FHA vs. Conventional Loan: Which Is Right for Texas Homebuyers?

If you’re buying a home in Texas and you’ve started researching mortgages, you’ve probably run into this question pretty quickly: FHA or conventional?

It’s one of the most common questions I hear, and honestly, it’s a great one to ask. The right answer depends on your credit score, your down payment, how long you plan to stay in the home, and a few other factors most people don’t think about until they’re already under contract.

Let me break it down in plain English so you can go into this with a clear head.

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What’s the Difference Between FHA and Conventional Loans?

At the highest level:

FHA loans are backed by the Federal Housing Administration. Because the government insures the loan, lenders are willing to approve borrowers with lower credit scores and smaller down payments. The trade-off is that you’ll pay mortgage insurance — and it sticks around longer than most people expect.

Conventional loans aren’t government-backed. They follow guidelines set by Fannie Mae and Freddie Mac. They typically require stronger credit and a slightly larger down payment, but they’re more flexible in other ways — and mortgage insurance, if required at all, eventually goes away.

Neither one is universally better. It really comes down to your specific situation.

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Head-to-Head: FHA vs. Conventional

Credit Score

FHA: You can qualify with a credit score as low as 580 with 3.5% down. Some lenders will go down to 500, but that requires 10% down and not everyone will touch it.

Conventional: Most lenders want a 620 minimum, and the best rates go to borrowers with 740+.

Bottom line: If your credit is below 620, FHA is likely your path. If you’re above 680, you’re worth comparing both.

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Down Payment

FHA: As low as 3.5% down (with a 580+ score).

Conventional: As low as 3% down through certain programs, though 5–20% is more typical.

Bottom line: Both can work with a small down payment. The difference is what that means for your mortgage insurance costs (more on that next).

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Mortgage Insurance

This is where most people get surprised, so pay close attention.

FHA: You pay mortgage insurance *for the life of the loan* if you put less than 10% down. It doesn’t matter if your home doubles in value. It doesn’t matter if you’ve built up 30% equity. That premium stays until you refinance into a conventional loan.

There are two pieces:
– An upfront premium of 1.75% of the loan amount (rolled into the loan)
– An annual premium of roughly 0.55–0.85% per year, depending on your loan size and term

Conventional: If you put less than 20% down, you’ll pay PMI (private mortgage insurance). But here’s the key difference — **conventional PMI automatically cancels once you reach 20% equity in your home.** You can also request removal at 20%, and by law it must be removed at 22%.

Bottom line: For most buyers planning to stay in the home long-term, conventional loans with PMI tend to cost less over time. FHA makes sense when you need to get in the door now and plan to refinance later once your equity or credit improves.

Loan Limits

Both loan types have limits on how much you can borrow.

FHA limits in Texas for 2026: Most Texas counties have a limit of **$524,225** for a single-family home. Higher-cost areas may go higher.

Conventional conforming limit for 2026: $806,500 for most of the country, including Texas.

Bottom line: If you’re buying in a higher price range — especially in Austin, where median home prices have climbed significantly — you may find conventional gives you more room to work with.

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Property Condition

This one surprises first-time buyers.

FHA: The home has to meet specific safety and condition standards set by HUD. Things like peeling paint on older homes, roof issues, or structural concerns can trip up an FHA appraisal. Sellers sometimes push back on FHA offers because of this.

Conventional: Less strict on property condition. The appraisal still protects the lender, but minor deferred maintenance won’t kill your deal.

Bottom line: In a competitive market like Austin, sellers occasionally have a slight preference for conventional offers. Not always — but it’s worth knowing.

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Debt-to-Income Ratio (DTI)

FHA: Generally allows up to 50% DTI with compensating factors.

Conventional: Typically caps at 45–50%, depending on the lender and your overall profile.

Bottom line: Both are similar here. FHA can be slightly more flexible, which helps buyers with student loans or higher monthly obligations.

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So Which One Should You Choose?

Here’s how I think about it for my clients in Texas:

FHA might be the better fit if:
– Your credit score is below 660 and you’re still building it
– You have limited savings and need the lowest possible down payment
– Your debt-to-income ratio is on the higher side
– You plan to refinance in a few years anyway

Conventional might be the better fit if:
– Your credit score is 680 or above
– You can put at least 5–10% down
– You want mortgage insurance to eventually go away
– You’re buying in a price range that pushes FHA limits
– You’re in a competitive market where seller perception matters

And here’s the thing a lot of people don’t realize — **you don’t have to figure this out alone.** As an independent mortgage broker, I can run both scenarios side by side with real numbers so you can see exactly what each option costs you per month, over 5 years, and over the life of the loan. That’s how you make a real decision.

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A Real Example: Austin Buyer, $380,000 Purchase Price

Let’s say you’re buying a $380,000 home in the Austin area with a 640 credit score and 5% down ($19,000).

FHA:
– Loan amount: ~$367,525 (after upfront MIP is rolled in)
– Monthly MIP: ~$210–$250/month
– That MIP stays until you refinance

Conventional:
– Loan amount: $361,000
– Monthly PMI: ~$130–$180/month (varies by credit and lender)
– PMI drops off once you hit 20% equity

Over 5 years on a $380K home, that difference adds up — and with conventional, you eventually get that payment back down without refinancing.

Note: These are illustrative figures. Your actual numbers depend on current rates, lender pricing, and your full credit profile. I’ll run exact numbers for your situation — just reach out.*

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One More Thing: As a Broker, I Shop Both for You

A lot of buyers go to their bank and get one option. As an independent broker, I work with multiple lenders — which means I can shop FHA and conventional options across several lenders at once and find the best fit for your specific profile.

And I don’t charge lender fees. The savings go to you in the form of better rates and lower costs at closing.

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Ready to Figure Out Which Loan Is Right for You?

If you’re buying in Texas — whether it’s your first home or your fifth — let’s talk through your numbers. I’ll give you a straight answer, not a sales pitch.

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*Russell Stout | Texas Mortgage Consultants, PLLC*
*NMLS# 220896 | Company NMLS# 1843758 | Texas SML License# 220896*
*8805 Lemon Spice Trail, Austin, TX 78750*
*Equal Housing Lender*