If you are buying a home, you will likely choose between an FHA loan and a conventional loan. Both can get you into a home, but they work differently in ways that affect your monthly payment, upfront costs, and long-term flexibility.

Down Payment

FHA loans require a minimum of 3.5% down with a credit score of 580 or higher. Conventional loans can go as low as 3% down for first-time buyers, but typically require stronger credit to qualify at that level.

Credit Requirements

FHA is more forgiving of lower credit scores. Borrowers with scores in the 580 to 620 range will generally find more options with FHA. Conventional loans usually require 620 or higher, and the best rates go to borrowers above 740.

Mortgage Insurance

This is where the two programs diverge significantly. FHA charges an upfront mortgage insurance premium (1.75% of the loan amount) plus annual mortgage insurance for the life of the loan on most FHA loans. Conventional loans require private mortgage insurance (PMI) only when you put less than 20% down, and PMI can be removed once you reach 20% equity.

Loan Limits

Both programs have loan limits that vary by county. In most areas, conventional conforming limits are higher than FHA limits. For more expensive properties, a conventional loan or a jumbo loan may be necessary.

Property Requirements

FHA has stricter property standards because the loan is government-insured. The home must meet minimum health and safety requirements. Conventional loans are more flexible on property condition, especially for investment properties or second homes.

Which Should You Choose?

If your credit score is below 680 or your savings are limited, FHA may be the better path. If your credit is strong and you want to avoid long-term mortgage insurance, conventional is likely the better value. The best approach is to compare both side by side with a loan officer who can show you the full picture.