Choosing between an FHA and conventional loan is one of the most important decisions in your homebuying journey. This guide provides a comprehensive comparison to help you make the right choice for your financial situation.
| Feature | FHA Loan | Conventional Loan | |---------|----------|-------------------| | Minimum Down Payment | 3.5% (credit 580+) | 3% (first-time buyers) | | Minimum Credit Score | 500-580 | 620 (prefer 660+) | | Debt-to-Income Ratio | Up to 50% | Up to 45% | | Mortgage Insurance | Lifetime (if <10% down) | Removable at 20% equity | | Loan Limits | $498,257-$1,149,825 | $766,550+ | | Best For | Lower credit, smaller down payment | Better credit, want to remove PMI |
FHA loans are insured by the Federal Housing Administration, allowing lenders to offer more flexible terms.
Benefits: Lower down payment (3.5%), lower credit requirements (580+), higher DTI ratios accepted (up to 50%), easier qualification after financial hardship.
Drawbacks: Lifetime mortgage insurance with <10% down, upfront 1.75% MIP, stricter property standards, lower loan limits.
Conventional loans are not government-insured and follow Fannie Mae/Freddie Mac guidelines.
Benefits: Removable PMI at 20% equity, no upfront mortgage insurance, higher loan limits, more property flexibility, lower overall costs with good credit.
Drawbacks: Higher credit requirements (620+), stricter DTI limits, longer waiting periods after financial hardship, higher rates with <20% down.
$300,000 Home, 5% Down, 680 Credit:
FHA: $2,456/month total payment, $884,160 over 30 years Conventional: $2,391/month, $865,640 over 30 years (PMI removed after 7 years) Savings with Conventional: $18,520
Choose FHA if: Credit score below 680, less than 5% down, DTI above 45%, recent bankruptcy/foreclosure, need gift funds for entire down payment.
Choose Conventional if: Credit score above 680, 5-20% down payment, want to remove mortgage insurance, buying above FHA limits, want lower long-term costs.
Ready to compare your options? Get pre-approved for both loan types to see which offers better terms for your situation.