Choosing between an FHA loan and a conventional loan is one of the first big decisions you’ll make when buying a home in Texas. This guide breaks down the key differences to help you determine which option fits your financial situation and goals.
Key Takeaways
- FHA loans require as little as 3.5% down with credit scores as low as 580
- Conventional loans start at 3% down but typically require 620+ credit scores
- FHA mortgage insurance stays for the life of the loan (if under 10% down), while conventional PMI can be removed at 20% equity
- Texas property taxes are higher than most states—FHA’s flexible debt-to-income ratios can help
- Your lender can run both scenarios to show exact monthly payments and long-term costs
What is an FHA Loan?
FHA loans are backed by the Federal Housing Administration and designed to help buyers who may not qualify for conventional financing. They’re especially popular with first-time buyers because of the lower down payment and credit requirements.
FHA Loan Requirements:
- Down payment: As low as 3.5%
- Credit score: Typically 580 or higher
- Mortgage insurance: Required for the life of the loan (if you put down less than 10%)
- Debt-to-income ratio: More flexible, up to 50% in some cases
What is a Conventional Loan?
Conventional loans are not backed by the government. They typically require stronger credit and larger down payments, but they offer more flexibility and can be less expensive over time if you qualify.
Conventional Loan Requirements:
- Down payment: As low as 3%, but 5-20% is common
- Credit score: Usually 620 or higher (higher scores get better rates)
- Mortgage insurance: Only required if you put down less than 20%, and can be removed once you reach 20% equity
- Debt-to-income ratio: Typically capped at 43-45%
Need help determining which loan you qualify for? Schedule a Discovery Call to review your options.
Key Differences That Matter in Texas
Property Taxes: Texas has no state income tax, but property taxes are higher than many states (typically 1.5%–2.5% of home value annually). FHA loans are more forgiving with debt-to-income ratios, which can help if property taxes push your monthly payment higher.
Loan Limits: In most Texas counties, FHA loan limits are lower than conventional limits. For 2026, the FHA limit in Dallas, Fort Worth, and Tyler is $498,257, while conventional loans can go much higher.
Appraisal Requirements: FHA appraisals are stricter. If you’re buying a fixer-upper or older home, an FHA appraiser may flag issues that need to be repaired before closing. Conventional appraisals are typically less stringent.
What This Means for Texas Homebuyers
If you’re buying in a high-property-tax area like Dallas or Tarrant County, FHA’s flexible debt-to-income guidelines can be the difference between qualifying and not qualifying. Conventional loans are stricter here, so it’s worth running both scenarios.
Which Loan is Right for You?
Choose FHA if:
- You have limited savings for a down payment (under 5%)
- Your credit score is below 640
- You’re self-employed or have variable income
- You want more flexible debt-to-income guidelines
- You’re comfortable with mortgage insurance for the life of the loan
Choose Conventional if:
- You can put down 5% or more
- Your credit score is above 680
- You want to avoid mortgage insurance long-term
- You’re buying a higher-priced home above FHA limits
- You want the option to remove PMI once you reach 20% equity
Real-World Example: FHA vs. Conventional in Texas
Let’s compare a $300,000 home purchase in the DFW area:
FHA Loan (3.5% down):
- Down payment: $10,500
- Loan amount: $289,500
- Monthly mortgage insurance: ~$200
- Total monthly payment (P&I + taxes + insurance + MIP): ~$2,400
Conventional Loan (5% down):
- Down payment: $15,000
- Loan amount: $285,000
- Monthly PMI: ~$150 (removable at 20% equity)
- Total monthly payment (P&I + taxes + insurance + PMI): ~$2,350
These are example figures for illustration only. Actual rates, payments, and costs vary based on credit, income, and market conditions.
Want to see how the numbers work for your situation? Try the mortgage calculator to estimate your monthly payment.
The Bottom Line
There’s no one-size-fits-all answer. FHA loans are excellent for buyers who need flexibility, while conventional loans offer better long-term cost savings if you qualify.
During your Discovery Call, I’ll review your financial profile and show you exactly what each option looks like—monthly payment, upfront costs, and total interest over time. No guessing, no pressure, just clear numbers so you can make the right choice.
Schedule a Discovery Call to compare your options, or explore more homebuying guides on the blog.
This article is for general education and is not financial advice. Loan terms, rates, and requirements are subject to change and individual qualifications.