Conventional vs FHA: What’s the Difference and What’s Right for Me?

 

If you’re trying to decide between a conventional loan and an FHA loan, congratulations, you’re already asking more thoughtful questions than most people.

The truth is, both loan types are powerful tools. But they’re designed for different buyers with different needs.

Let’s break them down without jargon, fluff, or pressure. Just the facts, the differences, and how to know which one fits your life.

Let’s Start with the Basics

 

What is an FHA Loan?

An FHA loan is backed by the Federal Housing Administration, which means the government is essentially co-signing the risk for your lender.

This makes FHA loans more flexible, especially for buyers with:

• Lower credit scores
• Smaller down payments
• Limited credit history

 

What is a Conventional Loan?

A conventional loan is not backed by the government. It follows guidelines set by Fannie Mae and Freddie Mac, which makes it a bit stricter in some areas—but potentially cheaper long term if you qualify.

 

So Which One’s Easier to Qualify For?

FHA wins for accessibility.

It was literally created to help more people become homeowners.

• Got a credit score in the 500s? FHA gives you a path.
• Have a higher DTI due to student loans or childcare? FHA is more forgiving.
• Struggling to save for 5% down? You can get in with 3.5%.

If you’re rebuilding your credit or have a thin credit profile, FHA gives you breathing room.

 

Conventional wins if your financials are stronger.

If your credit score is 680+ and you’ve got solid income and savings, conventional can give you:

• A lower monthly payment
• A faster path to ditching PMI
• More flexible options long term

 

The Mortgage Insurance Question

This one matters.

FHA Loans:

• You’ll pay upfront mortgage insurance (1.75% of the loan amount)
• And monthly mortgage insurance for the life of the loan, unless you refinance
• Even if you reach 20% equity, it doesn’t go away

Conventional Loans:

• You’ll only pay PMI if you put less than 20% down
• But PMI can drop off automatically once you hit 78% LTV
• Or you can request it removed once you hit 80% equity

Translation:

FHA gives you easier access

Conventional gives you more flexibility to ditch insurance later

 

What About Loan Limits?

Loan limits vary by county and change annually.

• In most areas, FHA limits are lower than conventional limits
• If you’re buying in a high-cost area or pushing above $500K, conventional often gives you more room to work with

Ask your lender for the current limits in your county. It might be the deciding factor.

 

How the Property Matters

This is the sneaky one.

FHA is picky about the home itself. If the roof needs work, if there are safety issues, if the paint is peeling, it can be a deal killer.

Conventional is more chill. If the house passes a basic appraisal and isn’t falling over, you’re probably good.

So if you’re buying a fixer-upper, a quirky older home, or something outside the cookie-cutter norm, conventional may save you headaches.

 

The Winner? It Depends on You

Here’s the gut-check version.

Go FHA if:

• Your credit score is under 640
• You need a lower down payment
• You’re early in your credit-building journey
• You want a structured, steady loan with predictable terms

Go Conventional if:

• You’ve got strong credit (680+)
• You want to avoid long-term mortgage insurance
• You plan to stay in the home long enough to benefit from equity
• You’re looking for more options, flexibility, or are buying in a higher price range

 

Final Thought: Don’t Pick a Loan. Pick a Plan.

This isn’t about which loan is “better.”

It’s about which loan supports your goals, your timeline, and your current financial picture.

Let the loan fit your life, not the other way around.