FHA vs Conventional Loans in Texas (2026): Which Should You Choose?

Most Texas first-time buyers should compare both. FHA wins on lower credit scores and lower down payments. Conventional wins on long-term cost when your credit is strong and you can put 5%+ down. Which is right depends on your credit, cash, debt-to-income ratio, and how long you plan to stay in the home.

This guide breaks down the differences for Texas buyers in 2026, and the trade-offs that actually matter when you're choosing between them.

The five differences that decide it

1. Credit score floor. FHA accepts as low as 580 with 3.5% down (or 500 with 10% down). Conventional generally needs 620+ for the best terms.
2. Down payment. FHA: 3.5% minimum. Conventional: 3% minimum on first-time-buyer programs, or 5%+ standard.
3. Mortgage insurance. FHA mortgage insurance (MIP) typically lasts the life of the loan. Conventional PMI drops off automatically at 78% LTV (or on request at 80%).
4. Loan limits in Texas (2026).The conforming conventional limit is $806,500 statewide. FHA limits are county-specific — most Texas counties cap at $498,257 for single-family, with higher limits in select metros. Above these ceilings you're looking at Jumbo, not Conventional or FHA.
5. Property condition. FHA appraisals follow HUD minimum property standards — a fixer-upper that fails an FHA appraisal can still close on Conventional.

When FHA wins

FHA is usually the right answer when your credit is in the low 600s or below, your down payment is 3.5–5%, and the home is in solid condition. It's also the program that pairs cleanly with Texas Down Payment Assistance — programs like TSAHC's Home Sweet Texas and TDHCA's My First Texas Home layer DPA grants on top of an FHA loan, which can put many first-time buyers in a primary residence with very little out of pocket.

When Conventional wins

Conventional usually wins when your credit is 720+ and you can put 5% or more down — especially if you plan to keep the loan more than five to seven years. Two reasons:

• PMI cancellation. Once you reach 80% LTV, PMI is gone. On FHA, mortgage insurance generally stays.
• Better rate tiers at high credit. Conventional pricing rewards strong credit more steeply than FHA does.

Conventional is also the right call for second homes, investment properties, and condos that aren't on the FHA-approved list. (For investor scenarios where you're qualifying on rental income rather than personal income, look at DSCR — that's a different track entirely.)

The mortgage-insurance math

This is where the cost gap shows up. On a hypothetical $300,000 FHA loan in 2026:

• Upfront MIP at 1.75% adds $5,250 to the loan balance.
• Annual MIP at roughly 0.55% works out to ~$137/month, and stays for the life of the loan in most cases.

On a $300,000 Conventional loan with 5% down, PMI typically runs 0.30% to 0.80% depending on credit score — and disappears in year six to eight as you pay down principal. If you plan to keep the loan ten years or more, the Conventional savings compound. If you plan to refinance or sell within three years, FHA's lower entry rate often comes out ahead.

These numbers are illustrative — your actual rates and MI premiums depend on credit score, loan-to-value, and current market pricing. We'll quote both scenarios on a live pre-qualification.

Two pitfalls Texas buyers hit

Choosing FHA when you don't need to. Buyers with 700+ credit and 5%+ down sometimes default to FHA because a relative or an older guide recommended it. With current pricing, Conventional is usually cheaper for that profile.

Skipping the DPA math. Texas DPA programs can change the answer entirely — sometimes adding 5% of the loan amount as a grant or forgivable second. The trade-off is income limits and sometimes a slightly higher rate. Worth running both with and without DPA before deciding.

How to decide in ten minutes

Pull these four numbers and we'll run the comparison:

• Credit score (most recent middle of three bureaus)
• Cash on hand (everything that isn't retirement)
• Annual income (W-2 plus 1099, averaged over the last 24 months if self-employed)
• Existing monthly debts (auto, student, credit-card minimums)

A pre-qualification shows you the actual monthly payment, the total cost over five / ten / fifteen years, and which program fits your file. Same-day turnaround if you submit before noon.

The TL;DR

FHA is the clear answer when your credit is below 660 or your down payment is under 5%. Conventional is the clear answer when your credit is 720+ and you can put 5%+ down. The middle range — credit 660–720, down payment 3.5–10% — is where running both scenarios actually decides it.

If you're in Texas and want both compared in writing, start a pre-qualification— we'll show you both side by side, with current rates and the DPA scenarios layered in.

This article is general educational information, not personalized loan advice. Loan terms, rates, and program guidelines change. Speak with a licensed loan officer before making borrowing decisions.