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FHA vs Conventional: Which Loan Should You Choose?

By Victoria De Koning · 7 min read

Choosing between an FHA and a conventional loan is one of the first — and most important — decisions you'll make as a homebuyer. Both can get you into a home, but they work very differently under the hood.

Here's the honest breakdown, without the jargon.

Side-by-Side Comparison

Feature	FHA Loan	Conventional Loan
Minimum Down Payment	3.5%	3% (first-time) / 5%
Credit Score Minimum	580 (3.5% down) / 500 (10% down)	620-640 typical
Mortgage Insurance	MIP — required for life of loan (if <10% down)	PMI — drops at 80% LTV
Upfront Insurance Fee	1.75% of loan (rolled into loan)	None
Loan Limits (2025)	$524,225 (most areas)	$806,500 (most areas)
Property Condition	Must meet FHA minimum standards	Fewer restrictions
Seller Concessions	Up to 6%	3-6% depending on LTV
Investment Property	No — primary residence only	Yes — up to 10 financed
DTI Limit	Up to 57% with compensating factors	Up to 50% typical

When FHA Makes More Sense

• Lower credit scores (580-639) — FHA is more forgiving than conventional
• Higher DTI ratios — FHA allows up to 57% in some cases
• Recent credit events — shorter waiting periods after bankruptcy, foreclosure, or short sale
• Gift funds for down payment — FHA allows 100% gift from family members
• First-time buyers with limited savings — 3.5% down is achievable for most

When Conventional Makes More Sense

• Credit score 700+ — you'll get significantly better pricing
• 20% down payment available — no PMI at all, saving hundreds per month
• Buying a condo — many condo complexes aren't FHA-approved
• Investment properties — FHA doesn't allow non-owner-occupied purchases
• Higher loan amounts — conventional limits are significantly higher
• Long-term cost — FHA MIP never drops off (unless you put 10%+ down). Conventional PMI drops automatically at 78% LTV

The "Start FHA, Refinance Conventional" Strategy

Many of Victoria's clients use this approach: buy with FHA at 3.5% down to get into the home, build equity for 2-3 years, then refinance into a conventional loan to drop the MIP. This works especially well in markets where home values are appreciating.

What About VA and USDA?

If you're a veteran or active duty military, VA loans offer 0% down with no PMI — they're almost always the best option for eligible borrowers. If you're buying in a rural area, USDA loans also offer 0% down with low mortgage insurance.

Victoria is licensed to originate FHA, VA, USDA, and conventional loans in 34 states. If you're not sure which program fits, that's exactly what a broker consultation is for.

The Bottom Line

There's no universally "better" loan. FHA is designed for accessibility — lower barriers to entry. Conventional rewards stronger credit and larger down payments with lower long-term costs. The right choice depends on your credit, savings, and timeline.