Texas Home Loans

Conventional vs FHA Loan: Which Is Better in Texas? (2026)

FHA is not just for first-timers, and conventional is not just for people with big down payments. The real answer depends on your numbers, and one path may quietly save you thousands.

Tyler Allen Reviewed by

Byron Davis, NMLS #621780 1,110 words · ~6 min read

3%Minimum down, conventional (many qualified buyers)

3.5%Minimum down, FHA

~620Common conventional credit floor

580Common FHA floor for 3.5% down

Two beliefs send a lot of Texas buyers down the wrong path before they have run a single number. The first is that FHA loans are only for first-time buyers. The second is that conventional loans are only for people with perfect credit and a big down payment. Neither is true, and acting on either one can cost you real money.

Here is the reality. Conventional and FHA are simply two different toolkits, each built for a different situation. Depending on your credit score, your down payment, your monthly budget, and how long you plan to stay, one of them may save you meaningfully more over the life of the loan. The goal of this guide is not to crown a universal winner, because there is not one. It is to help you see which toolkit fits your situation, so you can compare them on purpose instead of by accident.

What is a conventional loan?

A conventional loan follows guidelines set by Fannie Mae and Freddie Mac and is not insured by a government agency. It is the most common mortgage in America for good reasons: competitive rates, low down payment options, mortgage insurance that can be removed, and flexibility across property types. As the CFPB notes, when you put down less than 20% you will usually pay private mortgage insurance (PMI), but unlike FHA insurance, conventional PMI comes off once you build enough equity. Many qualified first-time buyers purchase with as little as 3% down, and conventional financing pairs with many Texas assistance programs.

What is an FHA loan?

An FHA loan is a government-backed mortgage insured by the Federal Housing Administration, part of HUD. It was designed to widen access to homeownership with more flexible qualifying. Buyers may be eligible with credit scores as low as 580 and as little as 3.5% down. That flexibility is why FHA remains one of the most popular options for first-time and repeat buyers alike, especially anyone rebuilding credit or recovering from a past financial setback. The tradeoff is the insurance, which we get to below.

Conventional vs FHA: the quick comparison

Feature	Conventional	FHA
Backed by	Fannie Mae / Freddie Mac (not government-insured)	Federal Housing Administration
Minimum down payment	3% (many qualified buyers)	3.5%
Common credit floor	Around 620	580 for 3.5% down
Upfront mortgage insurance	None	1.75% upfront MIP
Monthly mortgage insurance	PMI, under 20% down, removable	Annual MIP, often for the life of the loan
Property types	Primary, second home, investment	Owner-occupied primary residence
Works with Texas DPA?	Yes	Yes

Why many Texas buyers choose conventional

Three advantages tend to do the convincing:

Mortgage insurance can be removed. On a conventional loan, you can request PMI removal at 80% of the home’s original value, and your servicer must cancel it automatically at 78%, under the federal Homeowners Protection Act. The CFPB lays out the exact rules. We cover the details in our guide to PMI and when it goes away.
No upfront insurance premium. FHA adds a 1.75% upfront premium to your loan. Conventional does not, so more of your balance goes toward the home instead of insurance.
More property flexibility. Conventional can be used for primary homes, second homes, and investment properties. FHA is generally for owner-occupied primary residences.

Why many Texas buyers choose FHA

FHA earns its place for the opposite reasons. It is often more forgiving on credit, which can open the door for a buyer who would not yet qualify conventionally. It can allow more flexibility on debt-to-income in certain scenarios. And the 3.5% down requirement keeps the upfront cash low. For a buyer whose credit is on the way up, FHA may be the path that gets them into a home this year rather than next.

Which loan has the lower monthly payment?

This is where the biggest myth lives. Many buyers assume FHA always has the lower payment. It does not. The answer depends on credit score, down payment, interest rate, mortgage insurance, property taxes, and insurance. For a buyer with stronger credit, conventional often produces a lower long-term cost because PMI eventually disappears. For a buyer with a lower score, FHA may qualify them more comfortably and price more attractively up front. The honest move is to price both.

How credit score tips the scale

As your score climbs, conventional generally gets more attractive: better pricing, lower PMI, and that removable insurance. Around 620 the two are worth a close head-to-head. Around 680 and up, conventional often pulls ahead. Below the low 600s, FHA frequently becomes the more realistic path. We go deeper in what credit score you need for a conventional loan in Texas.

Can you use down payment assistance with either one?

Yes, and this surprises a lot of buyers. Many of the most popular statewide programs through TSAHC and TDHCA offer assistance options for both conventional and FHA. You do not have to choose between a good loan and help with your down payment. Qualified buyers may receive up to 5% of the loan amount toward down payment and closing costs and still use the loan type that fits them best. See our overview of Texas down payment assistance programs and, if you are a first-time buyer, the Mortgage Credit Certificate for an added annual tax credit.

Common conventional vs FHA myths

“I need 20% down for a conventional loan.” No. Many qualified buyers go conventional with 3% down.
“FHA is only for first-time buyers.” No. FHA is open to repeat buyers who meet the requirements.
“Conventional requires perfect credit.” No. Many conventional programs start around a 620 score.
“Assistance only works with FHA.” No. Texas DPA works with both FHA and conventional.

So which loan is better?

The best mortgage is not the one with the lowest advertised rate. It is the one that fits your credit, your cash, your monthly comfort level, and how long you plan to stay. ShopDPA is The Texas Down Payment Assistance Marketplace, and this is exactly the comparison we exist to make easier. Not every lender will model both loans honestly side by side, or fold in PMI removal and assistance. The licensed mortgage professionals in our network do this comparison every day, which is the difference between guessing and choosing.

Frequently Asked Questions

Is a conventional or FHA loan better in Texas?

It depends on your numbers. Conventional often wins on long-term cost for buyers with stronger credit because its mortgage insurance can be removed. FHA often wins on flexibility for buyers with lower credit scores or tighter qualifying. The right answer comes from comparing both on your actual credit, down payment, and budget.

What credit score do I need for each?

Many conventional programs start around a 620 credit score. FHA can allow scores as low as 580 for 3.5% down. Higher scores generally mean better pricing and lower mortgage insurance, especially on conventional loans.

Does FHA always have a lower payment than conventional?

No. That is a common myth. FHA includes a 1.75% upfront premium and annual mortgage insurance that often lasts the life of the loan. For buyers with stronger credit, conventional can produce a lower long-term cost because PMI can be removed once you reach 20% equity.

Can I use Texas down payment assistance with a conventional loan?

Yes. Many Texas assistance programs through TSAHC and TDHCA offer options for both conventional and FHA financing. You do not have to choose between down payment help and the loan type that fits you best.

Can FHA loans be used for investment properties?

Generally no. FHA financing is for owner-occupied primary residences. Conventional financing can be used for primary homes, second homes, and investment properties.

How do I decide between conventional and FHA?

Compare both with the full monthly payment, mortgage insurance, and any down payment assistance included. A participating lender in the ShopDPA network can run both scenarios side by side so you can choose based on real numbers rather than a rule of thumb.

† ShopDPA is a home loan and down payment assistance referral service. We are not a mortgage lender, mortgage broker, or loan officer, and we do not originate, fund, or service loans. We connect Texas homebuyers with licensed mortgage professionals and with down payment assistance programs. We are not affiliated with TSAHC, TDHCA, HUD, the FHA, the CFPB, or any government agency. Loan terms, credit requirements, and program rules are set by the applicable lender or agency and may change; confirm current details with a participating licensed lender. Equal Housing Opportunity.