Thinking about buying a home in Pharr and not sure if an FHA or a conventional loan will fit your budget better? You are not alone. Choosing the right loan can lower your monthly payment, reduce upfront costs, and make closing smoother. In this guide, you will learn the key differences, what lenders look for, how appraisals can affect your timeline, and how payments compare at common Pharr price points. Let’s dive in.
FHA vs. conventional: key differences
FHA loans are insured by HUD and are built to expand access to credit. They allow smaller down payments and more flexible credit options. Conventional loans are not federally insured and are often sold to Fannie Mae or Freddie Mac. They favor stronger credit, but give you more flexibility on mortgage insurance later.
Here is what that means for you:
- Down payment: FHA minimum is 3.5% with qualifying credit. Conventional can be as low as 3% for certain first‑time buyer programs, but many options start at 5% or more.
- Credit and DTI: FHA tends to be more forgiving on lower scores and can allow higher debt‑to‑income ratios with strong factors. Conventional generally prefers 620+ and typical DTI caps near 45%.
- Mortgage insurance: FHA has upfront and annual mortgage insurance (MIP). Conventional has PMI that depends on your credit and down payment, and it can be canceled when you reach 20% equity.
- Property condition: FHA appraisals include minimum property standards. Conventional appraisals are typically less prescriptive on minor repairs.
FHA loan rules and costs (Pharr focus)
- Minimum down payment: 3.5% with a credit score of 580 or above. Borrowers with scores between 500 and 579 may qualify with 10% down.
- DTI: Standard is around 43%, but lenders can approve higher (up to about 50%) with compensating factors like cash reserves.
- Mortgage insurance: Upfront MIP is 1.75% of the base loan amount (often financed). Annual MIP often ranges about 0.45% to 1.05% of the loan; examples below use 0.85%.
- How long MIP lasts: If your original LTV is above 90%, MIP typically stays for the life of the loan. If it is 90% or less, MIP is usually required for 11 years.
- Seller help: The seller can contribute up to 6% of the price toward allowed closing costs and prepaids. Gift funds are allowed but must be documented.
- Appraisal and condition: FHA requires health and safety items be corrected. Think things like significant roof issues, exposed wiring, or missing handrails. This can slow closing if repairs are needed.
Conventional loan rules and costs
- Minimum down payment: As low as 3% for certain first‑time buyer products supported by Fannie or Freddie. Many conventional loans require 5% or more.
- Credit and DTI: Many lenders look for 620+ credit. Typical maximum DTI is near 45%, though strong files can sometimes go higher.
- PMI pricing: PMI depends on credit, down payment, and loan details, with common ranges from about 0.3% to 1.5% annually.
- PMI cancellation: You can request cancellation at 20% equity and most loans must cancel automatically at 78% LTV under federal rules.
- Seller concessions: Limits depend on down payment. Under 10% down, seller help is often capped at 3% of the price. At 10% to 25% down, up to 6%. At 25%+ down, up to 9%.
Side‑by‑side payments for Pharr price points
The examples below use a 30‑year fixed at 6.50% APR for illustration, FHA upfront MIP of 1.75% financed, 0.85% annual MIP, and 0.70% annual PMI for conventional. They include principal and interest plus mortgage insurance only. They do not include taxes, homeowners insurance, HOA, or lender fees.
Example A: $120,000 purchase
- FHA (3.5% down = $4,200)
- Total monthly (P&I + MIP): about $829
- Conventional (3% down = $3,600)
- Total monthly (P&I + PMI): about $804
Example B: $180,000 purchase
- FHA
- Total monthly (P&I + MIP): about $1,244
- Conventional
- Total monthly (P&I + PMI): about $1,206
Example C: $250,000 purchase
- FHA
- Total monthly (P&I + MIP): about $1,729
- Conventional
- Total monthly (P&I + PMI): about $1,675
What these examples show
- Conventional can provide a slightly lower starting payment at low down payments because FHA adds upfront MIP to your loan and has ongoing MIP.
- PMI on a conventional loan can end once you reach 20% equity, which may lower your long‑term costs.
- Your actual results depend on your credit score, down payment, and lender quotes.
Appraisals and repairs in Hidalgo County
FHA appraisals look at both value and minimum property standards. If the appraiser flags a safety or health item, the lender will typically require the repair before closing or arrange an escrow holdback. On older homes or properties that need work, this can affect your timeline and negotiation strategy.
Conventional appraisals focus on market value and are generally less strict about minor defects. Many lenders still require correction of safety issues. If you want a fixer, you can also explore renovation options such as FHA 203(k) or conventional renovation programs with a capable lender.
Seller help and gift funds
Seller contributions can reduce your cash to close and help cover prepaids and allowable costs.
- FHA: Up to 6% of the sale price in seller contributions. The seller cannot give you the down payment.
- Conventional: Seller contributions depend on your down payment. Under 10% down, up to 3%. At 10% to 25% down, up to 6%. At 25% or more, up to 9%.
- Gifts: Both FHA and conventional programs allow gift funds with documentation.
How to choose your best fit
Use this quick checklist to compare.
- Get prequalified or preapproved with 2 to 3 lenders. Include one that regularly does FHA and one that offers first‑time buyer conventional programs.
- Ask for side‑by‑side quotes using your credit score, price target, and down payment. Have lenders show MIP vs. PMI and the month PMI would cancel.
- Confirm current FHA and conventional loan limits for Hidalgo County if you are shopping above the entry‑level range.
- If the home is older or needs work, ask early whether it meets FHA standards and if any repairs will be required.
- Explore down payment assistance through state or local programs that can pair with FHA or conventional options.
- If you are a veteran or active service member, check VA eligibility (often the best terms at 0% down with no MIP or PMI).
New construction in Pharr
If you are leaning toward a new home, conventional and FHA both finance new construction purchases from approved builders. New homes typically have fewer condition issues, which can reduce appraisal repair risk. With access to new‑construction inventory through local builder relationships, you can compare floor plans, timelines, and pricing while aligning your loan choice with your monthly budget and cash to close.
Next steps
If you want help matching a loan path to the right Pharr home, reach out. You will get clear steps, local market insight, and support from contract to close. Connect with Mauricio Saldana to start your search, compare options, and move forward with confidence. Search Homes or Request a Free Home Valuation.
FAQs
What credit score do I need for FHA vs. conventional in Pharr?
- FHA often works with scores starting around 580 for 3.5% down (500 to 579 may require 10% down), while many conventional lenders prefer 620+ for the best pricing.
How long does mortgage insurance last on each loan type?
- FHA MIP can last for the life of the loan if your original LTV is over 90% (11 years if 90% or less), while conventional PMI can be canceled at 20% equity and must end at 78% LTV for most loans.
Can the seller help with my closing costs in Pharr?
- Yes; FHA allows up to 6% of the price, while conventional limits vary by down payment (3% if under 10% down, 6% at 10% to 25%, and 9% at 25% or more).
How do FHA appraisals handle repairs on older homes?
- FHA appraisals require safety and health items be fixed before closing or addressed with an approved holdback, which can add time and negotiation steps.
Are there down payment assistance options for Pharr buyers?
- Texas state and local programs may offer assistance that can pair with FHA or conventional loans; ask your lender which programs you qualify for and how they affect your payment.
Do loan limits matter in Hidalgo County?
- Yes; FHA and conventional conforming limits change by county and by year, so verify the current Hidalgo County limits with your lender if you are near higher price points.
