Conventional Loan Pros and Cons for South Dakota Homebuyers

Conventional Loan

Conventional Loan Pros and Cons for South Dakota Homebuyers

Reviewed by the HomeMath editorial team Updated 2026-08-06

Key takeaways

Down payments can start at about 3% of the purchase price.
Private mortgage insurance (PMI) is required if you put down less than 20%.
Credit scores of 620 or higher are typically needed for conventional financing.
South Dakota has no state income tax, which can lower overall monthly housing costs.
Conventional loans have higher loan‑limit caps than many government‑backed programs, allowing purchase of higher‑priced homes.

Conventional loans are the most common type of mortgage used by homebuyers across the United States, including South Dakota. They are offered by private lenders and are not insured or guaranteed by the federal government.

Pros

Flexible down‑payment options: Many lenders accept as little as 3% down, which can make homeownership more accessible.
No upfront mortgage insurance premium: Unlike FHA loans, conventional loans do not require an upfront insurance fee, though PMI may be needed for lower down payments.
Higher loan limits: Conventional loan limits are set by the Federal Housing Finance Agency and can be higher than those for FHA loans, allowing you to finance more expensive properties.
Potentially lower overall cost: If you can put down 20% or more, you avoid PMI altogether, reducing monthly payments.

Cons

Stricter credit requirements: Lenders usually look for a credit score of 620 or higher, and better rates often require scores above 700.
Private mortgage insurance (PMI): If your down payment is under 20%, lenders typically require PMI to protect themselves against default.
Higher upfront costs: Closing costs and the need for a larger cash reserve can be more demanding compared with some government‑backed loans.

South Dakota‑Specific Considerations

South Dakota does not levy a state income tax, which can reduce the amount of money you need to set aside for taxes each month.
Many closings in the state involve an attorney rather than a title company, which can affect closing timelines and fees.
The South Dakota Housing Development Authority offers down‑payment assistance programs that can be paired with conventional loans for eligible first‑time buyers.

This article provides general information and is not personalized advice. For specific guidance, consult a qualified mortgage professional.

FAQ

Can I get a conventional loan with a low down payment in South Dakota?

Yes. Many lenders will approve a conventional loan with as little as 3% down, but you will need to meet credit and income requirements, and you will likely have to pay private mortgage insurance until you reach 20% equity.

What is private mortgage insurance (PMI) and why might I have to pay it?

PMI is a policy that protects the lender if you default on a loan that has less than 20% equity. It is required on most conventional loans with low down payments because the lender’s risk is higher without a larger borrower stake.

How does South Dakota’s lack of state income tax affect my mortgage costs?

Since there is no state income tax, you won’t have to set aside money for that tax each month, which can make your overall monthly housing budget slightly lower compared with states that do have an income tax.

Are there any state programs that can help with a conventional loan down payment?

The South Dakota Housing Development Authority offers down‑payment assistance and grant programs for eligible first‑time homebuyers. These programs can be combined with a conventional loan to reduce the amount you need to bring to closing.

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