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The pros and cons of a conventional loan and FHA

  • Writer: Lorenzo Hines
    Lorenzo Hines
  • Jun 23
  • 2 min read
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If you’re planning to buy a home, one of the biggest decisions you'll face is choosing the right type of mortgage. Two of the most common options are Conventional loans and FHA loans. While both can help you finance your home, they come with different requirements, benefits, and limitations.


Here’s a breakdown of the pros and cons of Conventional loans and FHA loans to help you decide which might be the better fit for your situation.


What Is a Conventional Loan?

A Conventional loan is a mortgage not insured or guaranteed by the federal government. These loans are typically offered by private lenders such as banks, credit unions, or mortgage companies.


Pros of a Conventional Loan:

  • Lower overall cost if you have strong credit (better interest rates).

  • No upfront mortgage insurance premium (MIP) like FHA loans.

  • PMI (Private Mortgage Insurance) can be removed once you reach 20% equity.

  • More flexibility on property types (e.g., second homes, investment properties).


Cons of a Conventional Loan:

  • Stricter credit score requirements (usually 620+ minimum).

  • Higher down payment (often 5–20%, though 3% is possible with some programs).

  • Tougher income and debt ratio qualifications.


What Is an FHA Loan?

An FHA loan is backed by the Federal Housing Administration and is designed to make homeownership accessible—especially for first-time buyers or those with less-than-perfect credit.


Pros of an FHA Loan:

  • Lower credit score requirements (as low as 580 with 3.5% down).

  • Smaller down payment options (as low as 3.5%).

  • More lenient debt-to-income (DTI) ratios.

  • Assumable loan – a future buyer can take over your loan at your interest rate.


Cons of an FHA Loan:

  • Upfront Mortgage Insurance Premium (MIP) is required.

  • Ongoing monthly MIP is required for the life of the loan if your down payment is less than 10%.

  • Stricter property standards, which can complicate older home purchases.

  • Loan limits depending on your area.


Which One Should You Choose?

Here’s a quick guide based on your situation:

Your Situation

Best Option

Excellent credit & strong income

Conventional Loan

First-time homebuyer with limited funds

FHA Loan

Want to avoid long-term mortgage insurance

Conventional Loan

Lower credit score or higher DTI

FHA Loan


Final Thoughts

There’s no one-size-fits-all mortgage. The right choice depends on your financial profile, homeownership goals, and how long you plan to stay in the home.


Tip: Get pre-approved and speak with a trusted lender who can help you compare both options side-by-side.


Need help deciding which loan is right for you? Let’s chat. I can connect you with experienced lenders and guide you every step of the way.

 
 
 

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