FHA vs. conventional loan comes down to who backs the loan and how you pay for mortgage insurance. An FHA loan is insured by the Federal Housing Administration and needs 3.5% down with a 580+ credit score, plus a 1.75% upfront premium and annual MIP that usually lasts for the life of the loan when you put less than 10% down. A conventional loan isn't government-backed, can start at 3% down for eligible buyers, and its private mortgage insurance (PMI) can be canceled once you reach 80% of your home's original value. The CFPB says FHA is often cheapest with lower credit scores or smaller down payments, and conventional tends to cost less with good credit and 10-15% down.
I'm Taylor Ring, a Mortgage Loan Officer with Fairway Independent Mortgage Corporation (The Wood Group) in Belton. This guide compares the two side by side for Texas buyers, using HUD, Fannie Mae, Freddie Mac, CFPB, and FHFA sources I read on October 21, 2026. For FHA's full checklist, see my FHA loan requirements in Texas guide.
Want both options priced for your situation? Get Pre-Approved or Book a Free Consultation.
The Difference Between FHA and Conventional Loans at a Glance
| FHA Loan | Conventional Loan | |
|---|---|---|
| Backed by | Insured by FHA (part of HUD) | Not government-backed; most follow Fannie Mae or Freddie Mac rules |
| Minimum down payment | 3.5% with a 580+ score; 10% with 500-579 | 3% for eligible buyers (see below); otherwise typically 5% or more |
| Credit score | 580+ for maximum financing; below 500 not eligible | No set minimum for Fannie Mae DU loans; 620 for manually underwritten fixed-rate loans |
| Upfront mortgage insurance | 1.75% of the base loan, financed or paid in cash | None |
| Monthly mortgage insurance | Annual MIP, paid monthly | PMI when you put less than 20% down |
| Can mortgage insurance end? | After 11 years with 10%+ down; otherwise for the life of the loan | Yes: by request at 80% of original value, automatically at 78% |
| 2026 loan limit (1-unit) | $541,287 in Bell and McLennan; $571,550 in Williamson | $832,750 in every Texas county |
| Occupancy | Primary residence only | Primary residence, second home, or investment property |
| Texas DPA | TDHCA and TSAHC programs | TSAHC programs and TDHCA My Choice (HFA conventional) |
Sources: HUD Handbook 4000.1, Fannie Mae Selling Guide, CFPB, HUD FHA Mortgage Limits, and FHFA.
Down Payment Minimums
FHA: 3.5% With a 580 Score
HUD's minimum required investment is 3.5% for borrowers with a 580 or higher credit score. Scores from 500 to 579 are limited to 90% loan-to-value, so you need at least 10% down. Your whole down payment can be a documented gift from a family member, employer, close friend, charity, or government homeownership program.
Conventional: 3% for Eligible Buyers
Conventional loans can go to 97% loan-to-value, or 3% down, through a few paths:
- Fannie Mae standard 97% LTV: at least one borrower must be a first-time homebuyer, meaning no ownership interest in a home in the last three years. It's limited to a fixed-rate, one-unit primary residence.
- Fannie Mae HomeReady: as low as 3% down with no first-time buyer requirement, for borrowers with income at or below 80% of area median income.
- Freddie Mac Home Possible: 3% down for borrowers with qualifying income at or below 80% of area median income, with down payment funds allowed from family, employers, secondary financing, and sweat equity.
If you've owned a home recently and your income is above those limits, plan on a conventional down payment of at least 5% for a one-unit primary residence under Fannie Mae's matrix.
What 3% vs. 3.5% looks like on a $300,000 home: 3% is $9,000 and 3.5% is $10,500. The $1,500 gap is real, but mortgage insurance usually matters more over time. Round illustrative numbers, not a quote.
Mortgage Insurance: FHA MIP vs. Conventional PMI
This is where the two loans differ most. CFPB notes that mortgage insurance protects the lender, not you, and that you pay for it either way.
FHA Mortgage Insurance (MIP)
- Upfront MIP: 1.75% of the base loan amount. You can finance it into the loan or pay it in cash, but it has to be all one or the other. On a $289,500 base loan (3.5% down on $300,000), that's $5,066 upfront.
- Annual MIP: paid monthly, ranging from 0.15% to 0.75% depending on term, loan size, and loan-to-value. Most 30-year loans with 3.5% down pay 0.55%.
- How long it lasts: with 10% or more down (90% LTV or less), annual MIP runs 11 years. With less than 10% down, it runs for the life of the loan.
CFPB adds that FHA mortgage insurance costs the same no matter your credit score, with only a slight increase for down payments under 5%. My FHA loan limits guide has HUD's full MIP chart.
Conventional Private Mortgage Insurance (PMI)
- No upfront premium is required. CFPB says most PMI is paid monthly, with little or nothing due at closing.
- Price depends on you. CFPB says PMI rates vary by down payment and credit score and are generally cheaper than FHA for borrowers with good credit.
- You can cancel it. Under federal law, for single-family primary residences that closed on or after July 29, 1999, you can ask your servicer to cancel PMI when your balance is scheduled to reach, or you pay it down to, 80% of the original value. You need to ask in writing, be current with a good payment history, have no junior liens, and show the value hasn't declined.
- It ends automatically. Your servicer must end PMI when your balance is scheduled to reach 78% of the original value, if you're current. At the latest, PMI ends the month after the midpoint of the loan term.
Original value generally means the lower of your purchase price or appraised value at purchase. Freddie Mac also notes that Home Possible MI can be canceled once the balance drops below 80% and its criteria are met.
Getting Out of FHA MIP Later
Because life-of-loan MIP can't be canceled, the usual way out is refinancing into a different loan later. Whether that works depends on your equity, credit, and the market at the time. My refinance loans page covers the options.
Credit Scores and Underwriting
FHA uses HUD's credit score tiers: 580+ for maximum financing, 500-579 at 90% LTV, and no FHA financing below 500. Borrowers with no credit score can still qualify through manual underwriting.
Conventional works differently. Fannie Mae's Selling Guide (topic dated April 22, 2026) says a minimum credit score is not required for loans run through Desktop Underwriter (DU); DU weighs the full credit report instead. Manually underwritten loans still need 620 for fixed-rate and 640 for ARMs. Your score still affects pricing through Fannie Mae's loan-level price adjustments and, per CFPB, what your PMI costs.
Debt-to-income: FHA files usually run through FHA's TOTAL Scorecard, with HUD's ratio caps for manual underwriting. Fannie Mae caps DTI at 50% for DU loans and 45% for manual underwriting.
One more layer: Texas assistance programs set their own floor. TDHCA and TSAHC require at least a 620 score.
2026 Loan Limits in Central Texas
| County | Cities | 2026 FHA Limit (1-Unit) | 2026 Conforming Limit (1-Unit) |
|---|---|---|---|
| Bell | Temple, Belton, Killeen, Salado | $541,287 | $832,750 |
| McLennan | Waco | $541,287 | $832,750 |
| Williamson | Georgetown, Round Rock, Cedar Park, Leander | $571,550 | $832,750 |
Sources: HUD FHA Mortgage Limits (CY2026, FHA Forward) and FHFA's 2026 county list, both checked October 21, 2026.
Bell and McLennan sit at the national FHA floor. All 254 Texas counties use the $832,750 baseline conforming limit. If your loan amount is above the FHA limit but within $832,750, conventional is the natural fit; above that, see my jumbo loans page. Multi-unit limits are in my FHA loan limits guide.
Occupancy and the Property
- FHA is for the home you'll live in. At least one borrower must move in within 60 days and intend to stay at least a year. Two- to four-unit homes qualify if you live in one unit.
- Conventional is more flexible. Fannie Mae buys loans on primary residences, second homes, and investment properties, with lower maximum loan-to-value for second homes and investment property.
- The FHA appraisal checks condition too. The appraiser confirms the home meets HUD's Minimum Property Requirements (safe, sound, and secure), so needed repairs can surface before closing.
Pairing Either Loan With Texas Down Payment Assistance
Fairway is a participating lender for both TDHCA and TSAHC programs. Here's how each loan type lines up:
- TDHCA My First Texas Home: FHA, VA, or USDA for first-time buyers, with income and purchase price limits. See my My First Texas Home guide.
- TDHCA My Choice Texas Home: FHA, VA, USDA, Fannie Mae HFA Preferred, or Freddie Mac HFA Advantage, with no first-time buyer requirement.
- TSAHC Home Sweet Texas and Homes for Texas Heroes: FHA, VA, USDA, or conventional. See my Home Sweet Texas guide and Homes for Texas Heroes guide.
Assistance can change the math. With help covering the down payment, the mortgage insurance comparison often decides it. My down payment assistance in Texas page covers the programs.
Is an FHA or Conventional Loan Better?
There's no universal answer, and CFPB's advice is to get quotes for both and compare total costs. These patterns hold up:
FHA often fits when you:
- Have a credit score in the 500s or a thinner credit file
- Need FHA's flexibility on debt-to-income
- Want TDHCA's My First Texas Home, which uses government loans
- Are buying a primary residence within the FHA limit
Conventional often fits when you:
- Have good credit and 5% or more down, or qualify for a 3% option
- Want mortgage insurance you can cancel
- Need a loan above the FHA limit, up to $832,750
- Are buying a second home or investment property
Questions to ask on each Loan Estimate: What's the monthly mortgage insurance? Is there an upfront premium? When can it end? What's the total cash to close? My closing costs in Texas guide walks through the form, and how much house can I afford in Texas covers the budget side.
A Temple Buyer Weighing Both
A buyer in Temple had enough savings for a larger down payment but wanted to keep a cushion. We compared low-down-payment options, assistance, and seller credits side by side, looking at the monthly payment, rate, cash to close, and any repayment terms, so the choice was about the whole picture, not one number.
Illustrative scenario, not an actual client transaction. Seller credits are subject to negotiation and loan guidelines.
Frequently Asked Questions
What is the difference between an FHA and a conventional loan?
An FHA loan is insured by the Federal Housing Administration and requires an upfront mortgage insurance premium of 1.75% plus annual MIP. A conventional loan is not government-backed and uses private mortgage insurance when you put less than 20% down, which can be canceled once your balance reaches 80% of the home's original value.
Is an FHA or conventional loan better for a first-time buyer in Texas?
It depends on your credit, down payment, and income. CFPB says FHA is often cheapest for borrowers with lower credit scores or smaller down payments, while conventional loans tend to cost less for borrowers with good credit and a 10 to 15 percent down payment. Compare Loan Estimates for both.
Can I remove mortgage insurance on an FHA loan?
With 10% or more down, FHA annual MIP ends after 11 years. With less than 10% down, it lasts for the life of the loan, so the usual way to stop paying it is to refinance into a different loan later. Conventional PMI can be canceled at 80% of original value and ends automatically at 78%.
What credit score do I need for an FHA loan vs. a conventional loan?
FHA requires a 580 score for 3.5% down and 500 to 579 with 10% down. Fannie Mae's April 2026 Selling Guide sets no minimum score for loans approved through Desktop Underwriter, but manually underwritten fixed-rate loans need 620. Texas TDHCA and TSAHC assistance programs require at least a 620 score.
What are the 2026 FHA and conventional loan limits in Central Texas?
For a one-unit home in 2026, the FHA limit is $541,287 in Bell and McLennan counties and $571,550 in Williamson County. The conforming loan limit for conventional loans is $832,750 in every Texas county, according to FHFA.
Let's Price Both and Compare
I'll run FHA and conventional side by side on your numbers, with and without assistance, so you can see the real difference.
Get Pre-Approved | Book a Free Consultation
Related Guides
- FHA Loan Requirements in Texas
- FHA Loan Limits in Texas
- FHA Loans
- Conventional Loans
- My First Texas Home Program
- Closing Costs in Texas
Sources
- HUD Handbook 4000.1 (credit score tiers, minimum investment, MIP, occupancy, property requirements) and HUD FHA Mortgage Limits
- Fannie Mae Selling Guide B3-5.1-01, Credit Scores, B2-1.3-01, Purchase Transactions, B3-6-02, DTI Ratios, Eligibility Matrix, and HomeReady
- Freddie Mac Home Possible
- CFPB: Removing PMI, How mortgage insurance works, and FHA loans
- FHFA 2026 conforming loan limits
- TDHCA program matrices and TSAHC homebuyer programs
Taylor Ring, NMLS #2809683 | Fairway Independent Mortgage Corporation, NMLS #2289 | The Wood Group of Fairway, 127 Lake Rd Ste 300, Belton, TX 76513 | Equal Housing Opportunity. This is not a commitment to lend. All loans are subject to credit approval and program guidelines, and approval, rates, and program availability are not guaranteed. Loan limits and program guidelines can change. Examples are hypothetical. Not affiliated with or endorsed by HUD, FHA, Fannie Mae, Freddie Mac, FHFA, the CFPB, TDHCA, TSAHC, or any government agency.