different requirements.

Conventional loans require a minimum 620 credit score (with most lenders preferring 680 or higher), and they offer more flexible private mortgage insurance (PMI) rules than FHA loans. PMI is the coverage lenders require when you put less than 20% down; it protects the lender if you default, but you pay the premium.

The 3% Down Path: Conventional 97

The Conventional 97 program lets first-time buyers (defined as buyers who haven’t owned a home in the past three years) put down just 3% on a conforming loan. Fannie Mae and Freddie Mac each have 3%-down options with specific income limits (HomeReady and Home Possible, respectively), and a standard Conventional 97 product without income restrictions for eligible buyers.

At a $467,000 purchase price, close to the current Texas median, a 3% down payment is $14,010, and your loan amount is $452,990. At current rates (Freddie Mac PMMS averaged 6.51% for the week ending May 21, 2026), a principal and interest payment on that amount runs approximately $2,860/month. PMI on a 3%-down conventional loan typically adds 0.5% to 1.2% annually, which on a $452,990 loan means roughly $190 to $450/month in additional cost until you reach 20% equity.

The 3% path works for buyers who have steady income and solid credit but haven’t had years to accumulate a large down payment. It starts the equity clock earlier. The tradeoff is a higher monthly payment driven by PMI and a smaller equity cushion at purchase.

The 5% Down Path: A Common Middle Ground

Putting 5% down is a common starting point for buyers who aren’t first-time buyers under the program definition, or who slightly exceed the HomeReady/Home Possible income thresholds. It reduces your loan amount compared to 3% down, which lowers both your P&I payment and your PMI rate (lenders price PMI based on loan-to-value ratio, so a lower LTV means a lower PMI cost).

On a $467,000 purchase, 5% down is $23,350, and your loan is $443,650. At 6.51%, P&I runs roughly $2,803/month. PMI at 5% down typically runs 0.4% to 0.9% annually ($148 to $333/month). You reach 20% equity faster at 5% than at 3%, assuming moderate appreciation. For a full picture of upfront costs at each down payment tier, see our guide to closing costs in Texas and what’s negotiable.

The 10% Down Path: Eliminating High-Rate PMI

At 10% down, your loan-to-value (LTV) ratio drops to 90%. PMI still applies, but the rate drops meaningfully, often to 0.2% to 0.5% annually. On a $420,300 loan (10% down on $467,000), that’s $70 to $175/month in PMI. The P&I on that loan at 6.51% is approximately $2,655/month.

A Houston client I worked with recently chose 10% down specifically because it brought PMI under $100/month, which made the monthly math more comfortable without depleting the cash reserves she needed for home repairs and furnishings.

For buyers who carry a credit score in the 700 to 720 range, 10% down can also reduce the loan-level price adjustment (LLPA) charges that Fannie Mae and Freddie Mac apply based on combined credit score and LTV. These adjustments add fractions of a percent to your effective rate; lowering LTV can partially offset them.

The 20% Down Path: No PMI, Best Rate Pricing

A 20% down payment eliminates PMI entirely. On a $467,000 purchase, that’s $93,400 down and a $373,600 loan. At 6.51%, P&I is approximately $2,360/month, plus property taxes and insurance. No PMI saves $150 to $450/month compared to the 3% path, which adds up to $1,800 to $5,400/year.

Buyers at 20% down also typically get the best available rate pricing from lenders, since low-LTV loans represent less risk to investors. A 680 credit score at 80% LTV often gets better pricing than a 740 score at 97% LTV. The math depends on your specific numbers, but more equity generally means more rate options.

The obvious constraint is cash availability. In Austin, San Antonio, Dallas, and Houston, 20% on a median-priced home is $75,000 to $125,000. Most buyers can’t or don’t want to tie up that much capital in a single asset, especially early in their homeownership years. That’s why the 3% to 10% paths are fully viable routes to ownership.

How Down Payment Affects Approval Odds

Lenders look at several factors together, not just down payment: credit score, DTI ratio, employment history, asset reserves, and property type. Down payment matters in these specific ways:

• Reserves: After your down payment and closing costs, lenders want to see 2 to 6 months of housing payment in liquid reserves. A buyer who spends all savings on a 20% down payment with no reserves can be harder to approve than one who puts 5% down and keeps 4 months of reserves. Don’t zero out your accounts.
• DTI: A lower loan amount (more down) reduces your P&I and PMI payment, which improves your DTI. If you’re tight on qualifying, a larger down payment can make the difference between approval and denial.
• Seller concessions: In Texas’s current market, where many active listings have seen price reductions, sellers are often willing to contribute toward closing costs. Getting a seller to cover $8,000 to $12,000 in closing costs can free up capital that lets you put more down.

For a full look at how your pre-approval works in Texas, including what sellers see when you submit an offer, see our guide on pre-approval vs. pre-qualification in Texas.

Frequently Asked Questions

What’s the minimum down payment for a conventional loan in Texas?

The minimum is 3% for first-time buyers using a Conventional 97 program (Fannie Mae HomeReady or Freddie Mac Home Possible). For buyers who don’t qualify as first-time buyers under the program definition (someone who hasn’t owned a home in the past three years), the typical minimum is 5%. Down payments below 20% require private mortgage insurance (PMI), which is removed once you reach 20% equity.

How much does PMI cost on a Texas conventional loan?

PMI is priced as a percentage of the loan amount annually, typically 0.2% to 1.2% depending on your loan-to-value ratio and credit score. On a $450,000 loan with 5% down, that translates to roughly $75 to $338/month. The lower your LTV and the higher your credit score, the lower your PMI rate. PMI is automatically removed when your loan balance reaches 78% of the original purchase price, or you can request cancellation at 80% LTV.

Can I put 3% down on a conventional loan in Texas with a 620 credit score?

Technically yes, but lenders vary. Freddie Mac’s Home Possible program requires a minimum 660 score for 3%-down transactions. Fannie Mae’s HomeReady allows 620, but many lenders apply overlays (stricter internal standards) above the program minimums. At 620, you may also face higher PMI rates and less favorable loan pricing. Improving your score to 680 or 700 before applying meaningfully changes your options.

Is it better to put 20% down or keep cash in reserves?

There’s no universal answer. A 20% down payment eliminates PMI and lowers your monthly payment, but it depletes liquidity. If putting 20% down leaves you with less than 2 months of housing payment in reserves, many lenders will flag that. For most buyers, putting 5% to 10% down and maintaining healthy reserves is a more balanced approach. Your loan officer can model both scenarios against your specific income and DTI.

What credit score do I need for a conventional loan in Texas?

The absolute minimum is 620, but lender overlays often push that to 640 or 660. To get competitive rate pricing and avoid the highest loan-level price adjustments, aim for at least 720. A score of 740 or above gets you into the best pricing tier for most conventional loan scenarios. Below 720, FHA may offer better effective pricing, though FHA carries its own mortgage insurance structure.

Can I use gift money for a down payment on a conventional loan?

Yes, with documentation. Fannie Mae and Freddie Mac allow 100% of the down payment to come from a gift for primary residences when putting down 20% or more. For down payments below 20%, some or all of the minimum contribution may need to come from the borrower’s own funds, depending on the program and loan type. Your lender will provide a gift letter template, and the donor’s ability to give the funds must be documented.

If you’d like a side-by-side comparison of your monthly payment at each down payment tier for a specific purchase price in your target market, reach out directly and I’ll put together an honest breakdown tailored to your situation.

Anthony Ferrando | Mortgage Loan Originator | NMLS# 1919613 | Ferrando Financial LLC NMLS# 2403080 | Licensed in Texas. This is not a commitment to lend. Loan approval is subject to credit, income, and property qualifications. PMI costs shown are illustrative only; actual rates vary by lender, credit score, and loan-to-value ratio. Rate figures based on Freddie Mac PMMS for the week ending May 21, 2026, and are not a loan commitment or quote. Equal Housing Lender.