FHA vs. Conventional Loans for Mortgages

Buying a new home is an exciting milestone. Yet the homebuying journey also brings up a lot of important decisions, including choosing the right type of mortgage to finance your purchase. After all, the home loan you choose can have a big impact on your monthly budget, the overall interest you pay, and your ability to qualify for financing in the first place.

As you research mortgage options, two of the most common home loans you’re likely to come across are FHA loans and conventional loans. Both loan options can help you become a homeowner. But they work differently when it comes to key details like down payments, credit score requirements, mortgage insurance, loan limits, and more.

Understanding the differences between FHA and conventional loans can help you figure out which type of mortgage is the best fit for your homebuying needs. And in some cases, choosing the right home loan could save you thousands of dollars over the life of your loan.

This guide breaks down everything you need to know about FHA and conventional loans and how to choose the best option for your financial situation.

What is a conventional mortgage?

A conventional mortgage is the most popular type of home loan in the United States.^[1] This type of mortgage doesn’t receive any insurance or guarantee from the federal government. Instead, private lenders—like banks, credit unions, and mortgage companies—issue conventional loans. But you usually need at least a fair credit score^[2] and stable income to qualify.

There are two types of conventional loans.

• Conforming loans: These loans follow Fannie Mae and Freddie Mac guidelines including maximum loan limits, minimum credit scores, and debt-to-income ratios (DTIs). (Fannie Mae and Freddie Mac are government-sponsored enterprises or GSEs that invest in mortgages.) Following these guidelines makes it easier for lenders to sell confirming loans to investors after closing instead of holding the mortgages themselves for up to 30 years. As a result, conforming loans often feature lower interest rates for borrowers compared to non-conforming loans.^[3]
• Non-conforming loans: Non-conforming loans are mortgages that don’t meet Fannie Mae and Freddie Mac standards. Jumbo loans, which buyers can use to finance high-priced homes, are a common example of this type of mortgage. Since lenders can’t sell non-conforming loans to a GSE after closing, lenders often require borrowers to meet stricter qualification requirements. A jumbo loan doesn’t usually have a higher interest rate than a conforming conventional mortgage.^[4]

Because the federal government doesn’t insure or back conventional loans, they generally pose more risk to lenders. If a borrower doesn’t repay the loan as promised, there’s no government agency standing by to help repay the lender a portion of its loss. As a result, it can be tougher to qualify for this type of home loan compared to government-backed loans.

You might need higher credit scores, a lower debt-to-income (DTI) ratio, or a higher down payment to qualify for a conventional mortgage. But these loans could also be more flexible and less expensive over the long term—especially for well qualified borrowers.^[1]

Basic conventional loan requirements

To qualify for a conventional mortgage, you need to satisfy basic Fannie Mae and Freddie Mac loan requirements. In general, that means you need to meet the following criteria.

• Credit score: You typically need at least a 620 credit score to be eligible for a conventional loan. Some lenders require a FICO® Score of 660 or higher. But it’s smart to aim for a score of 760 or higher if want access to the lowest interest rates available.^[5]
• Debt-to-income (DTI) ratio: Generally, lenders want to see a DTI ratio below 43%, but some may accept a DTI ratio as high as 49% if you have a lower risk profile in other areas (e.g., higher credit score, higher down payment, etc.).
• Down payment: Some conventional loans feature down payments as low as 3% and there are even special lender programs that offer 100% financing. However, you’ll typically need to put down at least 20% to avoid private mortgage insurance (PMI).
• Loan amounts: In 2025, conforming conventional loan limits are available for as much as $806,500 ($1,209,750 in high-cost areas).^[6]

Keep in mind that every lender is different. So, while the criteria above represents basic conventional loan guidelines, individual lenders may add on their own requirements you need to satisfy as well.

Pros and cons of conventional mortgage loans

If you’re considering a conventional loan, consider the following benefits and drawbacks before applying.

Pros

• Lower interest rates for strong borrowers: If you have a good credit, one of the benefits is the potential to qualify for a competitive interest rate on a conventional mortgage. A lower mortgage APR could save you a significant amount of money—potentially tens of thousands of dollars over the course of your home loan.^[7]
• Option to avoid private mortgage insurance (PMI): In general, you can lower your monthly payment amount by skipping PMI when you put down 20% or more on a conventional loan.
• Higher loan limits: In many areas, conventional loans give you more borrowing power because they have higher loan limits. Plus, well-qualified borrowers may be eligible for even larger amounts with jumbo loans (as long as they can satisfy the tighter credit and income requirements).^[8]
• No upfront mortgage insurance: Unlike FHA loans, conventional loans don’t require upfront mortgage insurance. Instead, conventional loan borrowers pay private mortgage insurance (PMI) premiums each year—dividing the cost by 12 and adding it to their monthly mortgage payment. However, if you make a down payment of 20% or more, you can avoid PMI costs altogether.^[9]

Cons

• Stricter credit requirements: It can be tougher to qualify for a conventional loan (especially jumbo loans) compared to some other types of mortgages. Most lenders require at least a 620 FICO® Score, and certain lenders have even stricter minimum credit requirements.
• Avoiding PMI is expensive: Depending on the price of your home, coming up with a 20% down payment to avoid private mortgage insurance isn’t always affordable. The median home sales price in the United States was $414,000 in April 2025 according to the National Association of Realtors—making the average cost to avoid PMI on a conventional mortgage nearly $83,000.^[10] And the national average wage in the United States is $66,622 (based on 2023 Social Security Administration data—the most recent available).^[11] So, unless you’re purchasing a new home after selling a former property (for a sizable profit), coming up with a down payment of this size could be a challenge for many home buyers.
• Tougher qualification criteria: Because the lender is accepting more risk, conventional loans tend to feature stricter overall eligibility requirements. In general, it’s harder to qualify for this type of loan compared to other mortgage options.

What is an FHA mortgage?

An FHA loan is a mortgage that receives insurance backing from the Federal Housing Administration (FHA)—a division of the U.S. Department of Housing and Urban Development or HUD. The FHA doesn’t issue mortgages directly to borrowers. It guarantees the loans, reducing risk for lenders and making it easier for borrowers to qualify for financing.

This type of home loan is especially popular among first-time home buyers, borrowers with lower credit scores, and homebuyers who don’t have the ability to save large down payments. In 2025, the average homebuyer is providing a 25% down payment on their home loan according to data from the National Association of Realtors.^[12] However, qualified borrowers with at least a 580 FICO® Score may be able to secure an FHA loan with a down payment as low as 3.5%.^[13]

Basic FHA loan requirements

Every FHA lender is different. But to purchase a home using an FHA loan, you’ll typically need to satisfy at least the following basic criteria.

• Credit score: An FHA lender may approve you for financing with a FICO® Score as low as 580. With a 10% down payment, some lenders might accept a credit score as low as 500 making it possible to buy a house with bad credit. But keep in mind that not all lenders are willing to approve borrowers with lower credit scores due to the added risk.
• DTI ratio: In general, you need a total DTI of 43% or lower.^[13] But if you have a higher credit score (620 or above), some lenders may still approve you for an FHA loan with a higher DTI ratio.^[14]
• Down payment: You can get an FHA loan with a down payment as low as 3.5%—provided your FICO Score is 580 or above. FHA guidelines let borrowers with credit scores between 500-579 purchase a home with a 10% down payment.
• Loan amounts: FHA loan limits vary based on where the property you’re buying is located. In 2025, the maximum FHA loan limit is $1,209,750 in high-cost metro and suburban areas and $524,255 for most of the country. In Alaska, Hawaii, and the U.S. Virgin Islands, FHA loan limits climb as high as $1,814,625.^[15]

As mentioned, lenders may choose to add on additional borrowing requirements above basic FHA guidelines. These add-ons are called lender overlays. So while a 580 credit score might technically be the minimum credit score you need to qualify for an FHA loan, some lenders may prefer for their FHA loan applicants to have a 620 minimum credit score instead.^[16]

Pros and cons of FHA mortgage loans

Before you apply for an FHA loan, it’s important to consider the advantages and disadvantages these mortgages have to offer.

Pros

• Lower credit score requirements: FHA loans are available to borrowers with FICO® Scores as low as 580 with a 3.5% down payment. You may be eligible for an FHA loan with a credit score as low as 500 if you put 10% down on your mortgage. But not every lender is willing to accept credit scores this low.^[13]
• Smaller down payment options: Eligible borrowers may qualify for an FHA loan with a down payment of just 3.5%. But there can be money-saving benefits to putting more money down toward your FHA mortgage loan.
• Higher debt-to-income ratio: FHA lenders may approve borrowers with higher DTI ratios compared to other types of home loan programs.^[15]
• Flexibility for applicants: In general, FHA loans are better suited for borrowers in less-than-perfect financial situations. If there’s an area on your mortgage application that isn’t ideal (e.g., a lower credit score, income challenges, DTI ratio, etc.), a lender may consider “compensating factors” that could still allow you qualify for financing. Compensating factors could include cash reserves, income from other sources, a larger down payment, and more.^[17]

Cons

• Mortgage insurance required: With an FHA loan, you generally pay upfront and annual mortgage insurance premiums. Upfront mortgage insurance premiums (UFMIP) are 1.75% of the loan amount—a fee you can pay upfront or add to your loan balance. Annual mortgage insurance premiums (MIP) vary based on factors like down payment, loan-to-value ratio (LTV), mortgage term, and loan amount. If you provide a down payment of less than 10%, MIP lasts the full life of your FHA loan. But with a down payment of 10% or higher, you only have to pay MIP for the first 11 years of your loan.^[18]
• Loan limits can be restrictive: FHA loan limits may be too low to help you purchase the property you want—especially in high-cost housing markets.
• Stricter property requirements: Property must pass an FHA appraisal and meet safety, security, and soundness standards to qualify for financing. These restrictions could limit your housing options.^[19]
• No investment properties: You can’t use FHA loans to purchase investment properties unless you buy a multifamily property and live in one of the units yourself.^[20]

Key differences between conventional loans and FHA loans

Both conventional and FHA loans can help make your homeownership dreams a reality. Here’s how FHA and conventional loans stack up side by side across several important categories.

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Choosing the best mortgage loan for your situation

There’s no single type of mortgage that’s perfect for everyone. But it is often possible to find a home loan that works great for your specific borrowing situation.

The following cheat sheet may help you decide if an FHA loan or a conventional loan could work for you.

It’s also important to consider where you want to purchase a home. In expensive housing markets, FHA loan limits might not give you enough borrowing power to buy the home you want. In these situations, you may need to consider a conventional loan or even a jumbo loan instead.

The importance of rate shopping

No matter which loan program you choose, it’s important to shop around for the best deal on financing. Mortgage rates can vary from lender to lender. And even a small difference in your mortgage rate can add up to thousands of dollars over the life of your loan.

As you compare loan estimates, be sure to ask mortgage lenders the right questions and pay attention to key details like:

• Interest rate
• Annual percentage rate (APR)
• Monthly payment
• Closing costs
• Upfront and annual mortgage insurance costs

It’s a good idea to compare at least three mortgage quotes from different lenders. Studies show that borrowers could save more than $80,000 over the course of a 30-year mortgage by comparing offers from multiple mortgage lenders before they purchase a home.^[23]

Final thoughts

Both FHA loans and conventional loans can offer a path to homeownership. But these mortgages serve different purposes, and they work best for different types of borrowers.

If your credit score is less-than-perfect or if you’re struggling to save a large down payment, an FHA loan could be a great tool to help you get into your first home. On the other hand, if you’re financially ready and want to minimize long-term costs, a conventional mortgage could typically save you more money over time.

As with any major financial decision, it’s important to do your research and shop around. Compare offers from several lenders and consider all your options before you choose the best mortgage for your personal situation. A trustworthy mortgage professional can also help answer your questions and guide you toward the loan program that’s best for you.

Sources

1. ConsumerFinance.gov. “Conventional loans.” https://www.consumerfinance.gov/owning-a-home/conventional-loans/
2. Chase.com. “What’s the minimum credit score needed to buy a house?” https://www.chase.com/personal/mortgage/education/buying-a-home/what-credit-score-is-needed-to-buy-a-house
3. RocketMortgage.com “What are conforming loans and what do they mean to borrowers?” https://www.rocketmortgage.com/learn/conforming-loan
4. RocketMortgage.com. “Non-conforming loans: What are they and how do they work?” https://www.rocketmortgage.com/learn/non-conforming-loan
5. myFICO.com. “Loan Savings Calculator.” https://www.myfico.com/credit-education/calculators/loan-savings-calculator
6. Experian.com. “What Is a Conventional Loan?” https://www.experian.com/blogs/ask-experian/what-is-a-conventional-loan/
7. Equifax.com. “Seven Benefits of a Good Credit Score.” https://www.equifax.com/personal/education/credit/score/articles/-/learn/benefits-of-good-credit/
8. RocketMortgage.com. “FHA vs. conventional loan: Definition and differences.” https://www.rocketmortgage.com/learn/fha-vs-conventional
9. RocketMortgage.com. “Mortgage insurance premium (MIP) vs. private mortgage insurance (PMI): How do they differ?” https://www.rocketmortgage.com/learn/mip-vs-pmi
10. NAR.Realtor “Existing-Home Sales Housing Snapshot.” https://www.nar.realtor/infographics/existing-home-sales-housing-snapshot
11. SSA.gov. “National Average Wage Index.” https://www.ssa.gov/oact/cola/awidevelop.html
12. NAR.Reatlor. “2025 Home Buyers and Sellers Generational Trends Report.” https://www.nar.realtor/sites/default/files/2025-04/2025-home-buyers-and-sellers-generational-trends-04-01-2025.pdf
13. Experian.com. “How to Qualify for an FHA Loan.” https://www.experian.com/blogs/ask-experian/how-to-qualify-for-fha-loan/
14. RocketMortgage.com. “FHA loans: Requirements, loan limits and fees.” https://www.rocketmortgage.com/learn/fha-loans
15. RocketMortgage.com. “FHA loan limits: How much can you borrow in 2025?” https://www.rocketmortgage.com/learn/fha-loan-limits
16. PenFed.org. “Borrower requirements for an FHA loan.” https://www.penfed.org/mortgage/article/requirements-for-an-fha-loan?&mcid=77467044190830645083278226902309140430
17. QuickenLoans.com. “The Pros and Cons Of An FHA Loan: Explained.” https://www.quickenloans.com/learn/pros-and-cons-of-fha-loan
18. RocketMortgage.com. “What is an FHA mortgage insurance premium (MIP)?” https://www.rocketmortgage.com/learn/fha-mortgage-insurance-premium
19. Investopedia.com. “The Federal Housing Administration’s (FHA) Minimum Property Standards.” https://www.investopedia.com/articles/mortgages-real-estate/11/fha-minimum-property-standards.asp
20. RocketMortgage.com. “Can FHA loans be used for investment properties?” https://www.rocketmortgage.com/learn/fha-loan-for-investment-property
21. RefinedLending.com. “FHA Loan Types.” https://www.refinedlending.com/fha-loan-types
22. NewAmericanFunding.com. “Types of Conventional Loans.” https://www.newamericanfunding.com/loan-types/conventional-loan/types-of-conventional-loans/
23. LendingTree.com. “Shopping Around for Mortgage Could Save Borrowers $80,000+ Over Lifetime of Loan.” https://www.lendingtree.com/home/mortgage/mortgage-shopping-study/

About the author

Michelle Lambright Black is a nationally recognized credit expert with two decades of experience. She is the founder of CreditWriter.com, an online credit education resource and community that helps busy moms learn how to build good credit and a strong financial plan that they can leverage to their advantage. Michelle's work has been published thousands of times by FICO, Experian, Forbes, Bankrate, MarketWatch, Parents, U.S. News & World Report, and many other outlets. You can connect with Michelle on Twitter (@MichelleLBlack) and Instagram (@CreditWriter).

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