FHA vs. conventional loans: What’s the difference?

Quick insights

• FHA loans generally have more lenient qualification criteria when compared to conventional mortgage loans.
• The terms of any mortgage will be determined by a variety of factors, including personal finances, credit profile and down payment.
• FHA loans typically offer lower down payment requirements and more flexible requirements compared to conventional loans.

If you’re ready to buy your first home and facing the financing part, you might be torn between an FHA loan and conventional loan. Understanding the differences between these two popular loan options could make all the difference in getting you into your dream home. Let’s review the differences as you continue your homeownership journey.

Differences between FHA and conventional loans

When considering a home loan, one of common comparison borrowers could encounter is FHA loan vs. conventional loan. Both types of mortgages come with unique benefits and requirements. Below is an overview of the key differences between each loan type across several key factors.

Credit score

• FHA: Typically, FHA loans are more lenient on credit scores. Borrowers may qualify with a credit score as low as 580, or even 500 with a higher down payment.ec-fha-loan-requirements-2025
• Conventional: Conventional loans generally require a score of at least 620 or higher. The better your credit score, the more favorable the loan terms could be.ec-what-is-conventional-loan

Debt-to-income ratio

• FHA: FHA loans guidelines for debt-to-income (DTI) ratios may vary. Borrowers can have a DTI up to 43%, depending on other factors.ec-fha-loan-requirements-2025
• Conventional: Conventional loans are usually stricter about DTI ratios, with most lenders preferring a ratio below 43%.ec-what-is-conventional-loan

Down payment

• FHA: FHA loans require a minimum down payment of 3.5% of the home’s purchase price if your credit score is 580 or higher. For credit scores between 500-579, a down payment of 10% is required.ec-fha-loan-requirements-2025
• Conventional: Some conventional loans offer down payment options as low as 3%, but lenders may require a higher amount.ec-what-is-conventional-loan A 20% down payment is more common with conventional loans to avoid private mortgage insurance (PMI).

Mortgage insurance

• FHA: FHA loans require two types of mortgage insurance premiums (MIP): an upfront premium (UFMIP) and a monthly premium (MIP). The rates depend on the loan amount and several other factors. If your loan-to-value ratio (LTV) is higher than 95%, you will likely pay the monthly MIP for the life of the loan. If 90% or less, you’ll still have to pay for 11 years.ec-fha-loan-requirements-2025
• Conventional: Conventional loans require private mortgage insurance (PMI) if the borrower puts down less than 20%. PMI can be canceled once the borrower reaches 20% equity in the home, unlike FHA insurance, which generally lasts for the life of the loan.ec-what-is-conventional-loan

Interest rates

• FHA: FHA loans often come with lower interest rates, especially for borrowers with lower credit scores. However, the rate may not always be the absolute lowest. It depends on certain factors, such as the borrower’s credit and financial situation.
• Conventional: Conventional loans can offer competitive interest rates, particularly for borrowers with good to excellent credit (typically 740 and above). The interest rate can vary widely, but they generally tend to be higher than FHA rates for individuals with lower credit scores.

Loan limits

• FHA: The FHA loan limits for 2025 vary by county and are determined based on the area’s median home prices. According to HUD, the FHA loan limits will be between $524,225 and $1,209,750 in CY 2025, respectively, for a one-unit property.ec-maximum-mortgage-limits
• Conventional: Conventional loan limits for conforming loans are set by the Federal Housing Finance Agency (FHFA). The 2025 conventional loan limit for one-unity properties in most of the U.S. will be $806,500.federal-house-finance-agency-november-2024

Property standards, types, and appraisals

• FHA: FHA loans have minimum property standards for safety, livability and structural integrity. FHA appraisals are more detailed and include a thorough review to ensure compliance.
• Conventional: Conventional loans may be less rigid when it comes to property standards. While an appraisal may still be required, it may not be as extensive as an FHA appraisal, and the property doesn’t need to meet the same safety standards as an FHA loan would require.

Pros and cons of FHA loan vs. conventional

When deciding between an FHA loan and a conventional loan, it’s essential to understand the unique benefits and drawbacks of each loan. Both loan types can significantly impact your homebuying experience and long-term financial situation.

Pros of an FHA loan

• Lower down payment (as low as 3.5%).
• More lenient credit score requirements (can qualify with scores as low as 580).
• Flexible DTI ratio (up to 50).
• Easier to qualify for first-time homebuyers.ec-fha-loan-requirements-2025

Cons of an FHA loan

• MIP may be required for a portion or entire life of the loan, depending on the loan down payment.
• Loan limits may be lower than conventional loans.
• Stricter property requirements and inspections.
• Can be more expensive over time due to UFMIP and MIP.

Pros of a conventional loan

• No mortgage insurance with 20% down (no PMI).
• Higher loan limits, especially in high-cost areas.
• Can cancel PMI once equity reaches 20%.
• More flexible property requirements.ec-what-is-conventional-loan

Cons of a conventional loan

• Higher credit score requirements (typically 620+).
• Larger down payment (typically 3%-20%).
• Stricter DTI ratio limits (usually 43%).
• Harder to qualify for borrowers with lower credit scores or smaller down payments.ec-what-is-conventional-loan

In summary

Choosing between an FHA and conventional loan depends largely on your financial situation, credit profile and long-term goals. Conventional loans generally need higher credit scores and larger down payments. By comparison, government-backed FHA loans have lower credit and down payment requirements. Both can suit first-time homebuyers. Carefully weighing the pros and cons of each loan product can help you select the right loan type for your home purchase.

FHA vs conventional loan FAQs

Here are some frequently asked questions to help you understand the key differences between an FHA vs conventional loan.

Is one loan better—FHA or conventional?

FHA loans might be good choices for borrowers with lower credit scores and small down payments. Conventional loans generally suit buyers who have higher credit scores and larger down payments. Tax experts can answer specific questions.

Can you refinance an FHA loan to a conventional loan?

Yes, you can refinance into a conventional loan.

Are FHA rates lower than conventional?

FHA rates are often lower for lower credit scores, but conventional loans may offer better rates for higher credit scores.

Are FHA closing costs more than conventional?

FHA closing costs can be slightly higher.

Can I have a conventional and an FHA loan?

Yes, but a new FHA loan is only for a primary residence.

Do sellers prefer FHA or conventional?

Sellers often prefer conventional loans for quicker closings and fewer property requirements.