Torn between FHA and conventional financing for your Austin home search? You are not alone. The right choice can lower your payment, strengthen your offer, and make closing smoother. In this guide, you will learn how these loans differ on down payments, credit, mortgage insurance, appraisals, and loan limits in Travis County, plus a simple decision checklist and next steps. Let’s dive in.
FHA vs. conventional: quick overview
FHA loans are insured by HUD and designed to help buyers with smaller down payments or lower credit scores. They require an upfront mortgage insurance premium and ongoing monthly mortgage insurance.
Conventional loans are offered by private lenders and often purchased by Fannie Mae or Freddie Mac. They can start at 3 percent down for qualified buyers and use private mortgage insurance that you can remove later.
The practical takeaway for Austin buyers: FHA can help you get in the door with limited savings or lower credit, while conventional is often cheaper over time and can be more attractive to sellers when you have stronger credit and a larger down payment.
Down payment and cash to close
FHA’s typical minimum down payment is 3.5 percent for credit scores of 580 and above. For scores between 500 and 579, FHA requires 10 percent down. FHA also charges an upfront mortgage insurance premium of about 1.75 percent of the loan amount, which you can usually roll into the loan.
Conventional loans offer 3 percent down options under programs like Fannie Mae HomeReady and Freddie Mac Home Possible for eligible buyers. Many conventional buyers choose 5 to 10 percent down, and those who can put 20 percent down avoid PMI entirely. Both loan types allow gift funds, though program rules vary.
In Austin, where prices are higher than many U.S. markets, the dollar difference between 3.5 percent and 10 percent down can be large. Run side-by-side quotes to see how down payment, insurance, and closing costs change your monthly payment.
Credit score and underwriting
FHA is more forgiving about credit history and some past events, which can help if your score is below conventional thresholds. Lenders may still set their own minimums above FHA’s baseline, especially in competitive markets.
Conventional loans generally require at least a 620 credit score. Higher scores usually mean better interest rates and lower PMI. In Austin, it pays to compare two or more lenders to see how credit affects your options and timeline.
Mortgage insurance costs and timing
FHA requires both an upfront premium and monthly mortgage insurance. The length of FHA’s monthly insurance depends on your loan terms and starting equity, and for many loans it can last for the life of the loan. Ask your lender to confirm the exact duration for your scenario.
Conventional loans use private mortgage insurance that varies with your credit score and down payment. Under federal rules explained by the Consumer Financial Protection Bureau, you can usually request PMI removal at 80 percent loan-to-value and it often ends automatically at 78 percent. Many buyers also refinance to remove PMI when equity grows.
If you plan to hold the mortgage for many years, cancellable PMI can make conventional cheaper over time. If you plan to refinance soon, compare FHA’s upfront cost versus conventional PMI during that period.
Appraisals and property condition in Austin
FHA appraisers follow HUD’s minimum property requirements that focus on safety and soundness. Repairs for hazards, significant deferred maintenance, or non-compliant items can be required before closing, which may add time or negotiation.
Conventional appraisals also flag major issues, but they are usually less prescriptive about cosmetic defects. In Austin’s older neighborhoods, properties with needed updates may trigger more FHA repair items than conventional.
In hot segments of the Austin market, appraisal gaps can occur when prices move quickly. If an appraisal comes in low, you may need more cash, a price adjustment, or seller concessions to close.
For details on FHA property standards, see HUD’s Single Family Housing Policy Handbook. Local market trends are available in the Austin Board of REALTORS market reports.
Loan limits in Travis County
Both FHA and conventional loans have annual county-based limits that can affect your choices on higher-priced homes. For conventional conforming loans, check the FHFA conforming loan limits map. For FHA-insured loans, use HUD’s FHA county loan limits lookup.
If your price or needed loan amount exceeds local limits, you will look at jumbo or other portfolio options. Confirm current-year limits before you write offers.
Which loan fits your situation?
Use these quick rules of thumb:
- If you have 3 to 5 percent down and lower credit, FHA may be more feasible.
- If you can put 10 percent or more down and have solid credit, conventional often wins on long-term cost.
- If you are targeting older homes or properties that need repairs, conventional may face fewer repair requirements.
- If you expect to gain equity fast, conventional’s cancellable PMI can be a plus. If you will refinance soon, compare short-term costs.
- Always confirm whether your price is within Travis County FHA and conforming limits.
Strengthen your offer in Austin
In multiple-offer situations, sellers often prefer financing with fewer perceived hurdles. That can mean conventional, or a strong FHA offer with clear terms, fast timelines, and confident lender communication.
Ask your lender about pre-underwriting to verify your income and assets early. Tighten timelines only if your lender can meet them. If you face an appraisal gap, discuss your options before you include any gap language.
Your next steps
Pre-application
- Verify today’s loan limits for Travis County using the FHFA conforming limits map and HUD’s FHA county lookup.
- Gather key documents: pay stubs, W-2s, bank statements, ID, and explanations for any past credit events.
- Explore local down payment help through the Austin Housing Finance Corporation and statewide options at TDHCA Homeownership Programs.
- Get pre-approved with at least two lenders, one quoting FHA and one quoting conventional.
During offer and escrow
- Ask how much FHA’s upfront premium is and whether it can be financed, and request PMI or MIP estimates with the expected duration. For general FHA definitions, see the CFPB’s FHA loan guide.
- Review property condition and likely repairs. FHA repairs focus on safety and soundness, outlined in HUD’s Handbook 4000.1.
- If the appraisal comes in low, plan for more cash, a renegotiation, or seller credits.
Closing and after
- Get mortgage insurance rules in writing, including when PMI can be removed under your lender’s policy.
- Track your loan-to-value so you can request PMI cancellation at 80 percent. Consider refinancing if it reduces your total cost.
- Follow Austin market data through ABOR’s monthly reports to monitor equity trends.
Choosing the right loan is part math and part strategy. With clear numbers, a lender who explains overlays and timelines, and a local agent who can position your offer, you can move forward with confidence. If you want a second set of eyes on your plan or need help aligning financing with a winning offer, connect with the Karin Howard Team.
Ready to map your path to keys in Austin? Book a Free Strategy Call with Karin Howard.
FAQs
What is the minimum down payment for FHA vs. conventional in Austin?
- FHA typically requires 3.5 percent down with a 580+ score, while conventional programs can go as low as 3 percent for eligible buyers and 5 to 10 percent for many others.
How does mortgage insurance end on conventional loans?
- You can often request PMI removal at 80 percent loan-to-value and it usually terminates automatically at 78 percent, per standard practices explained by the CFPB.
Do FHA appraisals take longer or require more repairs in Austin?
- FHA appraisals can require safety and soundness repairs that must be completed before closing, which may extend timelines compared with many conventional appraisals.
What if the appraisal comes in below my contract price?
- You can bring extra cash, negotiate a price or credit change, or cancel based on your contract terms after discussing the risks with your lender and agent.
Can I use gift funds for my down payment?
- Yes, FHA allows gifts for down payment and some costs, and conventional loans often allow gifts too, though program and lender rules vary.
Are there programs that help with a 3 percent down conventional loan?
- Yes, options like Fannie Mae HomeReady and Freddie Mac Home Possible support low down payments for eligible buyers based on program rules.
