FHA vs Conventional Loans in Lubbock

Trying to decide between an FHA or conventional loan for a home in Lubbock? If you are a first-time buyer or have less-than-perfect credit, the differences can feel confusing. In this guide, you will see how each option stacks up on down payment, credit rules, mortgage insurance, appraisals, and real costs using Lubbock price examples. Let’s dive in.

FHA vs conventional basics

FHA loans

• Minimum down payment is 3.5% with credit scores at or above 580. Many borrowers with scores from 500 to 579 may need 10% down.
• You pay an upfront mortgage insurance premium of 1.75% of the loan. Most buyers finance this into the loan.
• Annual mortgage insurance is required. If you put less than 10% down, it usually stays for the life of the loan unless you refinance to a non-FHA loan.
• The property must meet FHA Minimum Property Requirements focused on safety and soundness.

Conventional loans

• Down payment can be as low as 3% for certain first-time programs. Many buyers use 5% to 20% down depending on goals.
• Private mortgage insurance applies if you put less than 20% down. It can often be canceled later.
• PMI is typically removed automatically at 78% loan-to-value. You can request removal at 80%.
• Appraisals focus on market value and general condition with fewer prescriptive repair items than FHA.

Credit, down payment, and underwriting

• FHA can approve buyers with lower credit scores. Lenders often set higher internal minimums, commonly 580 to 620.
• Conventional automated underwriting usually needs a minimum FICO around 620 for standard products.
• Both loan types review your debt-to-income ratio. FHA often allows higher DTI with compensating factors. Conventional may allow higher DTI if you have strong credit and reserves.
• Gift funds are allowed on both, with different documentation rules. Texas buyers can also explore state assistance programs that may pair with FHA or conventional.
• Local lenders in Lubbock use overlays. Always get multiple written preapprovals from banks, credit unions, and mortgage brokers to compare.

Mortgage insurance: how much and how long

• FHA mortgage insurance includes two parts:
  • Upfront MIP at 1.75% of the base loan amount. Most buyers finance it into the loan.
  • Annual MIP that you pay monthly. If you put less than 10% down, it typically lasts for the life of the loan. With 10% or more down, it may end after 11 years.
• Conventional PMI is set by private insurers. Your credit score, loan-to-value, and occupancy drive the cost.
• You can remove PMI on conventional loans. It can drop automatically at 78% LTV, and you can request removal at 80% LTV.
• Practical takeaway: FHA can be easier to qualify for today, but conventional can be cheaper long term if you can remove PMI or put 20% down.

Appraisals and property condition in Lubbock

• FHA appraisals check value and safety. Issues like roof leaks, broken windows, unsafe wiring, or peeling paint in older homes may require repairs before closing.
• Conventional appraisals focus on value and any condition issues that affect livability or value. The repair list is generally shorter than FHA, but safety items still matter.
• In Lubbock, older properties or homes with storm wear can trigger FHA repairs. If you are looking in areas like Tech Terrace, Lakeridge, or pockets of Northeast and Northwest Lubbock, plan for potential small fixes when buying with FHA.

Lubbock cost examples (illustrative)

These examples show down payments and monthly mortgage-insurance mechanics only. They use an illustrative annual MIP/PMI rate of 0.75% and ignore interest rate, taxes, HOA dues, and homeowners insurance. Actual mortgage insurance rates vary by program and borrower profile.

Entry level example: $150,000

• FHA (3.5% down)
  • Down payment: $5,250
  • Base loan: $144,750
  • Upfront MIP (1.75%): about $2,533 financed
  • Financed loan: about $147,283
  • Monthly FHA MIP at 0.75%: about $92
• Conventional (5% down)
  • Down payment: $7,500
  • Loan: $142,500
  • Monthly PMI at 0.75%: about $89
• Takeaway: Monthly insurance is similar in this scenario, but FHA adds upfront MIP to the loan. Conventional PMI can be canceled later as you reach 20% equity.

Mid market example: $275,000

• FHA (3.5% down)
  • Down payment: about $9,625
  • Base loan: about $265,375
  • Upfront MIP (1.75%): about $4,644 financed
  • Financed loan: about $270,019
  • Monthly FHA MIP at 0.75%: about $169
• Conventional (5% down)
  • Down payment: $13,750
  • Loan: $261,250
  • Monthly PMI at 0.75%: about $163
• Takeaway: If you can put 20% down, conventional avoids PMI and may be cheaper up front, but it requires a much larger down payment.

Upper band example: $475,000

• FHA loan limits apply by county. If the FHA limit in Lubbock County is below this price, FHA will not insure the loan.
• Conventional (5% down)
  • Down payment: $23,750
  • Loan: $451,250
  • Monthly PMI at 0.75%: about $282
• Takeaway: At higher prices, PMI and MIP cost more in absolute dollars. Many buyers at this level use conventional financing. Always confirm the current FHA county loan limit before you shop.

When FHA fits in Lubbock

• Your credit score is near FHA’s thresholds and you need the 3.5% down option.
• You need more flexibility on DTI, or your credit profile is thin but you have compensating strengths.
• The home is within the FHA county loan limit and likely to meet FHA property standards, or the seller is open to repairs.

When conventional fits in Lubbock

• You can put 20% down or expect to reach 20% equity soon and remove PMI.
• Your credit is strong, which can earn better rates and lower PMI.
• The property price is above the FHA county loan limit.

How to choose your loan

1. Get two to three written preapprovals. Include both FHA and conventional quotes if you are on the fence.
2. Compare total monthly payments. Look at principal and interest, taxes, insurance, and MIP or PMI.
3. Review upfront costs. FHA’s 1.75% upfront MIP adds to your loan amount.
4. Check the appraisal path. If the home needs repairs, conventional may be smoother if the issues are minor.
5. Plan your exit strategy. If you start with FHA, you can refinance to conventional later to remove MIP once your equity and credit improve.

Other options to consider

• USDA Rural Development: 0% down for eligible rural properties and qualified incomes. Some areas on the outskirts of Lubbock County may qualify.
• VA loans: 0% down for eligible veterans and service members. Often the best option for those who qualify.
• Texas assistance: Programs from state housing agencies can help with down payment or closing costs. Some can pair with FHA or conventional loans.

Get local help, faster

You deserve a clear plan and a smooth closing. With integrated real estate and mortgage guidance, you can compare FHA and conventional side by side, move quickly on a home in Tech Terrace or Lakeridge, and feel confident in your payment. Reach out to Freddie Marmolejo for a no-pressure preapproval review and a local strategy that fits your budget.

FAQs

What is the main difference between FHA and conventional loans in Lubbock?

• FHA is often easier to qualify for with a smaller down payment, while conventional can cost less over time if you remove PMI or put 20% down.

What credit score do I need for FHA or conventional?

• FHA may allow down to 580 for 3.5% down, and 500 to 579 with 10% down; conventional typically needs around 620 for standard programs, subject to lender overlays.

How does mortgage insurance work on each loan type?

• FHA charges 1.75% upfront MIP plus annual MIP, often for the life of the loan under 10% down; conventional uses PMI that you can cancel at 80% LTV and that drops automatically at 78%.

Will an FHA appraisal make it harder to buy an older Lubbock home?

• FHA appraisals require safety and soundness items to be fixed, so older homes with deferred maintenance may need repairs completed before closing.

Do FHA loan limits apply in Lubbock County?

• Yes, FHA has county loan limits; if a home price exceeds the current Lubbock County limit, FHA will not insure that loan amount.

Can I switch from FHA to conventional later?

• Yes, many buyers use FHA to buy now and refinance to conventional once credit or equity improves to remove FHA mortgage insurance.

Can I use Texas down payment assistance with FHA or conventional?

• In many cases, yes; specific programs can pair with either loan type, subject to each program’s eligibility and documentation rules.