FHA vs Conventional Loan: Which One Should You Choose?
This comes up in almost every conversation I have with first-time buyers. Both loans get you into a home. But they work differently — and the right one depends on your situation.
Here's the real breakdown.
What's the difference?
FHA is backed by the federal government. That backing lets lenders take on more risk — which means more flexibility on credit scores and debt-to-income ratios.
Conventional is not government-backed. Lenders set their own standards, which means stricter requirements but more flexibility in other ways — like canceling mortgage insurance.
Down payment
FHA: 3.5% down with a 580+ score. 10% down if your score is 500–579.
Conventional: As low as 3% down with a 620+ score.
Both are low down payment options. The difference is who qualifies.
Credit score
FHA: 580 minimum for 3.5% down. More forgiving overall.
Conventional: 620 minimum. The higher your score, the better your rate.
If your score is under 620, FHA is likely your only path — unless you go with a specialty loan like bank statement or DSCR.
Mortgage insurance
This is where FHA loses ground.
FHA: You pay an upfront mortgage insurance premium (1.75% of the loan amount) plus a monthly premium. The monthly premium stays for the life of the loan if you put less than 10% down. To get rid of it, you have to refinance.
Conventional: PMI applies when you put less than 20% down — but it automatically cancels once you hit 20% equity. No refinance needed.
On a $400,000 loan, FHA mortgage insurance can cost $150–$200/month more than conventional PMI. Over 5 years that's $9,000–$12,000 extra.
Debt-to-income ratio
FHA: Will go up to 57% DTI in some cases. Good for buyers with student loans, car payments, or other debt.
Conventional: Typically caps at 45–50% DTI.
If your monthly debt payments are high relative to your income, FHA gives you more room.
Property condition
FHA: The home has to meet minimum property standards. Peeling paint, roof issues, structural problems — FHA appraisers flag these. Can complicate deals on older or distressed properties.
Conventional: Less strict on property condition. Easier to use on fixer-uppers or homes that need work.
So which one is right for you?
Choose FHA if:
Your credit score is under 620. Your debt-to-income ratio is high. You need maximum flexibility to qualify.
Choose Conventional if:
Your credit score is 680+. You want mortgage insurance to go away without refinancing. The home you're buying has condition issues that might fail FHA inspection.
And if you're not sure — that's what I'm here for. We'll look at your actual numbers and tell you which loan saves you more money over time.
Spring Home Company. Licensed in NJ, PA & TX. NMLS #2741914.