Conventional Loans vs. FHA Loans: What’s the Difference?
And which one's right for you in the Austin area?
If you're thinking about buying a home in Austin or nearby spots like Round Rock, Pflugerville, Buda, or Kyle, you’ve probably heard terms like conventional loan and FHA loan. But what do they actually mean? And how do you know which one fits your situation best?
Let’s break it down!
FHA Loans: Government-Backed & First-Time Buyer Friendly
FHA loans are backed by the Federal Housing Administration, which gives lenders a little more confidence when working with buyers who might not have perfect credit or a large down payment. That’s why FHA loans are super popular with first-time buyers!
Why FHA might make sense around here:
Low down payments – Just 3.5% down can get you in the door.
Flexible credit requirements – A 580 credit score may qualify.
Things to consider:
You’ll pay mortgage insurance (PMI) monthly.
That insurance typically sticks around for the life of the loan, unless you refinance later.
FHA rates are usually a bit lower, but the insurance can cancel out the savings over time.
Conventional Loans: More Flexibility (If You Qualify)
Conventional loans come from private lenders and aren’t backed by the government. They usually require stronger credit and a bigger down payment—but they also come with fewer strings attached.
Why conventional might be better in the Austin area:
PMI drops off once you build enough equity.
You’ll get more long-term flexibility and fewer fees.
Heads up:
You’ll usually need a 620+ credit score, ideally higher.
Interest rates may be slightly higher than FHA loans, especially with average credit.
Thinking Ahead: You Can Refinance Later
If you use an FHA loan to get into your home today, that doesn’t mean you're stuck with it forever. A lot of buyers in the Austin market start with FHA and refinance into a conventional loan later.
That move can help you:
Drop mortgage insurance
Potentially lower your interest rate
Switch to a shorter loan term
Or even cash out equity after your home's value goes up (which can happen pretty quickly in many Austin-area neighborhoods)
So Which One’s Better?
Final Thoughts
FHA loans are great if you're trying to get a foot in the door. Conventional loans give you more flexibility if you qualify. And refinancing is always an option once your financial situation improves.
Still unsure which one’s right for your situation? Let’s chat—we’d be happy to help you understand your options and connect you with a trusted local lender who knows the ins and outs of our market.
Alan Galinsky
Realtor at Open House Austin
I’ve lived in Austin for 19 years and love helping people find the right home through a mix of problem-solving and personal connection. When I’m not working, I’m likely watching movies, exploring North Loop, or hanging out with my dog Charlie. Connect with me here.
