FHA vs Conventional: The Texas Decision
For most Texas buyers choosing between FHA and conventional, the decision comes down to three factors: credit score, down payment amount, and how long you plan to own the home. Here is how to decide.
Side-by-Side Comparison
| Feature | FHA | Conventional |
|---|---|---|
| Min Down Payment | 3.5% (580+ credit) | 3% (HomeReady/97) |
| Credit Score Floor | 580 (3.5% down) | 620 |
| Mortgage Insurance | MIP for life of loan | PMI removable at 20% equity |
| Loan Limit (Travis Co.) | $766,550 | $766,550 |
| Upfront Fee | 1.75% UFMIP | None |
| Interest Rate | Slightly lower | Slightly higher |
| Seller Concessions | Up to 6% | 3-9% |
| Condo Restrictions | Project must be FHA-approved | More flexible |
When FHA Wins
1. Credit score 580-619: Conventional lenders rarely approve below 620. FHA is your primary option.
2. Limited savings: FHA's 3.5% minimum is broadly accessible. Combined with Texas DPA programs, entry costs can be minimal.
3. Short ownership timeline: If you plan to sell within 3-4 years, the upfront UFMIP is a one-time cost that may not hurt you worse than conventional options.
4. Higher DTI: FHA is more flexible on debt-to-income ratios, which helps buyers carrying student loans or car payments.
When Conventional Wins
1. Credit score 680+: At higher credit scores, conventional rates become more competitive and PMI is cheaper than FHA MIP.
2. Long ownership plans: PMI drops off when you reach 20% equity; FHA MIP lasts the life of the loan (for less than 10% down). A $150/month difference for 10 extra years = $18,000.
3. Investment flexibility: Conventional loans are easier to use on condos, multi-family investment properties, and second homes.
4. Jumbo purchases: For homes above the FHA limit, conventional jumbo loans are the path.
The Break-Even Analysis for Texas Buyers
For a $380,000 home in Round Rock with 5% down:
FHA costs:
- UFMIP: $6,650 (financed)
- Annual MIP: $174/month × 360 months = $62,640 total
- Total extra cost vs conventional at 20% equity: ~$62,640
Conventional costs:
- No UFMIP
- PMI: ~$140/month until 20% equity (approximately 8-10 years at normal appreciation)
- Total PMI paid: ~$16,800
Conventional saves approximately $45,000+ over 30 years for buyers with 680+ credit.
The Texas Appreciation Factor
Austin-area appreciation has historically been 4-7% annually. At 5% annual appreciation, a $380,000 home reaches 20% equity faster than expected — meaning conventional PMI drops off faster than projected, further widening the advantage over FHA.
Frequently Asked Questions
At 640, both are available — FHA at 3.5% down and conventional at 3-5% down. Run both scenarios with a lender. The key difference: FHA MIP lasts the life of the loan while conventional PMI drops off at 20% equity. If you plan to stay 5+ years, conventional often wins at 640+.
Yes. When you have 20% equity (either through payments or appreciation), refinance from FHA to conventional to eliminate MIP. There are no penalties or waiting periods specific to Texas for doing so — just standard refinance requirements.
FHA loans typically take 2-5 days longer than conventional due to the FHA appraisal process (which checks property condition in addition to value) and FHA underwriting requirements. Most Texas FHA purchases close in 28-35 days vs 21-30 days for conventional.
