Published , 3 minute read
Compare FHA and conventional loans side by side — credit scores, down payments, mortgage insurance, loan limits, and which one is better for your situation in Texas.
Quick answer: An FHA loan is insured by the Federal Housing Administration and is designed to be more flexible on credit, allowing 3.5% down with a 580 credit score. A conventional loan isn't government-insured and usually rewards stronger credit with lower mortgage insurance costs, plus mortgage insurance can be removed once you build equity. In general, FHA often fits buyers with lower credit scores or higher debt, while conventional often costs less over time for buyers with good credit. The best choice depends on your full financial picture.
FHA vs. conventional at a glance
Feature | FHA | Conventional |
|---|---|---|
Backed by | Insured by the Federal Housing Administration | Usually sold to Fannie Mae or Freddie Mac; not government-insured |
Minimum down payment | 3.5% with a 580+ credit score; 10% with 500–579 | 3% for qualifying programs; 5% standard |
Credit score | 580 for 3.5% down (many lenders set their own floor) | No fixed minimum through automated underwriting since late 2025; most lenders look for about 620 |
Mortgage insurance | 1.75% upfront plus an annual premium, most commonly 0.55%; lasts the life of the loan with under 10% down | Private mortgage insurance (PMI) under 20% down; priced by credit and down payment; can be removed as you gain equity |
2026 loan limit (1 unit) | $563,500 in Dallas and Collin counties; $541,287 in lower-cost Texas counties | |
Debt-to-income flexibility | Often more flexible with compensating factors | Up to 50% for strong files through automated underwriting |
Property standards | FHA appraisal includes minimum property standards; some repairs may be required | Standard appraisal; generally fewer required repairs |
Occupancy | Primary residence only (1–4 units) | Primary residence, second homes, and investment properties |
Guidelines and limits change. Your loan officer will confirm what applies to your loan.
When FHA may be the better fit
- Your credit score is below about 680, where conventional mortgage insurance can get expensive.
- Your debt-to-income ratio is on the higher side.
- You've had a past credit event, like a bankruptcy, and FHA's waiting period fits your timeline better.
- You want to buy a 2–4 unit property, live in one unit, and put down a small down payment.
When conventional may be the better fit
- Your credit score is strong, so PMI is relatively inexpensive.
- You want mortgage insurance that can be removed later without refinancing.
- You're putting 20% down and want no mortgage insurance at all.
- The home needs cosmetic work that might be flagged under FHA property standards.
- You're buying above the FHA loan limit, or buying a second home or investment property.
- You're in a competitive situation where the seller prefers a conventional offer.
The real answer: compare both
The right loan is the one with the best total cost and the right fit for your goals — not just the lowest rate. A loan officer can show you an FHA and a conventional quote side by side, including the payment, mortgage insurance, cash to close, and how long you'd likely pay mortgage insurance on each.
Many borrowers start with FHA and refinance into a conventional loan later, after their credit improves and they've built equity. That's a common and reasonable strategy, though refinancing depends on your situation and rates at that time.
FAQ
Is FHA or conventional cheaper? It depends on your credit score and down payment. Buyers with lower scores often pay less with FHA; buyers with strong credit often pay less with conventional, especially over time.
Do sellers in Texas accept FHA offers? Yes. FHA offers are common in DFW. A well-prepared FHA buyer with a strong pre-approval can compete well.
Can I switch from FHA to conventional later? Yes, by refinancing, if you meet conventional requirements at that time.
Is a VA loan better than both? For eligible veterans and service members, VA loans often offer 0% down and no monthly mortgage insurance. It's worth comparing VA too if you're eligible.
Not sure whether FHA or conventional is right for you? Call or text Mike Tanas at 214-604-5245
This article is general education, not financial, tax or legal advice. Guidelines change and vary by lender. Talk with Mike about your own situation.