Choosing the right type of mortgage can save you thousands of dollars in interest and fees over the life of your loan. The two most popular options for homebuyers and refinancers are FHA loans (backed by the Federal Housing Administration) and Conventional loans (backed by private lenders and entities like Fannie Mae or Freddie Mac).
While both can help you achieve your homeownership goals, they have very different requirements for credit scores, down payments, and mortgage insurance.
Side-by-Side Comparison
| Feature | FHA Loan | Conventional Loan |
|---|---|---|
| Minimum Credit Score | 580 (for 3.5% down payment) 500 (with 10% down) |
620 (Typically requires a higher score for the best rates) |
| Minimum Down Payment | 3.5% | 3% (for first-time buyers) 5% (for repeat buyers) |
| Mortgage Insurance (MI) | Required for the life of the loan (if down payment is under 10%). Includes an upfront premium and annual premium. | Private Mortgage Insurance (PMI) is required if down payment is under 20%, but it can be cancelled once you reach 20% equity. |
| Debt-to-Income (DTI) Ratio | More lenient. Often allows DTI up to 50% or higher. | Stricter. Typically capped at 45% to 50% depending on credit score. |
| Property Requirements | Must meet strict FHA safety and habitability standards. Must be a primary residence. | More flexible property standards. Can be used for primary residences, second homes, or investment properties. |
Who should choose an FHA Loan?
FHA loans are generally best for borrowers who have less-than-perfect credit or higher amounts of existing debt.
Who should choose a Conventional Loan?
Conventional loans are the gold standard if you have good credit, as they will save you money on mortgage insurance in the long run.
Still not sure which one you qualify for?
Our independent consultants can run your numbers through both programs to show you exactly which option will save you the most money.