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Side-by-Side Comparison” → “FHA vs. Conventional Loan: Side-by-Side Comparison

What’s the Difference in a Nutshell?” → “What’s the Difference Between an FHA and a Conventional Loan?

 

FHA vs. Conventional Loan: Which Is Right for Your First Home in Texas? By Neda | Houses by Neda at Real Broker
If you’re buying your first home in North Texas, one of the earliest decisions you’ll face is this: FHA or conventional loan? Both can get you into a home with a low down payment, but they work very differently—and choosing the wrong one could cost you thousands over the life of your mortgage.
Let me break it down in plain English so you can walk into your lender’s office already knowing which direction makes sense for you.
What’s the Difference in a Nutshell?
An FHA loan is backed by the federal government (the Federal Housing Administration), which means lenders take on less risk and can offer more flexible requirements. A conventional loan has no government backing—it’s between you and your lender—so the qualification standards are stricter, but the long-term costs are often lower.
Side-by-Side Comparison
Feature
FHA Loan
Conventional Loan
Min. Credit Score
580 (3.5% down) or 500 (10% down)
620+ (some programs allow 3% down)
Down Payment
3.5% minimum
As low as 3% (Conventional 97, HomeReady)
Mortgage Insurance
Required for life of loan (MIP) + 1.75% upfront premium
PMI required only if <20% down; removable at 20% equity
DTI Ratio
Up to 43% (sometimes higher with compensating factors)
Typically up to 45%
Loan Limits (2026)
Up to $541,287 (standard areas)
Up to $832,750 (conforming)
Property Types
Primary residence only
Primary, second home, or investment
Seller Concessions
Up to 6%
3% (or up to 6–9% with larger down payment)
Best For
Lower credit scores, limited savings
Strong credit, long-term cost savings
The Mortgage Insurance Question
This is the biggest factor most buyers overlook. With an FHA loan, you pay two types of mortgage insurance: an upfront premium of 1.75% of the loan amount (usually rolled into the loan) and an annual premium paid monthly. The catch? On most FHA loans, this insurance stays for the entire life of the loan.
With a conventional loan, you only pay Private Mortgage Insurance (PMI) if your down payment is less than 20%. And here’s the key: once you reach 20% equity in your home, you can cancel PMI entirely. Over time, this can save you tens of thousands of dollars.
✨ Neda’s Tip: On a $350,000 home with 3.5% down, FHA mortgage insurance could cost you over $50,000 over the life of a 30-year loan. With a conventional loan at the same price, PMI might cost $15,000–$20,000 before you cancel it. That’s a massive difference.
When FHA Makes Sense
  • Your credit score is between 580–619 and you can’t qualify for conventional yet
  • You have a higher debt-to-income ratio from student loans or car payments
  • You’re using gift funds for your down payment (FHA is more flexible here)
  • You need a faster path to approval and plan to refinance later when your credit improves
When Conventional Makes Sense
  • Your credit score is 620 or higher (and especially 700+)
  • You want to eliminate mortgage insurance as soon as possible
  • You’re buying in a competitive market where sellers prefer conventional offers
  • You want to keep your options open for investment properties later
✨ Pro Move: Some buyers start with an FHA loan to get into a home quickly, then refinance to conventional once their credit improves and they’ve built equity. It’s a valid strategy—just make sure you factor in refinancing costs.
What About Texas DPA Programs?
Great news: both FHA and conventional loans are eligible for Texas down payment assistance programs like My First Texas Home and TSAHC’s Home Sweet Texas. So your choice of loan type doesn’t lock you out of free money. Learn more about all available Texas down payment assistance programs on my blog.
My Advice as Your Agent
I always tell my buyers: don’t let a lender put you in an FHA loan just because it’s easier for them. Make sure they run the numbers on both options side by side. The right loan isn’t always the one that’s easiest to qualify for—it’s the one that costs you the least over time.
If you’re house-hunting in Frisco, Prosper, Celina, or North Dallas, I’ll connect you with lenders who will show you both options transparently. Reach out for a free consultation and let’s find the right fit.
Houses by Neda | Real Broker Frisco • Prosper • Celina • North Dallas