FHA vs. Conventional Loans: How They Compare

See if an FHA or Conventional Loan Is Best For You

As you pursue homeownership, finding the right mortgage can make all the difference. FHA loans and conventional loans are two popular mortgage options. While an FHA loan backed by the Federal Housing Administration offers low down payment options to buyers with lower credit scores, conventional loans provide a way for borrowers who can put down a large down payment to bypass mortgage insurance requirements.

Check out our comparison table and read on to decide which loan is best for you.

FHA Loan vs. Conventional Loan: Key Differences

Both an FHA loan and a conventional loan could help you make your homeownership dream a reality, but there are some notable differences between the two.

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.

FHA loans are typically a good option for home buyers with mid-tier credit scores who can only afford a low down payment. However, the attached mortgage insurance premiums can make this a more expensive option in the long run.

What Is a Conventional Loan?

Conventional loans are mortgages offered by private lenders, like Freedom Mortgage, without a guarantee from a government agency. With that, conventional loans tend to have stricter credit score requirements.

The two types of conventional loans include conforming loans (that follow the loan limits set by Fannie Mae and Freddie Mac) and jumbo loans (which are mortgages for amounts greater than the limits of conforming loans). When you want to buy a more expensive house, you may need to get approved for a jumbo loan.

Comparing FHA vs. Conventional Loan Pros and Cons

When comparing your options, understanding the pros and cons can help. Explore both loan options below.

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, thanks to the 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 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. Additionally, your DTI must be lower than 43%.
• Conventional loans: You’ll need a credit score of at least 620 to qualify for a conventional loan. But your DTI could be as high as 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. Limits range from $524,225 in the most affordable counties to $1,209,720 in the most expensive, as of 2025.
• Conventional loans: Conventional loan limits tend to be higher. As of 2025, loan limits range from $806,500 in the most affordable counties to $2,326,875 in the most expensive.

Mortgage Insurance

The mortgage insurance for FHA loans is often more expensive than the mortgage insurance for conventional loans.

• FHA loans: FHA loans involve an upfront mortgage insurance premium of 1.75% of the loan amount. Plus, FHA loans include a monthly ongoing mortgage insurance premium. Mortgage insurance premiums will continue for at least 11 years.
• Conventional loans: Conventional loans only require a monthly mortgage insurance premium 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 on how they plan to use the property.

• 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 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 painless refinance process.
• Conventional loans: If you want to refinance a conventional loan, you’ll essentially need to complete a new mortgage application.

Appraisal

Both 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, conventional loan appraisals are less rigorous.

Conventional 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.

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 affordable 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. 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 excellent credit might enjoy long-term savings through conventional loans.

If you are ready to move forward with a home loan, take the first step by getting prequalified today.