FHA gets described as the loan for first-time buyers with bad credit. Neither
half of that is accurate, and believing it costs people money in both
directions: some buyers use FHA when a conventional loan would have been
cheaper, and others assume they are not eligible when they are.
So, plainly:
- FHA is not a first-time buyer program. Any qualified
buyer can use it, including someone who has owned three houses. It is popular
with first-time buyers because of the small down payment, not because of a
restriction.
- FHA is not a credit-history workaround. It is a
government-insured loan with a wider credit box and a higher tolerance for
debt than conventional financing. Borrowers with excellent credit use it
too.
What FHA actually is: a mortgage insured by the Federal Housing
Administration, which means the government reimburses the lender if the loan
defaults. That insurance is what lets a lender accept 3.5% down and a lower
credit score, and it is also what the program costs you.
What FHA asks for
- 3.5% down with a credit score of 580 or above. Ten
percent down between 500 and 579.
- A debt-to-income ratio that can run higher than
conventional allows — frequently the real reason a file goes FHA.
- The home has to be your primary residence. No rentals, no
second homes.
- A loan amount under the county limit. For 2026 that is
$541,287 for a one-unit home across the Houston metro and most of Texas. See
FHA loan
limits in Texas.
- An FHA appraisal, which applies stricter property
condition standards than a conventional appraisal.
The down payment can come from a gift from a family member, which is one of
the genuinely useful features of the program, and it can be combined with
Texas
down payment assistance.
What FHA costs
This is the part to understand before you choose it.
FHA charges an upfront mortgage insurance premium of 1.75% of the loan
amount, which is financed into the balance rather than paid at closing. It then
charges an annual premium, collected monthly, that on most files remains for the
life of the loan — unless you put 10% or more down, in which case it drops
off after eleven years.
Compare that to conventional private mortgage insurance, which you can
request be cancelled at 80% loan-to-value and which your servicer must terminate
automatically at 78%. That difference is the whole decision for a lot of
buyers.
When conventional beats FHA for a first-time buyer
A first-time buyer can put 3% down on a conventional loan — less than
FHA's 3.5%. So the down payment is not the deciding factor people assume it
is.
Conventional tends to win when:
- Your credit score is roughly 700 or better, so PMI is priced well.
- You expect to stay in the house long enough to reach 80% loan-to-value and
drop the insurance.
- You are buying in a competitive situation where the seller reads an FHA
appraisal as repair risk.
- Your income is under the area limit for one of the income-flexible
conventional programs, which carry reduced mortgage insurance.
When FHA is clearly the right call
- Your credit score is below about 660, where conventional PMI gets
expensive fast.
- Your debt-to-income ratio is above what conventional will approve.
- Your credit file is thin, or there is a recent event in it that
conventional underwriting will not look past yet.
- You are buying with a family gift covering most of the down payment.
And one more, worth saying: FHA is not permanent. Plenty of Texas buyers use
FHA to get into the house, then refinance to conventional a few years later once
the score and the equity support it, and drop the mortgage insurance then. If
you already have an FHA loan, an
FHA
streamline refinance is the cheapest way to improve it.
Before you decide
Ask a lender to price both programs on your actual file and show you the two
monthly payments, with the mortgage insurance in each, plus what each payment
looks like in year five. That comparison takes a loan officer a few minutes and
it is the only thing that answers the question for you specifically.
If you are eligible for a
VA loan, ask
about that first — no down payment, no monthly mortgage insurance at all,
and it beats both of the programs above.
Ask us to price
FHA against conventional, or read the
Texas
first-time home buyer guide.
FHA requirements are set by the U.S. Department of Housing and Urban
Development and change periodically. Texas United Mortgage, LLC is not a
government agency and is not acting on behalf of or at the direction of HUD or
FHA. This page is not a commitment to lend. NMLS #2442778. Equal Housing
Lender.
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