Loan Program
Conventional financing is the default for a reason: for anybody with reasonable credit it is normally the cheapest way to own a home over any meaningful stretch of time. The reason is not the interest rate, which is often similar to the alternatives. It is that the mortgage insurance ends — and that single structural difference is worth more than most of the rate shopping people spend their energy on.
Fannie Mae and Freddie Mac both run low-down-payment conventional programmes at three percent down for buyers who meet income criteria, and five percent is the general standard outside them.
The persistent belief that conventional means twenty percent is the single most damaging myth in home buying. Twenty percent avoids mortgage insurance; it has never been a requirement. People delay buying for years over a threshold that does not exist.
Private mortgage insurance can be cancelled at your request once you reach twenty percent equity, and it terminates automatically at twenty-two percent based on the original amortisation schedule.
You can get there three ways: paying the balance down, the property appreciating, or both. In a market that has moved the way Middle Tennessee has, appreciation frequently gets borrowers there years ahead of the schedule — and you can request cancellation early based on a new appraisal rather than waiting for the automatic date.
Set against an FHA loan carrying insurance for its entire life, this difference compounds into serious money. It is the strongest argument for conventional financing and it is rarely explained properly.
Conventional pricing is tiered by credit score and loan-to-value, and the steps between tiers are meaningful rather than cosmetic. Both your interest rate and your PMI premium are affected.
Moving from 660 to 700, or from 700 to 740, can change your monthly payment noticeably on the same loan amount. If you are sitting just below a threshold, sixty days of deliberate work — paying down revolving balances, disputing a genuine error, not opening anything new — can be worth more than any amount of rate shopping.
This is one of the few places where a lender can tell you to wait and be giving you honest advice against their own immediate interest.
Most borrowers get borrower-paid monthly PMI, which is what cancels at twenty percent. But there are alternatives worth knowing about.
Single-premium PMI is paid upfront in one lump, sometimes by the seller as a concession, and there is no monthly charge at all. Lender-paid PMI trades a slightly higher interest rate for no separate monthly premium — but because it is baked into the rate, it never cancels, which makes it a poor fit if you expect to reach twenty percent quickly. Split-premium sits between the two.
Which one is right depends entirely on how long you will hold the loan and how fast you will build equity. Most lenders quote one option. There are four.
FHA, VA and USDA are all primary-residence programmes. Conventional is the route to a second home or a vacation property, and to investment property with a larger down payment. If you are buying anything other than the house you will live in, this is usually the conversation — with DSCR financing as the alternative when the rental math works better than your personal debt ratio does.
Conventional loans that Fannie or Freddie will buy are capped at the conforming limit, which is set per county and adjusted annually. Above it you are into jumbo territory, where guidelines are set by individual lenders rather than a central rulebook and vary considerably. In most of Middle Tennessee the conforming limit comfortably covers typical prices, but parts of the Nashville metro and higher-end Mt. Juliet contracts run into it. If your purchase is near the line, that changes which lenders are competitive.
Conventional underwriting is stricter on debt ratios than FHA. What surprises people is which debts count and which do not.
Counted: minimum credit card payments, car loans and leases, student loans (on a formula even when deferred), personal loans, child support and alimony, and any other mortgage you hold.
Not counted: utilities, insurance, phone bills, groceries, childcare, retirement contributions. Underwriting has no idea what your actual cost of living is, which is exactly why the number you qualify for and the number you should spend are different.
A loan with fewer than ten payments remaining can often be excluded, which occasionally makes paying off the tail end of a car loan the single highest-leverage move before applying.
Conventional is less forgiving than FHA here, and the gap is wide. Chapter 7 bankruptcy generally requires four years from discharge against FHA's two. Foreclosure requires seven years against FHA's three. A short sale or deed in lieu typically requires four. Extenuating circumstances can shorten these, but the documentation bar is high. If a credit event is recent, FHA may be the only realistic route for a few years — with a conventional refinance as the planned exit once the waiting period passes.
A conventional loan on a condo requires the building to be warrantable — meeting standards on owner-occupancy ratio, reserve funding, the share held by any single investor, commercial space, and pending litigation. A perfectly nice unit in a non-warrantable building cannot get conventional financing at all. In Nashville this catches buyers out regularly. The building needs checking before you write the offer, not after, and there are portfolio lenders who write non-warrantable condo loans when it fails.
Nearly identical cash to close. Substantially different cost over time, in opposite directions depending on your credit score.
| Conventional 3% | FHA 3.5% | |
|---|---|---|
| Cash for down payment | Slightly less | Slightly more |
| Mortgage insurance cost | Varies with credit score | Flat, regardless of score |
| At a 760 score | Much cheaper PMI | Same MIP as everyone |
| At a 640 score | Expensive PMI | Often cheaper overall |
| Insurance cancels? | Yes, at 20% equity | No, under 10% down |
| Upfront insurance premium | None | Yes, financed |
| Second home / investment | Allowed | Not allowed |
| Appraisal condition rules | Lighter | Stricter |
High score, conventional. Low score, FHA. Near the middle, it is a genuine calculation involving your holding period and how fast you will reach twenty percent equity — and it is the calculation a single-product lender cannot do honestly for you.
Three percent down conventional loans exist. Years spent saving toward a threshold that was never required is years of appreciation and equity missed, and rent paid in the meantime.
It cancels automatically at twenty-two percent, but you can request it at twenty — and in an appreciating market you may reach twenty long before the schedule says so. Nobody at the servicer is going to ring you about it.
It looks attractive because there is no separate monthly line item. But it is priced into the rate permanently and never cancels, which makes it a bad trade for anyone who will build equity quickly.
The pricing steps are real. A borrower at 698 who spends sixty days getting to 700 can save more than any amount of shopping between lenders would have achieved.
Conventional financing on a non-warrantable building is simply unavailable. Finding that out after your offer is accepted costs you the contract and sometimes the deposit timeline.
Two local factors make conventional financing the workhorse here. First, appreciation across Wilson, Rutherford and Davidson counties has been strong enough for long enough that borrowers reach twenty percent equity — and cancel PMI — considerably faster than the amortisation schedule suggests. That is the whole argument for conventional, and this market delivers it. Second, the higher price points around Mt. Juliet's lake corridors and parts of Nashville run into the conforming loan limit, which changes which lenders are competitive and, above the line, moves you into jumbo guidelines entirely. And if you are buying a condo anywhere in Davidson County, the building's warrantability needs checking before you write — it is the most common way a Nashville conventional deal dies.
Conventional underwriting is genuinely stricter than FHA on credit history, debt ratios and waiting periods after a bankruptcy or foreclosure. If your score is in the low 600s or you are carrying a lot of debt, you may be approvable on FHA and declined here — and PMI at a low credit score is expensive enough that even an approval may not be the better deal. That fork is exactly where working with a broker pays for itself: we can price both and show you which actually costs less for your situation, rather than defending whichever one we happen to sell.
As little as three percent for eligible buyers, five percent as a general standard. Twenty percent avoids mortgage insurance entirely but has never been a requirement.
You can request cancellation at twenty percent equity and it terminates automatically at twenty-two percent based on the original schedule. Rising values can let you get there sooner with a new appraisal.
Usually, above about a 680 credit score, because the mortgage insurance is cheaper and eventually cancels. Below that FHA often wins on monthly cost. It depends on your score, down payment and holding period.
Around 620 is the general floor, but pricing improves sharply as the score rises. If you are just below a tier boundary it is often worth sixty days of work before applying.
Yes, with a larger down payment — typically fifteen to twenty-five percent depending on the property. If your personal debt ratio is the obstacle, a DSCR loan qualifies on the property's rent instead.
The maximum a conventional loan can be for Fannie Mae or Freddie Mac to buy it. It is set per county and adjusted annually. Above it you are into jumbo financing, with different guidelines.
Generally four years from a Chapter 7 discharge and seven years after a foreclosure, though extenuating circumstances can shorten both. FHA's waiting periods are considerably shorter if you need to buy sooner.
Sometimes. Lender-paid PMI trades a higher rate for no monthly premium, single-premium PMI is paid upfront and can be covered by a seller concession, and a piggyback second mortgage can cover part of the gap. Each has a different break-even.
Tyler McCain is based in Lebanon, TN and works across the Nashville metro.
Tyler McCain is licensed in Alabama, Florida, Kentucky, Ohio, Tennessee and Texas. Programme rules are federal, but the markets are not.
Low down payments, gift funds and every assistance option you qualify for.
Read more →3.5% down with flexible credit — the workhorse first-home loan.
Read more →Financing above the conforming limit without the bank runaround.
Read more →Lower the rate, drop the mortgage insurance, or pull cash out.
Read more →That depends on your numbers, your goals, and the options available to you. Tell us about your situation and we will compare the programs that may fit — including if the answer turns out to be a different one entirely.
