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FHA vs. conventional loans

Learn the differences between FHA and conventional loans

Many people choose Federal Housing Administration (FHA) and conventional loans when they buy or refinance a home. That’s because anyone can qualify for these mortgages when they meet the credit, income, and financial requirements.

Differences exist between FHA and conventional loans and each type of mortgage has pros and cons you’ll want to understand. Check out our comparison table and read on to decide which loan is a good choice for you.

  FHA Loans Conventional / Jumbo Loans
Interest Rates Competitive Competitive
Minimum Credit Scores Often Lower Often Higher
Minimum Down Payments Often Lower Often Higher
Loan Limits Often Lower Often Higher
Upfront Mortgage Insurance Yes No
Monthly Mortgage Insurance Yes No with 20% Equity or More
Property Type Restrictions Primary Homes Only No Restrictions
Streamline Refinancing Yes No

What is an FHA loan?

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

What are the advantages of an FHA loan?

FHA loan interest rates are often competitive with the rates on conventional loans. You can often get approved for an FHA loan with a smaller down payment and lower credit score versus a conventional loan.

FHA loans can be easier to refinance with the streamline program, which features less paperwork and faster approvals. You can only use the streamline program to refinance an existing FHA loan with a new FHA loan, however.

What are the disadvantages of an FHA loan?

You are generally limited to buying primary homes with FHA loans and you can have only one FHA loan at a time. With conventional loans, you can buy primary homes, vacation homes, rental homes, and investment properties and you can have as many conventional loans as your lender will approve.

You can often borrow less money to buy a home with an FHA loan compared to a conventional loan. That’s because the FHA limits the loan amounts for the mortgages. In counties where homes are the most affordable, the 2023 limit is $472,030. In counties where homes are more expensive, the 2023 limit is $1,089,300.

What are the disadvantages of FHA loan mortgage insurance?

The mortgage insurance for FHA loans is often more expensive than the mortgage insurance for conventional loans. FHA loans come with two kinds of mortgage insurance premiums.

The first is an upfront mortgage insurance premium (UFMIP), which every person who gets an FHA loan needs to pay. This upfront premium is currently equal to 1.75% of the loan amount. Conventional loans do not have this upfront payment.

FHA loans also have monthly mortgage insurance premiums ("MIP"). The cost of these monthly premiums is affected by several factors and may be higher or lower than the cost of the mortgage insurance for conventional loans.

However, every person who gets an FHA loan needs to pay these monthly insurance premiums. This is different from the requirements for conventional loans. When you finance a home with a conventional loan, you only need to pay for mortgage insurance when your down payment or your home’s equity is less than 20%.

Finally, you often have to pay FHA loan mortgage insurance for a longer period of time compared to conventional loan mortgage insurance. Most borrowers who get an FHA loan today will need to pay monthly mortgage insurance premiums for at least 11 years regardless of the value of their home’s equity. By contrast, you can request cancellation of conventional loan mortgage insurance as soon as your home’s equity reaches 20%.

As a result of these factors, the overall mortgage insurance costs of FHA loans are often higher than the mortgage insurance costs of conventional loans.

What is a conventional loan?

Conventional loans are mortgages offered by private lenders like Freedom Mortgage without a guarantee from a government agency. 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.

What are the advantages of a conventional loan?

Conventional loans offer you competitive interest rates and better terms when you qualify for them. You can often borrow more money to buy more expensive homes when you are approved for a conventional loan. You can buy a primary home, vacation home, second home, rental house, or investment property with these mortgages, too. Learn more about conventional loans.

What are the advantages of conventional loan mortgage insurance?

The mortgage insurance for conventional loans is often less expensive and easier to cancel than the mortgage insurance on FHA loans. For example, no upfront mortgage insurance premiums are required for conventional loans, but they are for FHA loans.

In addition, not every person who gets a conventional loan needs to pay for mortgage insurance. When you buy a home with a 20% or more down payment, you are generally not required to make monthly mortgage insurance payments. When you refinance a home and the value of your home’s equity is 20% or more, you are generally not required to make monthly mortgage insurance payments either.

With an FHA loan, you will be required to make monthly mortgage insurance payments regardless of the size of your down payment or the value of your home’s equity.

Finally, the mortgage insurance on conventional loans is usually easier to cancel than the mortgage insurance on FHA loans. Most borrowers who get an FHA loan today will need to pay monthly mortgage insurance premiums for at least 11 years regardless of the value of their home’s equity.

With a conventional loan, you can request we cancel your mortgage insurance once your home’s equity reaches 20%.

What are the disadvantages of conventional loans?

It can be harder to qualify for a conventional loan compared to an FHA loan. We may require you to have a higher credit score, make a larger down payment, or meet other financial requirements before we approve your loan application.

Freedom Mortgage is a top FHA lender in the United States according to Inside Mortgage Finance, Jan-Jun 2023.

Last reviewed and updated September 2023 by Freedom Mortgage Corporation.

Mortgage insurance premiums (MIP) vs private mortgage insurance (PMI)

FHA loans have MIP. Conventional loans have PMI. Learn the differences!

Conventional loan limits 2023

How much can you borrow with a conventional loan?

Refinance an FHA loan to a conventional loan

Learn how it might help you save on mortgage insurance