What is the difference between FHA and conventional loans?

FHA loans require 3.5% down payment with 580 credit score, backed by Federal Housing Administration, and include upfront + annual mortgage insurance for life of loan. Conventional loans require 5-20% down with 620+ credit score, are not government-backed, and drop PMI at 20% equity. FHA is better for first-time buyers with low down payments; conventional is better for strong credit and larger down payments.

What are FHA loan requirements 2025?

FHA loan requirements include: 580+ credit score (3.5% down) or 500-579 credit (10% down), debt-to-income ratio under 43%, 2+ years employment history, primary residence only (no investment properties), property appraisal meeting FHA standards, upfront mortgage insurance (1.75% of loan), and annual MIP (0.55-1.05% of loan balance). Maximum loan limits vary by county: $498,257 (low-cost areas) to $1,149,825 (high-cost).

Can I get rid of FHA mortgage insurance?

You can remove FHA mortgage insurance by refinancing to a conventional loan once you reach 20% equity. FHA loans originated after June 2013 require MIP for the entire loan term if you put down less than 10%. If you put down 10%+, MIP drops after 11 years. Refinancing to conventional saves $200-$400/month once you have 20% equity and 620+ credit score.

Is an FHA loan better than conventional?

FHA loans are better for first-time buyers with low credit (580-650), small down payments (3.5%), and higher debt-to-income ratios. Conventional loans are better for buyers with good credit (680+), larger down payments (10-20%), and desire to eliminate PMI at 20% equity. For a $300,000 home, FHA requires $10,500 down vs conventional $15,000-$60,000 down.

What is the FHA loan limit 2025?

FHA loan limits for 2025 are $498,257 in most US counties (low-cost areas) and up to $1,149,825 in high-cost areas like San Francisco, New York City, and Los Angeles. Limits vary by county based on median home prices. Alaska, Hawaii, Guam, and US Virgin Islands have 150% higher limits. Check your county's specific FHA limit at HUD.gov before house hunting.

How much is FHA mortgage insurance?

FHA mortgage insurance costs 1.75% upfront (rolled into loan) plus 0.55-1.05% annual MIP divided into monthly payments. For a $300,000 FHA loan: upfront MIP = $5,250, annual MIP = $1,650-$3,150/year ($137-$262/month). MIP rate depends on loan amount, term, and down payment. 10%+ down payment reduces annual MIP to 0.55% for 11 years instead of life of loan.

FHA vs Conventional Loan: Requirements, Rates & Calculator 2025

FHA vs Conventional Loans: 2025 Guide for US Homebuyers

Choosing between an FHA loan and a conventional mortgage is one of the most important decisions for American homebuyers. In 2025, FHA loans offer 3.5% down payments with 580 credit scores, making them ideal for first-time homebuyers, while conventional loans require 5-20% down and 620+ credit scores but offer lower rates and no upfront mortgage insurance. If you already have a mortgage, see our refinance guide. This guide compares FHA loan requirements, conventional mortgage rates, PMI costs, and helps you determine which home loan is best for your financial situation. Don't forget to budget for homeowners insurance when calculating total housing costs.

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What Is an FHA Loan? (Requirements & Mortgage Insurance Explained)

Backed by the Federal Housing Administration
Low down payment (3.5%)
Minimum credit score: 580
More flexible for first-time buyers
Requires mortgage insurance (MIP)

Mortgage application form and calculator on desk — Photo by Breakingpic / Pexels

What Is a Conventional Loan? (Traditional Mortgage Explained)

Conventional Mortgage Requirements and PMI Explained

Not government-backed (offered by private lenders like banks and credit unions)
Down payment: 3%–20% (3% programs available for first-time buyers from Fannie Mae and Freddie Mac)
Minimum credit score: 620 (better rates at 740+)
Lower conventional mortgage rates for borrowers with strong credit (save 0.25-0.5% APR vs FHA)
Private mortgage insurance (PMI) if <20% down payment ($30-$70/month per $100K borrowed, cancels automatically at 78% LTV)

Home loan approval stamp on mortgage documents — Photo by Pixabay / Pexels

FHA vs Conventional: Key Differences

Feature	FHA Loan	Conventional Loan
Down Payment	3.5%	3%–20%
Credit Score	580+	620+
Mortgage Insurance	MIP (required)	PMI if <20% down
Loan Limits	$472,030 (2025)	$726,200 (2025)
Rates	Higher for low credit	Lower for strong credit

How to Choose: FHA or Conventional?

First-time buyer, low credit, small down payment: FHA
Strong credit, larger down payment: Conventional
Compare rates, fees, and insurance costs
Consult a mortgage advisor

Couple meeting with mortgage advisor in office — Photo by Pixabay / Pexels

Key Takeaways

FHA loans are best for first-time buyers with low credit and small down payments
Conventional loans offer lower rates for strong credit and larger down payments
Compare total costs, including insurance and fees
Consult a mortgage advisor for personalized advice

Frequently Asked Questions

1. What is the minimum credit score for FHA?

580 for 3.5% down; 500 for 10% down.

2. Can I refinance from FHA to conventional?

Yes, if you build equity and improve your credit score.

3. Is mortgage insurance required?

FHA: MIP required; Conventional: PMI if <20% down.

4. What are 2025 loan limits?

FHA: $472,030; Conventional: $726,200.

5. Which is better for first-time buyers?

FHA is more flexible for first-timers with low credit or small down payment.

6. Can I get a conventional loan with bad credit?

Usually not; FHA is better for low credit.

7. How do I choose?

Compare rates, fees, and insurance; consult a mortgage advisor.

8. Can I use gift funds for down payment?

Yes, both FHA and conventional allow gift funds.