Differences between Conventional Loan and FHA Loan
Contents
Conventional Loan vs. FHA Loan
A conventional loan is a mortgage not insured or guaranteed by a government agency.[1][2] It is the most common type of home loan.[3] An FHA loan is a mortgage insured by the Federal Housing Administration (FHA), a government agency.[4][2] This insurance protects lenders from losses if a borrower defaults, which allows for more lenient qualification standards.[5][4] Both loan types are issued by private lenders.[4] The choice between a conventional and an FHA loan depends on the borrower's credit score, down payment amount, and financial situation.
Comparison Table
| Category | Conventional Loan | FHA Loan |
|---|---|---|
| Government Backing | Not insured or guaranteed by the government.[1][2] | Insured by the Federal Housing Administration (FHA).[4][2] |
| Minimum Credit Score | Typically 620 or higher.[3] | 580 for 3.5% down payment; 500-579 for 10% down payment.[4] |
| Minimum Down Payment | As low as 3% for qualified borrowers.[5][2] | 3.5% with a credit score of 580 or higher; 10% with a score of 500-579.[4] |
| Mortgage Insurance | Required for down payments under 20% (Private Mortgage Insurance - PMI); can be canceled once equity reaches 20%.[5] | Upfront and annual premiums required for all loans, regardless of down payment. Generally lasts for the life of the loan.[5] |
| Loan Limits | Generally higher; for 2026, conforming limits are $832,750 in most areas.[5][1] | Lower than conventional; limits vary by county but are generally less than conforming limits.[5][2] |
| Property Appraisal | Focuses primarily on the property's condition and market value. | Stricter standards set by the Department of Housing and Urban Development (HUD), with an emphasis on safety and security.[1] |
| Property Use | Can be used for primary residences, second homes, and investment properties. | Must be used for a primary residence. |
Mortgage Insurance
A significant difference between the two loan types is the treatment of mortgage insurance. Conventional loans require Private Mortgage Insurance (PMI) when the borrower's down payment is less than 20% of the home's purchase price.[5] This monthly premium can be canceled once the borrower reaches 20% equity in the home.[5]
FHA loans, however, require two forms of mortgage insurance premium (MIP). There is an Upfront Mortgage Insurance Premium (UFMIP), which is typically financed into the loan amount, and an annual MIP, paid monthly for the life of the loan in most cases.[5] This is required for all FHA borrowers, regardless of the down payment amount.
Underwriting and Property Standards
Due to the government guarantee, FHA loans have more flexible underwriting guidelines regarding credit scores and debt-to-income ratios compared to conventional loans.[5][4] This makes them accessible to borrowers who may not qualify for a conventional mortgage.
However, FHA loans come with stricter property appraisal standards. The property must meet minimum standards for health and safety as set by the U.S. Department of Housing and Urban Development (HUD).[1] Conventional appraisals are primarily concerned with the fair market value of the property. This can sometimes make sellers more hesitant to accept offers from buyers with FHA financing, as the appraisal might require repairs to be made before the loan can close.[1][2]
References
- ↑ 1.0 1.1 1.2 1.3 1.4 1.5 "rocketmortgage.com". Retrieved January 31, 2026.
- ↑ 2.0 2.1 2.2 2.3 2.4 2.5 2.6 "nerdwallet.com". Retrieved January 31, 2026.
- ↑ 3.0 3.1 "thepoldergroup.com". Retrieved January 31, 2026.
- ↑ 4.0 4.1 4.2 4.3 4.4 4.5 4.6 "bankrate.com". Retrieved January 31, 2026.
- ↑ 5.0 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 "neighborsbank.com". Retrieved January 31, 2026.
