FHA fits Houston buyers with credit scores from 580 to about 680 or with more debt. It can go up to 96.5% loan to value and has flexible rules. Conventional rewards stronger credit. It can go up to 97% loan to value, and its mortgage insurance can come 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 |
|---|---|---|
| Loan to value | Up to 96.5% with 580+ credit | Up to 95% or 97%, by program, with 620+ credit |
| Credit score | 580 standard, 500 at up to 90% loan to value | 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. I cover the whole program on my FHA loans in Houston page.
Credit score below 700. FHA pricing changes less with credit score than conventional pricing does. On a conventional loan, a 620 score often gets a higher rate than a 740 score. On FHA, the gap between those two scores is smaller. Below 620, many lenders will not offer conventional. FHA works down to 580 at up to 96.5% loan to value, or 500 at up to 90% loan to value.
Limited savings. At 580 or higher credit, FHA can go up to 96.5% loan to value. The entire down payment can come from gift funds. The seller can pay closing costs of up to 6% of the price. For a buyer with little cash saved, FHA can be easier to start with.
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 pricing improves at higher credit scores, such as 700, 720, and 740. A borrower with a 740 score often pays less in total on conventional than on FHA, once mortgage insurance is counted. PMI can also cost less than FHA mortgage insurance at the same loan to value.
Loan to value of 80% to 90%. At 80% loan to value on a conventional loan, there is no mortgage insurance at all. Even at 90% loan to value, conventional PMI costs less than FHA MIP for borrowers with good credit. It ends on its own at 78% loan to value. FHA mortgage insurance on a 30 year term above 90% loan to value stays for the life of the loan.
Want to end mortgage insurance. This is a key advantage of conventional over FHA. Once your loan balance reaches 80% of the original value, you can ask to remove PMI. At 78%, it ends on its own. FHA mortgage insurance stays for the life of the loan when the loan closes above 90% loan to value. For those loans, the way to remove it is to refinance into a conventional loan. Over time, this difference can add up.
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.
How the Costs Add Up Over Time
The rate is only one part of your cost. Mortgage insurance is the other big part. FHA and conventional handle it in different ways.
If you start above 90% loan to value, FHA mortgage insurance stays for the life of the loan. So it keeps adding up. Conventional PMI costs more at lower credit scores. It can come off as you build equity, and it gets cheaper as your credit improves. Rates change daily and depend on your full profile. 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. 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 have their own down payment rules and no monthly mortgage insurance. If you qualify, VA is worth a look first. Full details: VA Loans Houston.
USDA loans. For homes in eligible rural areas, with its own down payment rules. 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. Loan to value is often capped at 90% or lower, but no tax returns are 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 a loan at 90% loan to value or lower, conventional often costs less. That is because PMI is cheaper and can come off. With a 620 to 680 score and the minimum down payment, FHA often has a lower interest rate. But FHA mortgage insurance can stay for the life of the loan, which adds to 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 Loan Documents Houston - The document list a lender asks a W-2 buyer for on the conventional side
- Conventional Loans Houston - Full conventional program details
- First-Time Homebuyer Houston - Programs for first-time buyers
- USDA Loans Houston: A loan option for eligible rural 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 Start Your Application