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FHA Loan vs. Conventional Loan: Which Is Right for Austin, TX Homebuyers?

ByAnthony Ferrando

When you’re ready to buy a home in Austin, one of the first decisions you’ll face is choosing the right loan type. For most buyers, the choice comes down to two options: an FHA loan or a conventional loan. Both can get you into a home, but they work differently, and the right choice depends on your specific financial situation.

At Mortgage Austin, we walk every client through this comparison before they ever fill out an application. Here’s what you need to know.

What Is an FHA Loan?

An FHA loan is backed by the Federal Housing Administration. Because the government insures the lender against default, lenders are willing to accept lower credit scores and smaller down payments than they’d require on a conventional loan.

FHA loans are popular with first-time buyers and buyers who are still building their credit history. The tradeoff is that FHA loans require mortgage insurance for the life of the loan in most cases, which adds to your monthly payment.

FHA Loan Key Facts

  • Minimum credit score: 580 (with 3.5% down); 500-579 with 10% down
  • Down payment: as low as 3.5%
  • Mortgage insurance: upfront premium (1.75% of loan amount) plus monthly MIP
  • Loan limits for 2026 in most Texas counties: $524,225 for single-family homes
  • Property must meet FHA condition standards

What Is a Conventional Loan?

A conventional loan is not backed by a government agency. It follows guidelines set by Fannie Mae and Freddie Mac. Because the risk falls more on the lender, conventional loans typically require stronger credit and a larger down payment, but they offer more flexibility and usually better long-term costs for qualified buyers.

Conventional Loan Key Facts

  • Minimum credit score: typically 620, with better pricing at 740+
  • Down payment: as low as 3% with HomeReady or Home Possible programs
  • PMI required if down payment is less than 20%, but can be removed once you reach 20% equity
  • Loan limits in 2026: up to $806,500 (conforming) in most Texas markets
  • No upfront mortgage insurance premium

FHA vs. Conventional: A Side-by-Side Look

Credit Score

If your credit score is below 680, an FHA loan will usually give you access to better pricing. If your score is 720 or higher, a conventional loan is almost always the smarter financial move.

Down Payment

Both loan types now offer low down payment options. FHA requires 3.5% minimum (with a 580+ score). Conventional programs like HomeReady and Home Possible start at 3% for qualifying buyers. The difference is what happens after closing: FHA mortgage insurance sticks around much longer.

Mortgage Insurance

This is often the deciding factor. FHA loans carry mortgage insurance for the full loan term if you put less than 10% down, and 11 years if you put more than 10% down. Conventional PMI, on the other hand, automatically cancels once your loan balance drops to 80% of your home’s value. Over time, this can save you tens of thousands of dollars.

Loan Limits

Austin home prices have risen significantly over the past several years. Conventional loans support higher balances, which is important for buyers in Travis County and surrounding areas where median prices sit well above $500,000 in many neighborhoods.

Property Condition

FHA loans require the home to meet specific condition standards. If you’re buying an older home or one that needs work, a conventional loan is usually easier to close because the property requirements are less strict.

Which Loan Is Right for You?

There’s no universal answer, but here’s a simple framework we use with our clients:

  • Consider FHA if: your credit score is under 680, you have limited savings, or you need to qualify at a higher debt-to-income ratio
  • Consider Conventional if: your score is 720+, you can put at least 5% down, or you want to avoid long-term mortgage insurance costs
  • Ask us to run both scenarios: in many cases, we run both options side by side so you can see the real monthly payment difference and decide what makes sense for your budget

If you already have a Loan Estimate from another lender, bring it to us. Our Second Look program will show you how our pricing compares, whether it’s on an FHA or conventional loan.

Austin-Specific Considerations

Home Prices

In many Austin neighborhoods, homes are priced above $500,000. FHA loan limits cap out around $524,225 for most Texas counties in 2026, which means FHA may not cover the full purchase price. If you’re shopping in neighborhoods like Westlake, South Congress, or Mueller, a conventional loan gives you more buying power.

Seller Perceptions

In a competitive market, some sellers and their agents prefer conventional offers because FHA loans come with stricter property appraisal requirements. In a slower market, this matters less, but it’s worth knowing going in.

Down Payment Assistance

Texas has strong down payment assistance programs through TSAHC (Texas State Affordable Housing Corporation). Many of these programs work with both FHA and conventional loans. We can help you determine whether you qualify and which combination of loan type and DPA program gives you the best outcome.

How We Help Austin Buyers Choose

When you work with Mortgage Austin, you work directly with Tony Ferrando, not a call center or a rotating team. Tony runs every scenario personally and explains the real-dollar differences so you can make a confident, informed decision.

We start with a quick pre-approval conversation to understand your credit, income, and goals. From there, we present your loan options side by side, with actual numbers, not industry jargon. You decide. We handle the rest. Ready to get started? Contact us or get a quote today.

Frequently Asked Questions

Can I switch from FHA to conventional before closing?

Yes, in some cases. If your financial situation improves or we find that conventional pricing works better for you, we can discuss changing loan types early in the process. The sooner we know, the more options we have.

Is an FHA loan easier to qualify for than conventional?

Generally yes, because FHA allows lower credit scores and higher debt-to-income ratios. But “easier to qualify” doesn’t always mean “better deal.” We look at the total cost of both options before recommending one.

Can I get an FHA loan on a condo in Austin?

FHA loans on condos require the condo project to be FHA-approved. Not all condo communities in Austin are on the approved list. Conventional financing is often more flexible for condo purchases. Contact us and we’ll check the specific project for you.

Do FHA loans take longer to close?

Not necessarily. With a prepared borrower and a cooperative seller, FHA and conventional loans close in similar timeframes. FHA appraisals can take a little longer if the appraiser flags property condition issues.

What is the income limit for an FHA loan?

There is no income limit for FHA loans. The FHA program is open to buyers at any income level. Some conventional programs like HomeReady do have income limits tied to area median income, but standard conventional loans do not.

Ferrando Financial LLC | Mortgage Austin | NMLS# 2403080 | Licensed in Texas. This content is for educational purposes only and does not constitute a commitment to lend.

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