FHA fits Houston buyers with credit scores from 580 to about 680 or higher debt, offering 3.5% down and flexible guidelines. Conventional rewards stronger credit with 3% down and mortgage insurance that drops off at 20% equity. FHA insurance is permanent with low down payments, so compare both with your actual numbers.
Quick Comparison Table
| Feature | FHA | Conventional |
|---|---|---|
| Down payment | 3.5% with 580+ credit | 3% to 5% with 620+ credit |
| Credit score | 580 standard, 500 with 10% down | 620 minimum |
| Mortgage insurance | 0.55% annual MIP + 1.75% upfront MIP | PMI drops off at 80% LTV |
| Loan limits | Set yearly by HUD for Harris County (verify at hud.gov) | Conforming limit set yearly by FHFA |
| Gift funds | Allowed | Allowed |
| Seller concessions | Up to 6% | 3% to 6% based on down payment |
| Appraisal requirements | Stricter property condition standards | Standard market value focus |
When FHA Is the Better Choice
FHA loans are built for accessibility. If your financial profile has gaps that conventional guidelines penalize, FHA is often the more practical path.
Credit score below 700. FHA pricing is less sensitive to credit score tiers than conventional. A borrower with a 620 credit score pays a significantly higher rate on a conventional loan than someone with a 740. On FHA, the rate difference between those two scores is smaller. Below 620, conventional is not an option at all, while FHA works down to 580 with 3.5% down or 500 with 10% down.
Limited savings. FHA requires 3.5% down at 580 or higher credit. The entire down payment can come from gift funds. Closing costs can be covered by seller concessions up to 6%. For a buyer with minimal cash reserves, FHA provides the lowest barrier to entry.
First-time buyer with thin credit. FHA allows non-traditional credit references for borrowers with limited credit history. Rent payments, utility bills, and insurance payments can substitute for traditional tradelines in some cases. Conventional programs are stricter about requiring established credit scores.
Higher DTI ratios. FHA allows debt-to-income ratios up to 57% with compensating factors like cash reserves or residual income. Conventional programs cap at 45% to 50% in most cases. If your monthly debts are high relative to your income, FHA gives you more room.
When Conventional Is the Better Choice
Conventional loans reward strong credit and larger down payments with lower costs over the life of the loan.
Credit score 700 or higher. Conventional rates improve significantly at 700, 720, and 740 credit score thresholds. A borrower with a 740 score gets a substantially lower rate on conventional than FHA, and the PMI cost is lower than FHA mortgage insurance at the same down payment level.
10% to 20% down payment available. With 20% down on a conventional loan, there is no mortgage insurance at all. Even with 10% down, conventional PMI costs less than FHA MIP for borrowers with good credit, and it drops off automatically at 78% LTV. FHA mortgage insurance on a 30-year term with less than 10% down stays for the life of the loan.
Want to eliminate mortgage insurance. This is the single biggest advantage of conventional over FHA. Once your loan balance reaches 80% of the original appraised value, you can request PMI removal. At 78%, it drops automatically. With FHA, the only way to remove mortgage insurance is to refinance into a conventional loan. Over a 30-year term, this difference saves thousands of dollars.
Investment property or second home. FHA loans are restricted to primary residences only. Conventional loans allow second home and investment property purchases. If you are buying a rental property or vacation home, conventional is the path.
Higher loan amounts. Conventional conforming limits are set each year by the FHFA and run higher than FHA limits. FHA limits for Harris County are set each year by HUD, so verify the current single-family figure at hud.gov. If your purchase price requires a loan above the FHA limit, conventional or jumbo is the option.
The Real Cost Comparison
Numbers tell the story better than generalizations. Here is what FHA and conventional look like on a $320,000 Houston home at different credit tiers.
Scenario: $320,000 Purchase Price, 3.5% Down (FHA) vs 5% Down (Conventional)
FHA loan amount: $308,800 + $5,404 upfront MIP financed = $314,204
Conventional loan amount: $304,000
Monthly FHA MIP: approximately $142/month (0.55% annual rate)
Monthly conventional PMI: varies by credit score, roughly $80 to $180/month
Credit Score Around 640
FHA: Annual MIP runs about 0.55% of the balance, roughly $142 per month, and it does not drop off with less than 10% down. Over 10 years that is approximately $22,444 in mortgage insurance.
Conventional: PMI is more expensive at lower credit tiers, roughly $165 per month, but it drops off around year 7 to 8 once you reach 20% equity. Over 10 years that is approximately $13,860.
Credit Score Around 720
FHA: Annual MIP stays at about $142 per month for the life of the loan. Over 10 years that is approximately $22,444.
Conventional: PMI drops to roughly $95 per month at this tier and falls off around year 6 to 7. Over 10 years that is approximately $6,840.
Credit Score 740+
FHA: Annual MIP is still about $142 per month and stays for the life of the loan. Over 10 years that is approximately $22,444.
Conventional: PMI drops to roughly $80 per month and falls off around year 5 to 6. Over 10 years that is approximately $4,800.
The pattern is clear. FHA mortgage insurance is permanent with less than 10% down, so it keeps adding up. Conventional PMI costs more at lower credit tiers but drops off as you build equity, and it gets cheaper as your credit improves. The crossover point where conventional becomes the lower total cost is typically around a 680 to 700 credit score, depending on down payment and other factors. Rates change daily and depend on your full profile, so Brandon prices both options with your actual numbers before you decide.
Houston-Specific Considerations
Harris County FHA loan limit. HUD sets the FHA loan limit for Harris County each year based on local median home prices, so verify the current single-family figure at hud.gov before you shop. Homes priced above the current FHA limit move you into conventional or jumbo financing. Many Houston suburbs sit well below the limit, but buyers in areas like the Heights, Montrose, or West University are more likely to bump up against it.
Fort Bend County limit. Fort Bend County (Sugar Land, Missouri City, Richmond) uses the same standard FHA limit as Harris County. Buyers in master-planned communities like Sienna or Riverstone where home prices run higher should plan for conventional financing if they exceed the current FHA limit.
Property taxes affect DTI. Houston-area property tax rates run 2% to 2.3% of assessed value in most areas. On a $320,000 home, that is $533 to $613 per month in taxes alone. Lenders include property taxes in your DTI calculation. High Texas property taxes push DTI ratios higher than the same home price would in a lower-tax state. FHA's higher DTI allowance (up to 57%) can be the deciding factor for Houston buyers whose taxes eat into their qualifying room.
Insurance costs. Houston homeowner insurance premiums are among the highest in the country. Windstorm and flood insurance add further costs in some areas. All insurance premiums factor into your monthly payment and DTI. Brandon includes actual insurance estimates when comparing FHA and conventional scenarios so the numbers reflect your true costs.
DPA programs work with both. Texas state down payment assistance through TSAHC and TDHCA is available for both FHA and conventional loans. These programs help cover down payment and closing costs through grants or forgivable second liens. Full details: Down Payment Assistance Houston.
What If Neither Is the Right Fit
FHA and conventional cover most Houston buyers, but some situations call for a different program.
VA loans. If you are an eligible veteran, active duty service member, or qualifying reservist, VA loans offer zero down payment, no mortgage insurance, and competitive rates. VA is almost always the best option when you qualify. Full details: VA Loans Houston.
USDA loans. Zero down payment for properties in eligible rural areas. Some Houston-area communities in outer Fort Bend, Waller, and Liberty counties qualify. Income limits apply. Full details: USDA Loans Houston.
Bank statement loans. If you are self-employed and your tax returns understate your income, bank statement loans use 12 to 24 months of deposits instead. Higher down payment required (10% minimum) but no tax returns needed. Full details: Bank Statement Loans Houston.
Non-QM options. Asset depletion, DSCR for investment properties, foreign national programs, and other non-traditional loan types exist for buyers who do not fit FHA or conventional guidelines. Brandon reviews your full financial picture and identifies the best program.
Frequently Asked Questions
Which has a lower monthly payment, FHA or conventional?
It depends on your credit score and down payment. With a 740 score and 10% or more down, conventional typically costs less because PMI is cheaper and drops off. With a 620 to 680 score and minimum down payment, FHA often has a lower interest rate but permanent mortgage insurance increases the total cost over time. Brandon runs both scenarios with your actual numbers.
Can I switch from FHA to conventional later?
Yes. You can refinance from FHA to conventional once you have enough equity and a qualifying credit score. This is a common strategy to eliminate FHA mortgage insurance. Most borrowers refinance once they reach 20% equity and have a 620 or higher credit score.
Does FHA require more inspections than conventional?
FHA does not require more inspections, but the FHA appraisal has stricter property condition requirements. The appraiser checks for health and safety issues that conventional appraisals may overlook. This can result in required repairs before closing, which adds time to the transaction.
Can I use down payment assistance with both loan types?
Yes. Texas DPA programs through TSAHC and TDHCA work with both FHA and conventional loans. These programs provide grants or forgivable second liens covering part or all of the down payment and closing costs. Full details: Down Payment Assistance Houston.
What about Houston condo restrictions with FHA?
FHA requires the condo project to be FHA-approved or qualify for single-unit approval. Many Houston condo buildings are not on the approved list. Conventional loans do not have this restriction, making conventional the easier path for condo purchases in Houston.
Which loan type closes faster?
Conventional loans generally close in 21 to 25 days. FHA loans take 25 to 30 days due to additional appraisal and documentation requirements. Both timelines assume the borrower is pre-approved and provides documents promptly.
Let Brandon Run the Numbers
The right loan depends on your credit score, savings, income, and the property you are buying. Brandon Huynh compares FHA and conventional side by side using your actual numbers and shows you the total cost over 5, 10, and 30 years so you make an informed decision.
Related Resources
- FHA Loans Houston - Full FHA program details
- FHA Loan Requirements Houston - Credit, down payment, DTI, and MIP rules
- Conventional Loans Houston - Full conventional program details
- First-Time Homebuyer Houston - Programs for first-time buyers
- USDA Loans Houston - Zero-down option for eligible areas
- Down Payment Assistance Houston - DPA programs for both loan types
- Blog: FHA for First-Time Buyers
FHA or Conventional? Brandon Will Show You the Best Option.
Stop guessing. Brandon runs both loan scenarios with your actual credit score, down payment, and target price. You see the monthly payment, total cost, and mortgage insurance difference side by side. Free consultation, no obligation.
Compare Your Loan Options with Brandon