Conventional Home Loan vs FHA

If you’re interested in obtaining a mortgage and you’re unsure whether to choose an FHA loan or a conventional mortgage, know that these two are different from each other with each one of them having pros and cons over the other.

Selecting the right home loan program is crucial to ensure you get the wisest deal. In this blog post, we stack the FHA and Conventional mortgage side by side to see which one is “better.”


Consider the following statements:

  • I currently have a credit score that’s 620 (or higher).
  • I currently have enough savings to put in a 5 to 20 percent down payment on the home I’m eyeing.
  • I intend to pay a 20% down payment right off the bat to rid myself of a PMI.


Which among these statements are true to you? If all three of them apply, your chances of obtaining a conventional loan are high. In the grand scheme of things, conventional loans may be less costly if you’re able to put in a 20% down payment.


Mortgage Insurance

Should a borrower put in a 20% down payment in a conventional loan, a mortgage insurance will no longer be needed. Furthermore, conventional financing may prove to be the better selection for you as FHA requires a mortgage insurance for the entire life of the loan, regardless of how large or small your down payment is.

home loan fha and conventional

Down Payment

Despite the matter on down payment, the FHA may still prove to be king in the home loan market because of how meager it allows its borrowers to put in. Borrowers who are able to obtain at least a 580 credit score can purchase a home with only a 3.5% down. Meanwhile those whose FICO scores are anywhere between 500 to 579 can buy a home by putting in 10%. On the other hand, conventional loans require at least 5 to 20 percent down payment. While it can be more costly in the long run, FHA proves to meet a wider variety of aspiring homeowners because of this term. It’s easier to reach, therefore lets more people start building equity a lot sooner.


Credit Score

As established, FHA can be appreciably generous with credit scores. Conventional loans, on the other hand, will demand for at least a 620 FICO rating. Despite that, that score can be generally below average still. While that can be true in most cases, 620 isn’t ridiculously negating. It’s best to remember that low credit scores can be obtained for several reasons such as one carrying high balances, or when one prefers to use cash versus credit in most transactions, or even when one is too young to even have a credit past.

To summarise, a decent credit history can still get an applicant approved.


Options and flexibility

When it’s down to options and flexibility, it can be tough to compare FHA to conventional loans. FHA mortgages let borrowers make use of a non-occupying borrower to help them fund their loan payments. On top of that, FHA loans are also assumable by another debtor should the current debtor choose to move residences. On the other hand, conventional mortgages can be availed through vacation homes and jumbo loans. Both options aren’t available for an FHA loan.



For a lot of borrowers, the choice whether to pursue a conventional mortgage or an FHA loan is highly dependent on finding the balance of borrowing costs such  as mortgage insurance standards and interest rates—and not so much on specific features, although we can’t entirely rule that out, too.


For more conventional loan vs FHA news, click the link!


By: Karissa