What 'conventional' and 'conforming' actually mean
A conventional loan is simply a mortgage that isn't insured or guaranteed by a government program like FHA, VA, or USDA. Most conventional loans are conforming, meaning they meet the underwriting guidelines set by Fannie Mae and Freddie Mac and fall within the annual loan-size limit set by their regulator, the FHFA. Loans that follow those rules can be sold into the secondary market, which is what keeps conventional financing widely available and competitively priced.
When a loan is larger than the conforming limit, it becomes a jumbo loan with its own rules — a separate program we cover on its own page.
The conforming loan limit
The FHFA sets the conforming loan limit each year based on national home-price movement. For 2025, the baseline one-unit limit is $806,500, and because Tennessee has no designated high-cost counties, that baseline applies statewide. A loan at or under that figure (and within Fannie/Freddie guidelines) is conforming; a loan above it is jumbo.
The limit matters because it draws the line between two very different underwriting worlds. If the home you want pushes past it, we'll compare conforming-plus-a-larger-down-payment against a jumbo loan so you can see which is cheaper for your situation.
The low down payment — as little as 3%
A common myth is that conventional loans require 20% down. In reality, Fannie Mae and Freddie Mac both offer programs that let many qualified first-time buyers put down as little as 3%, and 5% to 10% is common for repeat buyers. The 20% figure isn't a requirement — it's the point at which private mortgage insurance is no longer needed.
The trade-off for a lower down payment is PMI, which is the next section. The right down payment for you balances your cash on hand, your monthly payment, and how soon you want PMI to fall off.
PMI that can actually go away
When you put less than 20% down on a conventional loan, the lender requires private mortgage insurance (PMI). The crucial difference from FHA: conventional PMI is not permanent. Under the federal Homeowners Protection Act, you can request PMI cancellation once your loan balance reaches 80% of the original value, and the servicer must automatically terminate it at 78% LTV, provided you're current on payments.
That cancelable PMI is the single biggest structural advantage conventional has over FHA for a borrower with decent credit: you get the low down payment now without paying mortgage insurance for the entire life of the loan.
Who conventional tends to fit
Conventional financing generally rewards a stronger credit profile — the commonly published minimum score is around 620, and higher scores open more program options. It tends to be the better fit when you have solid credit and want PMI you can eventually drop, when you're buying a second home or investment property (which FHA and USDA don't allow), or when you have at least some down payment.
FHA can still win for a thinner credit file or a tighter debt-to-income ratio. There's no universal winner — we run conventional and FHA side by side on your real numbers so you can see the true cost difference before you decide.
