General information, not lending advice

Conventional Loans for Tennessee Buyers

A conventional loan is the most common way homes are bought in Coffee County. In my report on how Coffee County homes were bought, 363 of 862 sales, or 42.1 percent, closed with conventional financing from October 2025 through September 2026, based on Realtracs MLS data. This guide explains how conventional loans work, using the Federal Housing Finance Agency (FHFA) loan limits, the published rules of Fannie Mae and Freddie Mac and plain language from the Consumer Financial Protection Bureau (CFPB).

This is general information, not lending advice. Lenders can add their own requirements, and the rules change. Talk with a lender about your own situation before you make a decision.

What a conventional loan is

The CFPB defines a conventional loan as any mortgage that is not insured or guaranteed by the government, such as under the FHA, VA or USDA loan programs. Conventional loans can be conforming or non conforming.

A conforming loan is one that meets the terms set by Fannie Mae, Freddie Mac and their regulator, the FHFA. Those two companies buy conforming loans from lenders, and by law they can only buy loans up to a set size, called the conforming loan limit. A loan above that limit is called a jumbo loan. The CFPB says a jumbo loan may cost more than a conforming loan, and lenders usually look for good credit and a larger down payment.

The CFPB also says conventional loans typically cost less than FHA loans but can be more difficult to get. Which one is cheaper for you depends on your credit, your down payment and the lender, so compare both.

The 2026 conforming loan limit in Coffee County

The FHFA sets new limits each year. On November 25, 2025, it announced that the 2026 limit for a one unit home in most of the country is $832,750. The FHFA list of 2026 limits by county shows Coffee County, Tennessee at that baseline:

• One unit: $832,750
• Two units: $1,066,250
• Three units: $1,288,800
• Four units: $1,601,750

The limit applies to the loan amount, not the price of the home. Shopping in another county? The CFPB explains how to look up any county on the HUD loan limits tool by choosing the Fannie and Freddie limit type, and the FHFA publishes the full county list on its conforming loan limits page.

How much you need down

The CFPB says that with less than 20 percent down on a conventional loan, you will typically need private mortgage insurance. With 20 percent down, PMI is not required, and the CFPB notes you could also receive a lower interest rate.

Both Fannie Mae and Freddie Mac offer low down payment programs:

• Fannie Mae HomeReady. Fannie Mae says HomeReady allows down payments as low as 3 percent, with no minimum personal contribution required and funds allowed from sources such as gifts and grants. Under the Fannie Mae Selling Guide, total qualifying income may not exceed 80 percent of the area median income for the property location. If all borrowers who will live in the home are first time buyers, at least one must complete homeownership education.
• Freddie Mac Home Possible. Freddie Mac says Home Possible offers a 3 percent down payment, with qualifying income limited to 80 percent of the area median income and down payment money allowed from sources such as family and employer assistance programs.

Each company has an online lookup that shows the income limit for a specific address. A lender can check it for you and tell you whether one of these programs, or another conventional option, fits your situation. My how much house can I buy post shows what homes actually sold for in each price range here.

Private mortgage insurance and how you pay for it

The CFPB explains that PMI protects the lender, not you, if you stop making payments. It is arranged by the lender and provided by private insurance companies. It can help you qualify for a loan you might not otherwise get, but it adds to the cost.

According to the CFPB, PMI is paid in one of three ways:

• A monthly premium added to your mortgage payment. It appears on page 1 of the Loan Estimate and Closing Disclosure, in the Projected Payments section. The CFPB says this is the most common way.
• A one time upfront premium paid at closing. It appears on page 2, in section B. If you move or refinance, you might not get any of it back.
• Both an upfront and a monthly premium.

Some lenders offer low down payment conventional loans without PMI in exchange for a higher interest rate. The CFPB says that can be more or less expensive than PMI, depending in part on how long you plan to stay in the home. Ask each lender to show you the total cost of each choice over the years you expect to own the home.

When PMI ends

This is a big difference from FHA. The CFPB describes these legal rules for mortgages on single family principal residences that closed on or after July 29, 1999:

• You can ask to cancel at 80 percent. You have the right to ask your servicer to cancel PMI on the date your balance is scheduled to fall to 80 percent of the home's original value, or earlier if extra payments get you there. The first date should be on the PMI disclosure form you get with your mortgage.
• What the request takes. The request must be in writing, you need a good payment history and must be current, you must certify there are no junior liens such as a second mortgage, and you may need to show, for example with an appraisal, that the value has not dropped below the original value.
• Automatic end at 78 percent. In general, the servicer must end PMI on the date your balance is scheduled to reach 78 percent of the original value, as long as you are current.
• Halfway point. PMI must also end the month after you reach the midpoint of the loan term, which is 15 years on a 30 year loan, if you are current.

The CFPB says original value generally means the lower of the contract price or the appraised value when you bought the home. Fannie Mae and Freddie Mac can set their own cancellation guidelines, but they cannot be less favorable to you than these rules. By comparison, my FHA loans guide explains that FHA's annual premium lasts for the life of the loan when you put less than 10 percent down.

Gift money for the down payment

Fannie Mae's Selling Guide allows gift funds for a principal residence or second home, and gifts can cover all or part of the down payment, closing costs or reserves. Acceptable donors include a relative, such as a spouse, child or anyone related by blood, marriage, adoption or legal guardianship, and certain non relatives with a family like relationship, such as a domestic partner, a fiance or fiancee, or someone with a long standing family like or mentorship relationship with you. The donor cannot be the builder, the developer, the real estate agent or anyone else with an interest in the sale.

For a one unit home you will live in, Fannie Mae does not require any of your own money, so all of the funds can come from a gift. For a two to four unit home with less than 20 percent down, Fannie Mae requires 5 percent from your own funds first. The gift letter must be signed by the donor and show the amount, a statement that no repayment is expected and the donor's name, address, phone number and relationship to you. Freddie Mac has its own rules, so ask your lender which apply to your loan.

Seller credits toward closing costs

Fannie Mae calls help from the seller, builder or agents interested party contributions. These contributions can go toward your closing costs and prepaids, but Fannie Mae does not allow them to be used for your down payment. For a home you will live in, the most the seller and other interested parties can contribute is:

• 3 percent of the price when your loan is more than 90 percent of the value
• 6 percent when your loan is from 75.01 to 90 percent of the value
• 9 percent when your loan is 75 percent of the value or less

These limits are figured on the lower of the sales price or the appraised value, and the credit cannot be more than your actual closing costs. Ask your lender how a seller credit fits your loan before we write the offer. My buyer closing costs guide explains what those costs include.

Conventional loans on land and acreage

Coffee County has plenty of homes on acreage. The CFPB notes that loans for properties with features such as more than 10 acres of land or agricultural income often fall outside the standard conforming rules and into lender specific programs, where eligibility and pricing can vary widely. If you are looking at a larger tract, tell your lender the acreage early. My homes with acreage page and buying land guide cover the rest of the rural checklist, and the USDA home loans guide explains another option for rural addresses.

Conventional compared with FHA, USDA and VA loans

• FHA loans. FHA allows 3.5 percent down with a qualifying credit score and charges an upfront and an annual mortgage insurance premium. See my FHA loans guide.
• USDA loans. For eligible buyers and eligible rural addresses, USDA guaranteed loans offer 100 percent financing with income limits. See my USDA home loans guide.
• VA loans. For eligible veterans and service members, VA backed loans generally need no down payment and have no monthly mortgage insurance. See my VA home loans guide.
• THDA programs. Tennessee Housing Development Agency loans and down payment help may fit eligible buyers. See my THDA down payment assistance guide.

The CFPB says other loan types may be more or less expensive than a conventional loan with PMI, depending on your credit score, your down payment, the lender and market conditions. The best way to know is to get Loan Estimates for more than one option and compare them side by side.

Questions to ask your lender

• Based on my credit and savings, is a conventional loan or another loan the lower total cost for me?
• Do I qualify for HomeReady or Home Possible at this address?
• What are my PMI choices, and what would each cost over the years I plan to stay?
• When is my first chance to ask to cancel PMI?
• How much can the seller contribute toward my closing costs?
• Will the acreage or any feature of this home affect the loan?

How I help

I do not make loans, and I do not recommend one loan type over another. What I do is help you get preapproved before we tour, write offers that fit your financing, ask for seller credits within your loan's limits and keep the appraisal, inspection and closing on schedule.

Keep reading:

• FHA loans for Tennessee buyers
• How Coffee County homes were bought
• First time home buyer help in Tennessee
• Buyer closing costs in Tennessee
• Printable home buyer checklist
• Real estate glossary
• All Manchester guides

Fair housing note: I work with every buyer and seller, and I help everyone the same way when it comes to financing questions. Lenders must follow fair lending laws too.

This guide is general information from public sources, not lending advice. Loan rules, limits and programs change, so confirm the details with a lender.

Buying in Manchester or Coffee County?

I can help you compare your options, line up preapproval and write an offer that works with your loan. Call or text me at (615) 497 1658, or get my free buyer guide below.

Common questions

Matt Sargent is a Tennessee licensed affiliate broker with Keller Williams who helps buyers and sellers in Manchester and Coffee County. Call (615) 497 1658 or send a message.