An FHA loan is insured by the federal government and allows 3.5% down with a 580 or higher credit score, which makes it more forgiving on credit. A conventional loan allows as little as 3% down for qualifying buyers, and its mortgage insurance can be removed as you build equity, while FHA mortgage insurance with less than 10% down lasts for the life of the loan. With stronger credit, conventional often costs less over time. With lower scores, FHA often wins, so the honest answer is to price both.
What is the difference between an FHA and a conventional loan?
The difference starts with who stands behind the loan. An FHA loan is insured by the Federal Housing Administration, which is part of HUD. That insurance protects the lender if the borrower defaults, which is why lenders can approve FHA borrowers a conventional loan might turn away. You pay for that protection through mortgage insurance.
A conventional loan has no government insurance or guarantee. Most follow the guidelines of Fannie Mae and Freddie Mac, which is why nearly every lender offers one. Pricing on a conventional loan rewards strong credit and larger down payments.
Credit and down payment
HUD sets the FHA credit tiers. A score of 580 or higher qualifies for maximum financing, which means 3.5% down. A score from 500 to 579 is limited to 90% of the value, which means 10% down. Individual lenders can set higher minimums than the FHA floor, so the real cutoff varies by lender.
On the conventional side, Fannie Mae offers 3% down through two main options. Standard 97% LTV requires at least one borrower to be a first-time homebuyer. HomeReady has no first-time buyer requirement, but it has an income limit of 80% of the area median income.
The home itself
FHA is for a primary residence, from one to four units, so you can buy a duplex to fourplex and live in one unit. Conventional can finance a primary residence, a second home or an investment property. The FHA appraisal also checks the home against HUD's minimum property standards for safety, security and soundness, so a home with deferred repairs can need work before closing.
FHA vs conventional, side by side
| FHA | Conventional | |
|---|---|---|
| Backed by | Insured by FHA (HUD) | No government insurance; most follow Fannie Mae or Freddie Mac |
| Minimum down | 3.5% with a 580+ score; 10% with 500 to 579 | 3% for qualifying first-time or income-eligible buyers |
| Mortgage insurance | Upfront and annual premium | PMI only with less than 20% down |
| How it ends | After 11 years with 10% or more down; otherwise the life of the loan | Cancel on request at 80% of original value; ends automatically at 78% |
| Seller contributions | Up to 6% of the sales price | 3%, 6% or 9% on a primary home, rising with your down payment |
| Property use | Primary residence, 1 to 4 units | Primary, second home or investment |
| Condos | FHA-approved project or single-unit approval | Project must meet Fannie Mae or Freddie Mac standards |
How does mortgage insurance differ?
Mortgage insurance is the biggest structural difference between the two, and it is where most comparisons get vague. The cost depends on your loan, so we will not quote premiums here. The rules for how long it lasts are set by HUD and by federal law, and those are worth knowing before you choose.
FHA mortgage insurance
An FHA purchase loan carries an upfront mortgage insurance premium and an annual premium paid monthly. Under HUD's current rules, if your loan starts at 90% of the value or less, meaning 10% or more down, the annual premium lasts 11 years. If you put less than 10% down, it lasts for the full term of the loan.
Conventional PMI
A conventional loan carries private mortgage insurance only when you put less than 20% down. The Homeowners Protection Act gives you a clear way out:
- You can ask in writing to cancel PMI when your balance is scheduled to reach 80% of the home's original value, with a good payment history and no junior liens
- The servicer must end it automatically when the balance is scheduled to reach 78%, if you are current
- It must end at the midpoint of the loan's amortization schedule even if 78% has not been reached
The CFPB notes that these PMI rules do not apply to FHA loans, which follow HUD's own requirements.
Is FHA or conventional better for a first-time buyer?
There is no universal winner. It depends on your credit, how much you have saved and how long you expect to keep the loan. FHA is not limited to first-time buyers, and conventional 3% down is not limited to them either, so being a first-time buyer does not decide it on its own.
FHA tends to fit when:
- Your credit is still being built or rebuilt
- Your debt-to-income ratio runs on the higher side
- You want a loan a future buyer can assume, since FHA loans are assumable by a qualified buyer
Conventional tends to fit when:
- Your credit is strong
- You can put 10% or more down, or you expect to reach 20% equity in a reasonable time
- The home is a second home or an investment property
- The condo you want does not have FHA approval
Not sure which one prices better for you?We run FHA and conventional across our lenders and show you both, side by side.
Talk to a brokerCan the seller pay closing costs on FHA and conventional loans?
Yes, on both, up to a limit. These are called interested party contributions, and they can go toward closing costs, prepaid items and discount points. They cannot fund your down payment.
FHA. The seller and other interested parties can contribute up to 6% of the sales price.
Conventional. Fannie Mae ties the limit to your loan-to-value ratio on a primary home or second home: 3% if you put less than 10% down, 6% with 10% up to 25% down, and 9% with 25% or more down. Investment properties are limited to 2%. The limit is figured on the lower of the sales price or the appraised value, and the credit cannot exceed your actual closing costs.
For a buyer with a small down payment, that difference can matter in negotiating, which is one reason FHA stays popular with first-time buyers.
Which loan is easier to use for a Florida condo?
In South Florida, this question often decides the loan before anything else does. Neither program is easier across the board. It depends on the building.
FHA condo approval
For FHA, the condo project needs to be on HUD's approved list, or the unit needs a single-unit approval. Single-unit approval is limited to projects with at least five units that meet a subset of HUD's requirements, and not every lender will do one. Project approvals expire three years after the building is placed on the list, so a building that was approved once can lapse.
Conventional condo eligibility
For conventional, the project has to meet Fannie Mae or Freddie Mac standards, often called warrantable. Fannie Mae treats a project that needs critical repairs as ineligible, meaning repairs that significantly affect safety, structural integrity, habitability or financial viability. A special assessment tied to an unfinished critical repair also makes the project ineligible, and if a structural or mechanical inspection was done within three years, the lender must review it. These rules were tightened after the 2021 Surfside collapse.
Florida's condo safety laws
Florida law now requires a milestone structural inspection for condo and co-op buildings three or more habitable stories tall, by December 31 of the year the building turns 30, and every 10 years after. Associations of those buildings must also complete a structural integrity reserve study at least every 10 years. Those documents feed directly into both FHA and conventional reviews.
Before you write an offer on a Palm Beach County condo, check the project's FHA status and ask for the milestone inspection summary, the reserve study and any special assessments. Lenders may still decline a project that technically qualifies, so this varies by lender.
Can I switch from FHA to conventional later?
Yes, by refinancing into a conventional loan if you qualify at that time. This is how many FHA borrowers with life-of-loan mortgage insurance end it. If the new conventional loan starts with 20% or more equity, there is no PMI. If it starts with less, PMI follows the cancellation rules above. Whether a refinance makes sense depends on rates and your situation when you do it, so it is not something to count on when you buy.
If you stay with FHA, an FHA Streamline refinance may let you lower the rate later with less paperwork, if you qualify and the refinance meets FHA's net benefit test.
How we approach it
We do not pick a program for you in advance. As a broker, we price FHA and conventional side by side across our lender network, using your actual credit, savings and the home you want, and show you what each one would cost over the time you expect to keep it. If you are looking at condos, we check the project's status first, so the loan fits the building before you commit to it.
FHA Purchase3.5% down with a 580+ score, primary homesConventional PurchaseAs little as 3% down for qualifying buyersMortgage calculatorsEstimate a payment before you compareSources
- HUD FHA Info Center: Does FHA require a minimum credit score and how is it determined?
- HUD: Mortgagee Letter 2023-05, annual mortgage insurance premium
- HUD FHA Info Center: What costs can a seller or other interested party pay?
- CFPB: When can I remove private mortgage insurance (PMI) from my loan?
- Fannie Mae: 97% Loan to Value Options
- Fannie Mae Selling Guide: B3-4.1-02, Interested Party Contributions
- HUD: FHA Condominiums
- Fannie Mae Selling Guide: B4-2.1-03, Ineligible Projects
Common questions
An FHA loan is insured by the Federal Housing Administration, part of HUD, and is for a primary residence. A conventional loan is not government insured; most follow Fannie Mae or Freddie Mac guidelines and can finance a primary home, a second home or an investment property. FHA is more forgiving on credit, while conventional mortgage insurance can be removed as your equity grows.
No. FHA is not limited to first-time buyers. The requirement is that the home is your primary residence, and you generally can only have one FHA loan at a time.
Under current HUD rules, if you put 10% or more down, annual FHA mortgage insurance lasts 11 years. With less than 10% down, it lasts for the life of the loan. Many borrowers end it by later refinancing into a conventional loan, if they qualify at that time.
Under the Homeowners Protection Act, you can ask in writing to cancel PMI when your balance is scheduled to reach 80% of the home's original value, if you meet the requirements. The servicer must end it automatically when the balance is scheduled to reach 78%, provided you are current on payments.
Yes, within limits. FHA allows the seller and other interested parties to contribute up to 6% of the sales price. Fannie Mae conventional limits for a primary home are 3% with less than 10% down, 6% with 10% up to 25% down, and 9% with 25% or more down. Contributions cannot cover the down payment.
Neither is easier across the board. FHA needs the condo project to be FHA approved or to qualify for a single-unit approval. Conventional needs the project to meet Fannie Mae or Freddie Mac standards, which exclude buildings that need critical repairs. It depends on the building, so check before you write an offer.
General information only, not a commitment to lend or an offer of credit. Loan programs, guidelines, interest rates and terms are subject to change without advance notice and vary by lender. All loans are subject to credit approval and underwriting.
My Liberty Loans is a DBA of Liberty Mortgage Associates Inc., NMLS #275236.