Conventional Loan Pros and Cons for Tennessee Homebuyers

Conventional Loan

Conventional Loan Pros and Cons for Tennessee Homebuyers

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

Key takeaways

Down payments can be as low as 3% of the purchase price, but PMI is required until you reach 20% equity.
A credit score of about 620 or higher is typically needed for approval.
No upfront mortgage insurance premium is charged, unlike FHA loans.
PMI can be cancelled once the loan-to-value ratio drops to 78%‑80%.
Qualified buyers may pair a conventional loan with Tennessee down‑payment assistance programs.

Conventional loans are the most common mortgage product for buyers who want flexibility and want to avoid the government‑backed loan requirements. They are offered by private lenders and follow the standards set by Fannie Fannie Mae and Freddie Mac.

Pros

Low down‑payment options: Many lenders accept as little as 3% down. The trade‑off is private mortgage insurance (PMI) until you own at least 20% of the home.
No upfront mortgage‑insurance fee: Unlike FHA loans, conventional loans do not charge an upfront insurance premium, which reduces closing costs.
Higher loan limits in many areas: In high‑cost markets, conventional limits can exceed the caps on FHA or VA loans, giving you more purchasing power.
Faster PMI cancellation: Once the loan‑to‑value (LTV) ratio falls to about 78%‑80%, you can request removal of PMI, lowering your monthly payment.
Compatibility with state assistance: Tennessee’s Housing Development Agency offers down‑payment assistance that can be combined with a conventional loan for eligible first‑time buyers.

Cons

Stricter credit requirements: Lenders usually look for a minimum credit score around 620. Lower scores may result in higher interest rates or denial.
PMI costs: If you put down less than 20%, you’ll pay monthly PMI, which can add 0.3%‑1.0% of the loan amount to your payment.
Higher down‑payment for best rates: Putting down 20% or more eliminates PMI and often secures the most favorable interest rate.
Potentially higher rates than government‑backed loans: For borrowers with marginal credit, FHA or VA loans might offer lower rates because they are insured by the government.

Tennessee‑Specific Considerations

Tennessee has no state income tax, which can make your overall tax burden lighter compared to many other states.
Most closings in Tennessee are handled by a real‑estate attorney or a title company, so be prepared for attorney fees in addition to typical lender fees.
The Tennessee Housing Development Agency (THDA) runs a first‑time‑homebuyer program that provides grants or low‑interest loans for down‑payment assistance, and many lenders will allow you to use those funds with a conventional loan.

Remember, this article provides general information about conventional loans and Tennessee‑specific factors. It is not personalized financial advice. You should consult a qualified mortgage professional to understand how these points apply to your individual situation.

FAQ

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

Most lenders look for a minimum score of about 620. Higher scores can secure better interest rates and may reduce the need for private mortgage insurance.

Can I use Tennessee down‑payment assistance with a conventional loan?

Yes. The Tennessee Housing Development Agency offers programs that provide grants or low‑interest loans for down‑payment assistance, and many lenders allow those funds to be used toward the down payment on a conventional mortgage.

How does PMI work on a conventional loan?

If your down payment is less than 20%, the lender will require private mortgage insurance. PMI is paid monthly and can be cancelled once the loan‑to‑value ratio drops to roughly 78%‑80%.

Are there any unique closing costs in Tennessee?

Closings are typically handled by a real‑estate attorney or a title company, so you should budget for attorney fees or title‑company fees in addition to standard lender fees.

Is a conventional loan better than an FHA loan for first‑time buyers in Tennessee?

It depends on your credit score, down‑payment amount, and eligibility for assistance programs. Conventional loans avoid upfront mortgage‑insurance fees and can be paired with state assistance, but FHA loans may be more forgiving on credit and require lower down payments.

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