Overview
FHA Loan
Federal Housing Administration loans are government-backed mortgages with more flexible qualification requirements, designed to help borrowers with lower credit scores or smaller down payments become homeowners.
Try Calculator →Conventional Loan
Conventional loans are mortgages not backed by the government, offered by private lenders. They typically have stricter requirements but can be more cost-effective for borrowers with good credit and stable finances.
Try Calculator →Feature Comparison
| Feature | FHA Loan | Conventional Loan |
|---|---|---|
| Down Payment Requirement | As low as 3.5% | Typically 3%-20% (3% available for first-time buyers) |
| Credit Score Requirements | 580+ for 3.5% down | 620+ typically (680+ for best rates) |
| Mortgage Insurance | MIP required for life of loan | PMI required until 20% equity |
| Interest Rates | Often slightly higher | Often lower for good credit |
| Debt-to-Income Ratio | Up to 50% allowed | Typically max 43% |
| Loan Limits | County-specific FHA limits | Higher limits (conforming limit $766,550 in 2024) |
| Property Standards | Stricter FHA requirements | Less stringent requirements |
FHA Loan
Pros
- Lower credit score requirements
- Lower down payment (3.5%)
- Higher DTI ratios allowed
- Gift funds allowed for down payment
- More lenient on past credit issues
- Available to all qualified borrowers
- Assumable loans
Cons
- MIP required for entire loan term
- Upfront mortgage insurance premium (1.75%)
- Lower loan limits
- Stricter property requirements
- Longer closing times
- Seller concessions limited to 6%
Conventional Loan
Pros
- PMI can be cancelled once 20% equity reached
- Lower interest rates for good credit
- Higher loan limits
- Faster closing process
- More property type options
- No upfront mortgage insurance
- Can be used for investment properties
Cons
- Higher credit score requirements
- Higher down payment typically required
- Stricter DTI requirements
- Less lenient on credit issues
- PMI required with less than 20% down
- Not as forgiving of financial hardships
Which Should You Choose?
Choose FHA Loan if...
Choose an FHA loan if you have a credit score below 620, limited funds for down payment (as low as 3.5%), higher debt-to-income ratio, or past credit issues. Also good for first-time buyers who need more flexible qualification standards.
Choose Conventional Loan if...
Choose a conventional loan if you have good credit (680+), can afford at least 5-20% down payment, want to avoid permanent mortgage insurance, want to take advantage of lower interest rates, or are purchasing a higher-priced home above FHA loan limits.