FHA vs. Conventional Loan in Texas: What Dallas Buyers Need to Know in 2026

Should Dallas buyers use an FHA or conventional loan?

FHA loans are better for buyers with credit scores below 680 or limited down payment savings, but come with mortgage insurance that lasts the life of the loan if you put down less than 10%. Conventional loans require stronger credit but let you cancel PMI once you reach 20% equity — saving $40,000 to $50,000 over a 30-year mortgage compared to FHA. The 2026 FHA loan limit for Dallas and Collin counties is $563,500, covering the majority of DFW home purchases. For most Dallas buyers with a score above 700 and 10% or more down, conventional wins. Below 680 with a smaller down payment, FHA often makes more sense.

The loan type question comes up with almost every buyer I work with in DFW. "Should I go FHA or conventional?" It sounds like a simple comparison. It isn't.

The two loans look similar on the surface — both cover most Dallas purchases, both allow low down payments, and both get you to the closing table. But the hidden difference is mortgage insurance. How long you pay it, how much it costs, and whether you can ever cancel it. That's what makes or breaks the decision.

Here's how to think through it.

The Down Payment and Credit Score Thresholds

Both loans can get you into a home with as little as 3% down, but the rules are different.

FHA requires a minimum 3.5% down payment at a 580 credit score or higher. If your score is between 500 and 579, you can still qualify — but you'll need 10% down. Most DFW lenders want to see at least 580.

Conventional loans start at 620. Fannie Mae's HomeReady and Freddie Mac's Home Possible programs allow 3% down for first-time buyers. Outside those programs, 5% is typical.

If your score is below 620, FHA is often the only path forward. That alone is reason enough to consider it.

But if you're sitting at 620 or above, the decision gets more nuanced. Because it's not really about today's payment. It's about mortgage insurance.

The Mortgage Insurance Gap — This Is the Decision

This is the part most buyers don't fully understand until they're deep into the loan process.

FHA mortgage insurance (MIP):

FHA charges two types. An upfront premium of 1.75% of the loan amount, paid at closing or rolled into the loan. And an annual premium — currently around 0.55% per year for most Dallas borrowers — paid monthly. On a $400,000 loan, that's roughly $183 per month on top of your principal and interest.

The part that stings: if you put down less than 10%, you pay MIP for the life of the loan. Thirty years. Even after you've built 30%, 40%, or 60% equity. The insurance doesn't care. It doesn't cancel.

Conventional PMI:

Conventional loans also require mortgage insurance if you put down less than 20%. But the rules are fundamentally different. Once your loan balance drops to 78% of the original purchase price, your lender must cancel PMI automatically under the Homeowners Protection Act. You can also request cancellation once you reach 80% LTV through payments or an appraisal showing appreciation.

On a $400,000 home, that's typically 8 to 12 years into the loan depending on your interest rate and how home values move. After that: no PMI. Done.

The cost gap over time:

Run the numbers on a 30-year loan, and the difference is material. If you'd have paid conventional PMI for 10 years and then nothing, while the FHA route kept billing you $183/month for 30 years, you're looking at a difference of $40,000 to $50,000 over the full loan life. That's a real number.

The crossover point where conventional usually becomes cheaper is around a 680 credit score. Below 680, FHA's rates are often low enough to close the gap. Above 680 — especially into the 700s — conventional pricing gets competitive enough that the long-term PMI cancellation advantage swings the math clearly toward conventional.

When FHA Wins

FHA is genuinely the better call in specific situations.

You'll likely come out ahead with FHA if your credit score is below 680, especially in the 580–660 range. Conventional rates get punishing at the lower end, and FHA's government-backed pricing compensates.

FHA is also the right move if your debt-to-income ratio is high. FHA allows DTI ratios up to 57% with compensating factors. Conventional typically caps at 43–45%. If your student loans, car payment, or other debt are stretching your DTI, FHA gives you more room to qualify.

Down payment assistance programs in DFW tend to stack better with FHA, too. The City of Dallas's homebuyer assistance programs offer up to $60,000 in high-opportunity areas through DHAP, and that assistance is compatible with FHA financing. TSAHC's Homes for Texas Heroes and Home Sweet Texas grants — 3–5% of the loan amount — also work with FHA. If you're stacking DPA, confirm compatibility with your specific program before you commit to a loan type.

One other factor: gift funds. FHA has more flexible rules around down payment gifts from family members. If you're relying on a gift for most of your down payment, FHA is typically the easier path.

When Conventional Wins

If your credit score is 700 or above and you're putting down 10% or more, the math usually favors conventional — often by a significant margin over the life of the loan.

Conventional also gives you a cleaner offer in some situations. A meaningful share of Dallas sellers in 2026 prefer conventional buyers, particularly for older homes or properties with deferred maintenance. FHA appraisals require the home to meet HUD minimum property standards — working heat, intact roof, functioning appliances, no exposed wiring. If the property has issues, FHA can complicate or kill the transaction. Conventional appraisals focus on value, not condition. That gives you more flexibility — especially on resale homes where you'd want to negotiate repairs or closing credits after the inspection period.

Your buyer closing costs also differ slightly. FHA adds 1.75% upfront at closing. On a $400,000 loan, that's $7,000 rolled in or paid out of pocket. Conventional doesn't have an equivalent upfront charge.

A Note on the 80-10-10 Option

If you want to avoid PMI without a full 20% down payment, there's a third path: the piggyback loan. An 80-10-10 structure means you take out an 80% first mortgage, a 10% second mortgage (usually a HELOC), and put 10% down yourself. The first mortgage stays at 80% LTV — below the PMI threshold — and the second lien covers the gap.

It requires a stronger credit score — typically 680 or higher for the second lien — and not every lender offers them. But if you qualify, it eliminates PMI from day one without waiting 8 to 12 years for the cancellation point on a conventional loan. If you're putting 10% down with a solid credit profile, ask your lender specifically about this option.

The 2026 Loan Limit Context

The 2026 FHA loan limit for Dallas County and Collin County is $563,500 for a single-family home. That covers most DFW purchases — the metro's median list price is around $435,000, and FHA reaches well into the move-up tier. If you're looking at homes above $563,500, FHA isn't available, and conventional (or jumbo) becomes your path.

If you're a veteran or active-duty service member, VA loans are worth a separate look — no down payment, no PMI, and a strong fit for Texas given there's no state income tax to complicate the overall cost picture.

How to Make the Call

Here's a simplified decision framework:

• Score below 620: FHA is likely your only path
• Score 620–679: Compare both quotes side by side — factor in the long-term MIP cost, not just the monthly payment
• Score 680+, putting down 10%: Conventional usually wins — run the break-even on PMI cancellation
• Score 700+, putting down 20%: Conventional, no PMI, straightforward choice
• High DTI (above 45%), limited down payment, using DPA: FHA tends to be the more accessible path

The most important step is getting both quotes — an FHA estimate and a conventional estimate — from the same lender on the same day. Compare the total cost over how long you actually plan to keep the loan, not just the monthly payment. That comparison tells you what your loan type actually costs you.

Frequently Asked Questions

Can I get a conventional loan with a 620 credit score in Dallas?

Yes. A 620 credit score meets the minimum for most conventional lenders, though you'll pay higher PMI rates than a borrower at 700+. The gap between FHA and conventional narrows at lower scores, which is exactly why you should get quotes for both and compare total cost over your planned ownership timeline.

How long do I pay FHA mortgage insurance?

If you put down less than 10%, you pay FHA's annual MIP for the full life of the loan — all 30 years. If you put down 10% or more, MIP ends after 11 years. The only other way to eliminate it is to refinance into a conventional loan once you've built sufficient equity.

What is the FHA loan limit in Dallas County in 2026?

The 2026 FHA loan limit for Dallas County and Collin County is $563,500 for a single-family home. Homes priced above that threshold don't qualify for FHA financing.

Is FHA or conventional better for a first-time buyer in DFW?

It depends on your credit score and down payment strategy. FHA works better for scores below 680, high DTI ratios, or buyers using down payment assistance programs. Conventional typically wins at 700+ with 10% or more down, especially when you factor in PMI cancellation over a 15-to-30-year ownership horizon.

Can I switch from an FHA loan to a conventional loan later?

Yes, through a refinance. Once you've built enough equity — typically around 20% — you can refinance into a conventional loan and eliminate MIP. The refinance itself costs $3,000–$5,000 in closing costs, so you'll want to run a break-even analysis to confirm the monthly savings justify the upfront cost.

The FHA vs. conventional question has one honest answer: it depends on your credit, your down payment, how long you plan to stay, and how a specific lender prices each option on the day you apply. I walk every buyer I work with through this calculation before we start making offers — not as a formality, but because getting it wrong costs real money over the life of the loan.

If you're getting ready to buy in Dallas, Plano, Frisco, McKinney, or anywhere across the northern suburbs, I'm happy to walk through your specific situation. Reach out here and we'll figure out where you stand.

About Paul Blair

Paul Blair is the founder and broker of Grey Square, a virtual real estate brokerage representing buyers and sellers across Dallas and Los Angeles. With 22 years in the business and more than $200 million in closed transactions, Paul works the full range of the market, from luxury homes in the Park Cities and Preston Hollow to estates in the Hollywood Hills and across the Westside. Connect with Paul and the Grey Square team at greysq.com. TX TREC #9011505 · CA DRE #01792671.