FHA vs Conventional loans — which is right for you?

Two of the most common loan types for homebuyers are FHA and Conventional. Understanding the differences helps you choose the path that fits your situation.

Down payment

FHA loans require as little as 3.5% down if your credit score is 580 or higher (10% if your score is between 500–579). Conventional loans can go as low as 3% down for qualifying buyers, though 5–20% is more common.

Mortgage insurance

FHA loans require an upfront mortgage insurance premium (MIP) of 1.75% of the loan amount, plus an annual MIP for the life of the loan in most cases. Conventional loans require private mortgage insurance (PMI) only if your down payment is less than 20% — and PMI can be cancelled once you reach 20% equity.

Credit score thresholds

FHA is generally more forgiving: you can qualify with a score as low as 580 (or even 500 with a larger down payment). Conventional loans typically require a score of at least 620, and you’ll get the best rates with a score of 740+.

Loan limits

Both loan types have limits that vary by county. FHA limits are set by HUD annually. Conventional loans backed by Fannie Mae and Freddie Mac follow conforming loan limits set each year. For higher-priced properties, a jumbo loan may be needed.

Which is better for you?

• FHA may be the right choice if you have a lower credit score, limited down payment savings, or higher debt relative to your income.
• Conventional may be the right choice if your credit score is strong, you can put down 20% to avoid PMI, or you want flexibility to cancel mortgage insurance later.

Not sure which fits your situation? Let’s talk.