The Loan Decision That Trips Up More Buyers Than Any Other

You've been saving. You found a house in Cedar Park or Lakeway that actually checks your boxes. Your credit score is somewhere in the 680-720 range, which feels decent, and now your lender (or a quick Google search) is telling you to choose between FHA and Conventional. Most buyers just pick one and hope for the best. That's the wrong move. The right answer depends on three specific numbers: your score, your down payment, and how long you plan to stay in the home.

Let me walk through a real example so this stops feeling abstract.

The Scenario: $420,000 Home in Round Rock, 5% Down, 705 Credit Score

Take a buyer we'll call Marcus. He's buying a $420,000 home in Round Rock with $21,000 down (5%). His middle credit score is 705. He has a stable W-2 income and no major credit dings, just a thin file and one late payment from three years ago.

He qualifies for both FHA and a Conventional loan. Here's where the comparison gets interesting.

FHA:

  • 3.5% minimum down (Marcus is putting 5%, which is fine)
  • Upfront mortgage insurance premium: 1.75% of the loan amount, rolled in. On a $399,000 loan that's roughly $6,982 added to the balance.
  • Annual MIP: 0.55% per year on a 30-year loan with less than 10% down. That's about $182/month at the start.
  • MIP stays for the life of the loan unless he refinances out of FHA later.

Conventional:

  • 5% down is allowed
  • PMI at a 705 score with 5% down runs approximately $170-$200/month depending on the PMI provider (this varies, ask your lender to pull the actual quote)
  • No upfront premium
  • PMI drops automatically when he reaches 20% equity, or he can request removal at 20% based on original value

On the monthly payment, these two loans look close. But over five to seven years, Conventional comes out ahead for Marcus because of one thing: the FHA MIP never goes away on its own.

When FHA Actually Wins

FHA isn't a consolation prize. It earns its place in specific situations.

  1. Your credit score is below 680. Conventional pricing gets painful under 680. FHA pricing barely moves.
  2. You had a significant credit event (bankruptcy, foreclosure) within the last three to four years. FHA underwriting is more forgiving.
  3. Your debt-to-income ratio is above 45%. FHA allows higher DTI in more cases.
  4. You're buying in a higher-cost area and the loan amount is under FHA's limit for that county. Travis County's 2026 FHA loan limit is $524,225. Williamson and Hays counties are the same.

If any of those describe you, FHA deserves a serious look. If none of them do and your score is 680 or above, Conventional usually wins on long-term cost.

The Break-Even Question Nobody Asks

Here's the question I ask every buyer in this situation: how long are you planning to stay?

If you sell or refinance in three years, the lifetime MIP on FHA hurts less. If you're there for ten years, it adds up to real money.

For Marcus staying seven years, the difference in total mortgage insurance paid between FHA and Conventional is meaningful, not catastrophic, but it's a car payment every month. That matters.

What the Lender Comparison Sheet Should Show You

Before you sign anything, ask your lender to put both loans side by side on one page. That sheet should show:

  • Rate on each loan (they won't be identical)
  • Monthly PI payment
  • Monthly mortgage insurance
  • Total monthly payment
  • Upfront costs including any financed MIP
  • Break-even month if you're paying more upfront to get a lower rate

If your lender won't pull this comparison, find one who will. It takes about fifteen minutes and it's the difference between a good decision and a guess.

One More Thing: Your Score Might Move Before Closing

If you're at 679 right now and three points away from Conventional territory, it's worth pausing. A credit specialist (some lenders have one in-house) can sometimes move a score 10-20 points in 30-45 days through targeted paydown or a rapid rescore. Getting from 679 to 700 before you lock can change your PMI tier on a Conventional loan and save you real money every month.

Don't assume the score you have today is the score you're stuck with.

Austen Smith, NMLS #265697. Barton Creek Lending Group, NMLS #264320. This post is educational and not a commitment to lend. Rates and mortgage insurance costs vary based on your specific profile and current market conditions.

Want to walk through your numbers? Talk to Austen.