FHA vs. Conventional in Texas 2026: No State Income Tax Doesn't Mean No Trade-Offs

Texas has no state income tax, and every relocation guide mentions it in the first paragraph. Almost none of them mention what that trade-off actually does to your mortgage math, or that your FHA limit can swing by nearly $275,000 depending on which county you buy in. Here is the version I give clients.

The difference that actually decides it

Both loans charge you for mortgage insurance when you put down less than 20%. The difference is how long you pay it.

On a conventional loan, private mortgage insurance comes off. You can request cancellation once your balance is scheduled to reach 80% of the original value, and your servicer must terminate it automatically at 78% — provided you are current on payments. It is a temporary cost with a built-in end date.

On an FHA loan, it depends on your down payment, and the threshold is 90% loan-to-value:

• Put down 10% or more, and annual mortgage insurance premium drops off after 11 years.
• Put down less than 10%, and MIP stays for the life of the loan.

A standard FHA purchase with 3.5% down is 96.5% LTV. That is well above the threshold, so the MIP never comes off. On a 30-year loan, you pay it for 30 years.

That is the whole ballgame. Everything else is a detail by comparison.

What each one costs

FHA charges an upfront mortgage insurance premium of 1.75% of the base loan amount, typically financed into the loan rather than paid in cash. Then an annual premium of 0.55% at the 3.5%-down tier, or 0.50% if you put down 10% or more and take the 11-year clock — for base loan amounts at or below $726,200. Above that figure, both rates step up by 0.20 points, to 0.75% and 0.70% respectively. One Texas county actually crosses that line — more on that below.

Conventional PMI has no upfront fee. The monthly cost varies with your credit score and down payment — better credit buys meaningfully cheaper coverage, which is not how FHA works. FHA MIP is the same rate whether your score is 580 or 780.

That last point is worth sitting with. If your credit is strong, conventional almost always costs less. FHA does not reward you for a good score. Conventional does.

Where FHA is still the better loan

I am not talking anyone out of FHA. It exists for good reasons and it is the right answer often.

Credit below 620. HUD allows FHA at a 580 score with 3.5% down, and between 500 and 579 with 10% down. Conventional generally starts at 620. Note that HUD's 580 is a floor, not a promise; most lenders apply their own overlay, commonly in the 600 to 640 range.

Debt-to-income that runs high. FHA is generally more forgiving on DTI than conventional — which matters more in Texas than the "no income tax" headline suggests, for reasons covered below.

Recent credit events. Bankruptcy, foreclosure, collections — FHA's seasoning requirements are typically shorter and its underwriting more tolerant of a rough patch that has since been fixed.

Manual underwriting. When a file does not fit an automated box, FHA has a documented path for a human to make the call. Conventional has less room.

Where conventional wins

The insurance ends. Covered above, and it is the biggest one.

Three percent down is real. You do not need 5% and you certainly do not need 20%. Standard conventional allows 3% down on a one-unit primary residence — but at least one borrower has to be a first-time buyer, and the loan has to be a fixed-rate mortgage. Repeat buyers on standard conventional are held to 5% down.

Income-based programs go further. Fannie Mae's HomeReady and Freddie Mac's Home Possible both allow 3% down with reduced mortgage insurance coverage, for borrowers at or below 80% of area median income.

Your credit score works for you. Better score, cheaper insurance, better rate.

The Texas numbers for 2026

The conforming loan limit is $832,750 for a one-unit property, flat across every single Texas county — Texas has no high-cost conventional counties for 2026.

FHA is where the state gets interesting. The baseline is $541,287, but Texas's metro areas each carry their own elevated tier:

• DFW and El Paso metros — Collin, Dallas, Denton, El Paso, Hunt, Johnson, Kaufman, Parker, Rockwall, Tarrant, and Wise counties: $563,500.
• Austin metro — Bastrop, Caldwell, Hays, Travis, and Williamson counties: $571,550.
• San Antonio metro — Atascosa, Bandera, Bexar, Comal, Guadalupe, Kendall, Medina, and Wilson counties: $557,750.
• Glasscock County, in the Permian Basin oil region near Midland, carries the state's highest FHA limit at $813,050 — driven by local housing costs tied to the energy economy rather than a major metro.
• Everywhere else in Texas, including Houston and most of the state outside these named counties, sits at the $541,287 baseline.

Glasscock County's $813,050 limit crosses the $726,200 threshold mentioned above, which means an FHA borrower financing near the top of that range pays the higher annual MIP tier — 0.75% instead of 0.55% at 3.5% down. It is a narrow case, but if you are buying near Midland it is worth knowing before you lock a rate.

If you are here on a visa, this decision was made for you

This is the change most people have not caught up to.

HUD's Mortgagee Letter 2025-09 removed non-permanent residents from FHA eligibility entirely, for case numbers assigned on or after May 25, 2025. If you are on an H-1B, L-1, or another temporary work visa, FHA is closed to you. Lawful permanent residents are still eligible on the same terms as citizens.

Conventional financing did not change. Fannie Mae continues to purchase loans made to non-permanent residents on the same terms available to U.S. citizens.

So for a visa-holder buyer relocating to Austin or the DFW metroplex for a tech or corporate job — two of the most common Texas relocation destinations for H-1B holders — conventional is not the better option — it is the only agency option. We wrote about this in more detail in our H-1B and NRI mortgage guide, and for households where one spouse works on an H-4 EAD, that income question has its own answer.

No state income tax, but the property tax bill still votes

Texas has no state income tax, and that is a genuine, meaningful savings compared to a state like Illinois or Georgia. It is also only half the picture.

Texas's effective property tax rate averages roughly 1.58% of home value — the seventh-highest in the country, and closer to Illinois than to Georgia or Florida. Local governments in Texas lean on property tax specifically because there is no income tax to lean on instead. On a $450,000 home, that works out to something in the range of $7,000 a year, escrowed into your monthly payment and counted in your debt-to-income ratio the same way any other housing cost is.

That matters directly in the FHA-versus-conventional decision the same way it does in Illinois: a high tax bill pushes your DTI up, which argues for FHA's more forgiving DTI treatment, but FHA's own MIP adds to the payment as well. Do not assume "no income tax" automatically means "lower payment" — run the actual number for the specific county and school district before you compare loan types.

Down payment assistance works with both

Texas runs down payment assistance through more than one agency, and all of the major programs pair with FHA, VA, and conventional financing.

TDHCA's My First Texas Home provides up to 5% of the loan amount as a 0% interest, deferred second lien with no monthly payment — due on sale or refinance. It requires a minimum 620 credit score and is limited to first-time buyers or those who have not owned a primary residence in the past three years.

TSAHC's Home Sweet Texas is open to all qualified buyers, not just first-timers, and offers a genuine choice: a 3-5% grant that is never repaid, or a deferred 0% second lien instead. Minimum credit score is 620.

TSAHC's Homes for Texas Heroes offers the same 3-5% grant-or-deferred-lien structure, restricted to teachers, firefighters, law enforcement, correctional officers, EMS personnel, nurses, and veterans, also at a 620 minimum credit score.

Some cities layer on their own programs — Austin, for example, has periodically offered up to $40,000 as a 0% deferred loan forgivable after 10 years for buyers at or below 80% of area median income, though funding opens and closes as it is allocated, so availability varies.

How to actually decide

Run it in this order.

Is your credit score below 620? If yes, FHA is likely your path, and it is a perfectly good one.

What county are you buying in? Outside the DFW, Austin, San Antonio, and El Paso metros, your FHA ceiling is $541,287. Inside them, it runs from roughly $557,750 to $571,550. Know your number before you shop.

Are you a non-permanent resident? If yes, FHA is out. Stop here.

Is your score comfortably above 680? Conventional will almost certainly cost less, both in monthly insurance and in the fact that the insurance ends.

Are you between 620 and 680? This is the genuinely close range, and it deserves an actual side-by-side on your numbers rather than a rule. Ask for both.

And one thing people forget: choosing FHA today does not lock you in forever. If you take FHA because of credit and your score improves, refinancing to conventional later is how you get rid of the life-of-loan MIP. That is one of the better reasons to keep your costs low on the way in — a no closing cost refinance leaves nothing to earn back if you end up making that move sooner than you expected.

Common questions

Is FHA or conventional better in Texas?

Neither is better in the abstract. FHA is generally better below a 620 credit score, with recent credit events, or with high debt-to-income. Conventional is generally better above roughly 680, because private mortgage insurance is priced by credit score and cancels at 78 to 80% loan-to-value, while FHA mortgage insurance at 3.5% down lasts for the life of the loan.

What is the FHA loan limit in Texas for 2026?

It depends on the county. The statewide baseline is $541,287, but the DFW and El Paso metro counties sit at $563,500, the Austin metro at $571,550, and the San Antonio metro at $557,750. Glasscock County, near Midland, has the state's highest limit at $813,050. The 2026 conforming loan limit for conventional financing is a flat $832,750 across every Texas county.

Does FHA mortgage insurance ever go away?

Only if you put at least 10% down, in which case the annual premium ends after 11 years. Below 10% down — including the standard 3.5% down purchase — annual MIP lasts for the full loan term. Refinancing into a conventional loan is the usual way borrowers eliminate it.

Can H-1B visa holders get an FHA loan in Texas in 2026?

No. HUD Mortgagee Letter 2025-09 removed FHA eligibility for non-permanent residents for case numbers assigned on or after May 25, 2025. Lawful permanent residents remain eligible. Conventional financing is still available to non-permanent residents on the same terms available to U.S. citizens — relevant given how many H-1B holders relocate to Austin and the DFW metroplex for work.

Does Texas having no state income tax mean a lower mortgage payment?

Not necessarily. Texas's effective property tax rate averages around 1.58% of home value, the seventh-highest in the country, and that tax bill is escrowed into your monthly payment and counted in your debt-to-income ratio. The lack of a state income tax is a real savings elsewhere in your budget, but it does not offset a higher property tax bill inside your mortgage qualification.

What down payment assistance is available in Texas?

TDHCA's My First Texas Home offers up to 5% as a deferred 0% second lien for first-time buyers. TSAHC's Home Sweet Texas is open to all qualified buyers and offers either a 3-5% grant that is never repaid or a deferred second lien. TSAHC's Homes for Texas Heroes offers the same structure for teachers, first responders, healthcare workers, and veterans. All require a minimum 620 credit score and pair with FHA, VA, or conventional financing.

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Not sure which side of a metro county line you fall on? Call 630-357-1600, reach me directly at 630-301-8823, or email bsaggar@absmtg.com. Ask for both scenarios priced on your actual numbers — with your county, your score, and your loan amount. That comparison takes one conversation and it is the only way to answer this honestly.

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Figures are current as of August 2026 and are subject to change. 2026 loan limits are set by FHFA and HUD and are adjusted annually. Mortgage insurance premiums, credit score requirements and program terms are set by HUD, Fannie Mae, Freddie Mac and individual investors, and lender overlays may be more restrictive than agency minimums. TDHCA and TSAHC program terms, income limits and purchase price limits are set by those agencies, vary by county, and are subject to change — confirm current figures before relying on them. Property tax rates vary by county and taxing district. This article is general information, not financial, tax or legal advice.