The Differences between FHA and Conventional Home Loan
The key differences between FHA and Conventional home loans relate to their eligibility requirements, down payments, mortgage insurance, and flexibility. Here's a side-by-side comparison:
✅ FHA Loans (Federal Housing Administration)
Backed by: The federal government (insured by HUD).
Credit Score Requirements: More lenient; minimum around 580 (or 500 with a larger down payment).
Down Payment: As low as 3.5% (with 580+ credit).
Mortgage Insurance:
Upfront MIP (Mortgage Insurance Premium): 1.75% of the loan amount.
Annual MIP: Required for the life of the loan (unless 10%+ down, then 11 years).
Debt-to-Income Ratio: More flexible; can go up to 50% in some cases.
Property Standards: Stricter appraisal and condition requirements.
Who It's For: First-time buyers, lower credit scores, limited savings.
✅ Conventional Loans
Backed by: Private lenders, not government-insured.
Credit Score Requirements: Stricter; typically 620 or higher.
Down Payment: As low as 3%, but 5–20% is more common.
Mortgage Insurance (PMI):
Required if putting down less than 20%.
Can be canceled once loan-to-value (LTV) hits 78%.
Debt-to-Income Ratio: Usually capped at 43–45%.
Property Standards: More flexibility on home condition.
Who It's For: Buyers with stronger credit and/or larger down payments.
Summary:
FHA loans are easier to qualify for, with low down payment and flexible credit rules—but come with longer-lasting mortgage insurance.
Conventional loans suit buyers with better credit and allow you to avoid long-term mortgage insurance with 20% down.
