FHA Loan vs. Conventional Loan: What You Should Know


If you’re looking to buy your first home and want to do so with a low down payment, an FHA loan might be an option. Not only that, but the Federal Housing Administration offers several other benefits as well. However, if you can make a larger down payment or your credit score is above 700, then you might want to consider getting a conventional loan instead of an FHA one.

What is an FHA loan?

An FHA loan is a mortgage that’s backed by the U.S. government. As with any government program, there are pros and cons to the FHA loan—and it’s worth your time to consider them before you decide which type of mortgage makes sense for you.

FHA loans are a type of mortgage loan that allows low or middle-income borrowers to get lower interest rates than they would with conventional mortgages (where rates are set by banks).

The federal government insures these loans, so they can be offered at lower rates—which means that when you have an FHA loan, your monthly payments should be lower than they would be if you had a conventional loan instead.

What is a Conventional Loan?

A conventional mortgage loan is a loan given to homebuyers that meets certain requirements set by Fannie Mae and Freddie Mac, the government-sponsored enterprises (GSEs) that buy loans from banks and sell them as securities.

A conventional mortgage loan is the most common type of loan for homebuyers, so it’s one of the easiest to get approved for.

A conventional loan is a mortgage that is not insured by the federal housing administration. Conventional loans are also known as “non-FHA” loans, and they make up most mortgages in the United States.

Conventional loans can have an adjustable interest rate and fixed rate. If you have bad credit, you’ll typically get an adjustable-rate mortgage; if your credit history is better, you’ll likely be approved for a fixed-rate mortgage.

Down payments: FHA vs. Conventional Loans.

FHA loans require 3.5% down, while conventional loans require at least 5%.

Keep in mind that you will have to pay FHA mortgage insurance and if you put less than 20% down on a conventional loan you’ll have to pay private mortgage insurance costs.

FHA loans can also be combined with gifts from family members, so if your parents will give you $10K to help with your down payment, they can gift that amount to you and it won’t count towards your required income or credit score.

What are FHA mortgage insurance premiums?

FHA mortgage insurance premiums are the monthly payments you make to the Federal Housing Administration to protect against losses in case of default. They’re typically lower than private mortgage insurance (PMI), but they’re generally required when you borrow more than 80 percent of your home’s value.

Credit score requirements: FHA vs. Conventional Loans.

FHA loans have lower credit score requirements and may allow a higher debt-to-income, or DTI, ratio.

The minimum credit score needed to qualify for an FHA loan is 580. But keep in mind that lenders often require a higher score to underwrite an FHA loan, so that number could be a bit higher. A better idea: aim for at least 600 or higher so you can reduce your down payment if needed.

Mortgage rates: FHA vs. Conventional Mortgages.

As you may have guessed, FHA loans are more expensive than conventional loans. The reason for this is the mortgage insurance fees that are required for an FHA loan.

Conventional mortgages do not require mortgage insurance because they do not have the same risk of default as a home buyer with a lower credit score or if you’re buying a home in an area where prices have dropped significantly since 2008 when the housing market crashed.

Additionally, while they both offer 30-year fixed rates, conventional mortgages often offer initial interest rates that are lower than comparable FHA rates because they don’t require mortgage insurance premiums at closing (which can add up over time).

PMI life-of-the-loan factor comparison: FHA vs. Conventional Loan.

fha loan

If you’re looking for a loan with a low down payment, the FHA loan is the way to go. But if you have enough cash to pay off what’s required and more, it might be worth considering a conventional loan.

The biggest difference between these two types of loans is that PMI (private mortgage insurance) is required on all FHA loans while it’s optional on conventional loans. This can add up over time as PMI charges vary depending on your credit score, property location, and other factors. If you’re looking for more information about PMI life-of-the-loan factors check out our blog post!

Reasons to Pick a Conventional Mortgage Over an FHA Loan Today.

The conventional loan is for those who have good credit. If you have a less-than-perfect score, you’ll likely need an FHA loan.

Additionally, closing costs are lower on conventional loans than they are on FHA mortgages and other types of government-backed mortgages. Their fees are typically around $1,000 less than those charged by FHA loans, which range from 2% to 4% depending on your down payment amount and other factors.

Reasons to Pick an FHA Mortgage Over a Conventional Loan Today.

FHA mortgages are a popular option for many people. Here are some of the main pros and cons of FHA loans:

  • The minimum down payment is only 3.5%, which is much lower than most conventional mortgages, which require 5% or even 20%.

  • FHA loans are also more lenient with credit scores than conventional loans, so if your score isn’t perfect you can still qualify for an FHA mortgage.

Main takeaway on FHA vs conventional loans

If you have bad credit, an FHA loan may be your best option. If you have good credit and are buying a house for the first time, a conventional loan may be better.

If you’re buying a fixer-Upper with cash and want to do some work on it, an FHA loan may be your best choice.

If you do have great credit, that could be worth more money in the long run than taking out an FHA loan and paying insurance on it for years.

conventional loan

If you do have great credit, that could be worth more money in the long run than taking out an FHA loan and paying insurance on it for years.

Conventional loans are available for those with good credit scores. They also have lower interest rates than FHA mortgages, as well as lower fees. Conventional loans can be used to buy fixer-uppers, whereas FHA loans cannot; this is especially helpful if you’re trying to get into a house that needs a lot of work done before it’s livable!

If you have good credit, you may be able to get a conventional loan. A conventional loan has less risk of default and is more accessible than an FHA loan.


Ultimately, the choice between an FHA mortgage and a conventional loan comes down to your personal situation. If you have good credit but can’t afford much of a down payment (or don’t want to), then an FHA loan may be right for you.

On the other hand, if your credit isn’t very good but you want to buy a fixer-upper or make some upgrades before putting it on the market, then consider getting an FHA loan. In any case, make sure you do thorough research about both types of loans before making any decisions about which one is right for your needs!

Kurby Team

The Kurby Content Team is a diverse group of seasoned real estate experts dedicated to providing insightful, reliable information for homebuyers, real estate investors, and real estate agents. With backgrounds ranging from real estate brokerage, property investment, and residential home buying, our team combines decades of experience with a passion for demystifying the real estate world. We at Kurby are committed to helping you make informed, successful real estate decisions. Whether you're a first-time homebuyer, a seasoned investor, or a real estate professional, count on the Kurby Content Team to deliver the most relevant, actionable real estate content you need.

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