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FHA vs. Conventional Loans: What's the Difference?

  • jl28853
  • Aug 28, 2025
  • 2 min read

If you’re exploring mortgage options, you’ve likely come across two of the most common types: FHA loans and Conventional loans. While both are designed to help you finance a home, they come with different requirements, benefits, and trade-offs.

Here’s a side-by-side comparison to help you determine which one fits your financial situation and homeownership goals.

What is an FHA Loan?

An FHA loan is backed by the Federal Housing Administration. It's specifically designed to make homeownership more accessible, especially for first-time buyers or those with less-than-perfect credit.

Key Benefits:

  • Lower credit score requirements (as low as 580 with 3.5% down)

  • Smaller down payment (3.5% minimum)

  • More flexible debt-to-income (DTI) ratios

  • Available to buyers with limited credit history

Drawbacks:

  • Requires upfront and annual mortgage insurance premiums (MIP)

  • Loan limits vary by county and may be lower than conventional caps

  • Less competitive for buyers with strong credit

What is a Conventional Loan?

A Conventional loan is not backed by the government. Instead, it’s issued and insured by private lenders and typically follows guidelines set by Fannie Mae and Freddie Mac.

Key Benefits:

  • No upfront mortgage insurance (PMI can be waived with 20% down)

  • Potentially lower long-term costs for borrowers with good credit

  • More flexibility with property types (condos, second homes, etc.)

  • Higher loan limits in most counties

Drawbacks:

  • Higher credit score requirement (typically 620+)

  • Larger down payment needed for best rates

  • Stricter DTI ratio standards

Side-by-Side Comparison

Feature

FHA Loan

Conventional Loan

Backed By

Federal Housing Administration

Private lenders (Fannie/Freddie)

Minimum Credit Score

580 (with 3.5% down)

620+

Minimum Down Payment

3.5%

3–5% (varies by lender)

Mortgage Insurance

Required (Upfront + Annual MIP)

Required < 20% down (PMI), cancelable

Loan Limits

Varies by county, lower caps

Generally higher than FHA limits

Property Flexibility

Primary residence only

Primary, second, or investment

Ideal For

First-time buyers, limited credit

Strong credit, long-term savings


Which Loan Is Right for You?

Choose FHA if:

  • You have a lower credit score or limited credit history

  • You’re a first-time buyer and need a low down payment

  • You want flexible qualifying criteria

Choose Conventional if:

  • You have strong credit and steady income

  • You can afford a larger down payment

  • You want to avoid long-term mortgage insurance costs

Get Help Deciding

Still unsure? The Velocity Team can help you compare personalized loan scenarios side-by-side. We’ll walk you through estimated payments, qualification guidelines, and long-term cost differences.


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