FHA vs. Conventional Loans: How They Compare

What Is an FHA Loan?

FHA loans are mortgages offered by private lenders like Freedom Mortgage and backed by the Federal Housing Administration (FHA). This backing from the federal government helps make homeownership more affordable for people with moderate incomes.

Because they’re designed to expand access to homeownership, FHA loan requirements are typically more flexible than conventional loans. Borrowers may qualify with lower credit scores and down payments, making FHA loans especially popular among first-time homebuyers and those with limited savings. 

However, FHA borrowers are generally required to pay mortgage insurance premiums (MIP), which can increase the overall cost of the loan over time.

What Is a Conventional Loan?

Conventional loans are mortgages offered by private lenders, like Freedom Mortgage, without a guarantee from a government agency. Because lenders assume more risk, borrowers often need stronger credit profiles and may face stricter qualification requirements than they would with an FHA loan. 

Conventional loans may offer greater flexibility for qualified borrowers, including the ability to avoid or eventually remove private mortgage insurance (PMI) under certain circumstances.

The two types of conventional loans include conforming loans (which follow the loan limits set by Fannie Mae and Freddie Mac) and jumbo loans (mortgages exceeding those limits). 

Comparing FHA vs. Conventional Loan Pros and Cons

When comparing your options, understanding the pros and cons can help ensure you’re making the most informed decision possible. 

Interest Rates

Locking in a lower mortgage interest rate can lead to significant savings each month and over the life of the loan.

• FHA loans: FHA loans tend to offer better interest rates to borrowers with moderate credit scores, thanks to government backing.
• Conventional loans: Conventional loans tend to offer lower interest rates to borrowers with strong applications.

Credit Score and Debt-to-Income Ratio (DTI)

FHA loans offer more flexible lending requirements, including options for those with lower credit scores. Keep in mind that these are the minimum scores required, and lenders can set additional guidelines.

• FHA loans: You’ll need a credit score of at least 500 to qualify for an FHA loan with a 10% down payment. For most borrowers and most lenders, the minimum credit score allowed with a 3.5% down payment is 580 or more. Additionally, your DTI should be 43% or less in most cases.
• Conventional loans: Most lenders and loan programs require a credit score of at least 620 to qualify for a conventional loan. Conventional loan programs generally allow a DTI of up to 45%.

Down Payment

Depending on your situation, you may be able to find low down payment options through both FHA loans and conventional loans.

• FHA loans: For borrowers with a credit score of at least 580, you may only need a down payment of 3.5%.
• Conventional loans: While you can put down as little as 3%, you’ll need to put down 20% if you want to avoid private mortgage insurance requirements.

Loan Limits

FHA loan limits are generally lower than conventional loan limits.

• FHA loans: FHA loan limits vary based on the county you plan to buy in. For 2026, limits range from $541,287 in the most affordable counties to $1,249,125 in the most expensive.
• Conventional loans: Conventional loan limits tend to be higher. For 2026, loan limits range from $832,750 in the most affordable counties to $1,249,125 in the most expensive.

Mortgage Insurance

FHA mortgage insurance is often more expensive than conventional loan mortgage insurance.

• FHA loans: FHA loans don’t require private mortgage insurance (PMI), but they do involve an upfront mortgage insurance premium of 1.75% of the loan amount. FHA loans also include a monthly mortgage insurance premium that continues for at least 11 years.
• Conventional loans: Conventional loans only require private mortgage insurance if you make a down payment of less than 20%. As you pay off the loan, you can request cancellation of the mortgage insurance when you obtain 20% of your home’s equity.

Property Usage

Conventional loans tend to offer buyers more flexibility in how they plan to use the property compared to first-time homebuyer loans.

• FHA loans: You’ll need to use the property as a primary residence.
• Conventional loans: You can use a conventional loan to purchase a primary residence, vacation home, or investment property.

Refinancing

If you decide to refinance your mortgage sometime down the road, that’s usually easier with an FHA loan.

• FHA loans: The FHA streamline program features less paperwork and faster approvals for a easier refinance process than a typical refinance.
• Conventional loans: If you want to refinance a conventional loan, you’ll essentially need to complete a new mortgage application.

Appraisal

Both conventional and FHA loan types involve appraisals.

• FHA loans: An FHA appraisal requires the inspector to confirm the home is safe, secure, and structurally sound.
• Conventional loans: Typically, appraisals for conventional loans are less rigorous.

How to Choose Between an FHA and Conventional Loan

The best loan option depends on your financial situation, homeownership goals, and how you want to balance upfront affordability with long-term costs. While both loan types can help you buy a home, one may be a better fit depending on your priorities.

An FHA loan may be a good fit if you:

• Have a lower credit score or limited credit history.
• Have limited savings available for a down payment.
• Need more flexible qualification requirements.
• Are focused on becoming a homeowner as soon as possible.

A conventional loan may be a good fit if you:

• Have strong credit and a stable financial profile.
• Can make a larger down payment.
• Want to minimize long-term borrowing costs.
• Plan to build equity and eventually eliminate mortgage insurance.

Before choosing a loan, consider not only whether you can qualify today, but also how the loan may fit into your long-term financial plans.

Conventional Loan vs. FHA Loan FAQs

Still have questions about conventional and FHA loans? The answers below may help.

What Are the Benefits of an FHA vs. Conventional Loan?

FHA loans are generally easier to qualify for due to more flexible credit requirements. But for borrowers with high credit scores, conventional loans might offer lower costs. The right choice depends on your finances and how much you’re comfortable paying each month, as well as how much you’re able to put toward a down payment.

Which Loan Costs More, FHA or Conventional?

In the long term, borrowers with good credit and a strong application might find lower total costs through a conventional loan. However, borrowers with less-than-perfect credit may find accessible options through an FHA loan.

Do Sellers Prefer Conventional Loans Over FHA Loans?

Sellers may prefer conventional loans due to more limited property condition requirements and a faster closing process that’s often more predictable than with an FHA loan. But even if they prefer conventional loans, many sellers will work with borrowers seeking an FHA loan.

Final Thoughts: Should You Get an FHA or Conventional Loan?

Both FHA loans and conventional loans offer worthwhile pathways to homeownership. For borrowers with less-than-ideal credit, FHA loans may offer a smoother journey. But borrowers with higher credit and more money for a down payment might enjoy more long-term savings through conventional loans.

If you’re ready to move forward with a home loan, take the first step by getting prequalified today to find the right loan type.