What Is a Conventional Loan?

A conventional loan is a mortgage that is not insured or guaranteed by a government agency such as the FHA or VA. Lenders underwrite these loans based on private criteria, which means the borrower’s credit, income, and assets are evaluated directly.

Eligibility Basics for First‑Time Buyers

Most conventional programs allow first‑time buyers to qualify with a down payment as low as 3% of the purchase price, provided they meet credit and income standards. The loan amount must also stay within the conforming‑loan limits for the area.

Down Payment and Private Mortgage Insurance (PMI)

If you put down less than 20% of the home’s price, lenders will require PMI to protect themselves against default. PMI is an extra monthly cost that can be cancelled once you have at least 20% equity, either through home appreciation or additional principal payments.

Credit Score and Debt‑to‑Income (DTI) Ratios

  • Typical minimum credit score: ~620. Higher scores earn better interest rates because they signal lower risk to the lender.
  • Front‑end DTI (housing expenses) should generally stay at or below 36% of gross income.
  • Back‑end DTI (all debt payments) is usually capped at 45%, though some lenders may allow up to 50% with strong compensating factors.

Tennessee‑Specific Considerations

Tennessee does not levy a state income tax on wages, which can free up more of your monthly cash flow for mortgage payments and savings. Most closings in the state are handled by title companies rather than attorneys, though some counties allow attorney involvement. Additionally, the Tennessee Housing Development Agency (THDA) offers down‑payment assistance programs that can be paired with a conventional loan for eligible first‑time buyers.

Typical Closing Process

  • Pre‑approval: Lender reviews your financial picture and provides a conditional commitment.
  • Home search and offer: Once you find a property, you submit an offer contingent on financing.
  • Appraisal and underwriting: The lender orders an appraisal and completes a full underwriting review.
  • Closing: You sign the loan documents, pay any closing costs, and the title company records the deed.

Getting Started

Start by checking your credit report, saving for a down payment, and speaking with a mortgage professional about pre‑approval. Ask about any THDA assistance you may qualify for, and compare offers from several lenders to find the best overall cost.

This article provides general information and is not personalized financial advice. Always consult a qualified professional for guidance specific to your situation.