FHA vs Conventional Home Loans – The Differences Between the Two Loan Programs
For many home buyers, choosing between an FHA loan and a conventional mortgage can be confusing — especially with so many different mortgage programs available. Understanding the key differences between these two popular loan types can help you make a more informed decision and potentially save thousands of dollars over the life of your loan.
Which Loan Programs Can I Use?
FHA loans are backed by the Federal Housing Administration and are available to any borrower financing a primary residence — not just first-time home buyers. Conventional home loans can be used to purchase or refinance a primary residence, a second home, or an investment property. Both FHA and conventional loans can be used to purchase or refinance a home.
Down Payment Differences
FHA loans require a minimum down payment of 3.5%, while conventional loans require as little as 3% down for first-time buyers and 5% down for repeat buyers in most cases.
However, FHA loans include an upfront Mortgage Insurance Premium (MIP) of 1.75% of the loan amount, which is added to your closing costsClosing costs are the fees and charges due at closing beyond the down payment itself — the collection of costs that pay for all the work, insurance, and government processes required to originate a loan and transfer (or refinance) a property. They... More or rolled into the loan. Conventional loans do not have an upfront mortgage insurance fee.
Learn more about FHA down payment requirements →
Mortgage Insurance Differences
One of the most important — and often overlooked — differences between FHA and conventional loans is how mortgage insurance works.
FHA loans require mortgage insurance for the life of the loan in most cases, regardless of how much equityEquity is the portion of your home's value that you own. It's calculated by subtracting the balance of your mortgage and any other loans secured by the home from its current market value. Your equity grows in two ways: by paying down... More you build. FHA mortgage insurance premiums are 0.55% annually when the minimum down payment is made, and 0.50% annually when the down payment is 5% or more.
Conventional loans require Private Mortgage Insurance (PMI) only when your down payment is less than 20%. PMI automatically drops off once you reach the halfway point of your loan term, or sooner if you can document that you have reached 20% equityEquity is the portion of your home's value that you own. It's calculated by subtracting the balance of your mortgage and any other loans secured by the home from its current market value. Your equity grows in two ways: by paying down... More in your home.
At first glance, the lifetime mortgage insurance requirement on FHA loans may seem like a significant disadvantage — but a full side-by-side analysis is always recommended. FHA loans often carry a lower interestInterest: the cost of borrowing money, charged as a percentage of the outstanding balance and paid in arrears (unlike rent, which is paid in advance). More rate than conventional loans, which can offset some or all of the mortgage insurance cost depending on your situation. Additionally, conventional PMI is calculated on a sliding scale tied to your credit score. For borrowers with lower credit scores, the PMI on a low-down-payment conventional loan can be quite significant — sometimes making the FHA loan the more affordable option overall.
Learn more about mortgage insurance →
Credit Score Differences
FHA loans are more forgiving when it comes to credit scores. The FHA accepts credit scores as low as 500 (with a 10% down payment) or 580 (with 3.5% down). This makes FHA loans a strong option for buyers with less-than-perfect credit.
Conventional mortgage rates are heavily influenced by your credit score — the lower the score, the higher the rate. Additionally, if your credit score is below 680 and your down payment is less than 20%, you may have difficulty qualifying for Private Mortgage Insurance (PMI), which is required for conventional loans with less than 20% down.
Learn more about credit reports and credit scores →
Escrow Requirements
FHA loans require borrowers to escrow for property taxes and homeowner’s insurance as part of their monthly payment. Escrowing means paying 1/12th of the annual taxes and insurance every month; these payments are deposited into an escrow accountAn escrow account is an account your mortgage lender maintains to collect and pay certain property-related expenses on your behalf. Each month, a portion of your mortgage payment is deposited into the account to cover items such as property taxes and homeowners... More held by the lender. When the tax and insurance payments are due, the lender pays them from funds in the escrow accountAn escrow account is an account your mortgage lender maintains to collect and pay certain property-related expenses on your behalf. Each month, a portion of your mortgage payment is deposited into the account to cover items such as property taxes and homeowners... More. Conventional loans do not always require an escrow accountAn escrow account is an account your mortgage lender maintains to collect and pay certain property-related expenses on your behalf. Each month, a portion of your mortgage payment is deposited into the account to cover items such as property taxes and homeowners... More, depending on the lender and loan terms. Some homeowners prefer to pay their own taxes and insurance.
Home Mortgage Loan Size Differences
FHA loan limits are set by HUD and vary by county. In most areas, the 2026 FHA limit is $541,287 for a single-family home. However, higher-cost metro areas have elevated limits — for example, Rockingham and Strafford Counties in NH (part of the greater Boston metro area) have a 2026 FHA limit of $962,550. Limits vary by county, so contact us for the limit in your specific area.
The 2026 conventional conforming loan A conforming loan is a conventional mortgage that meets the requirements to be purchased by Fannie Mae or Freddie Mac. “Conforming” means the loan conforms to their guidelines — on loan amount, credit, documentation, and property type — which allows the lender... More limit is $832,750 for most of the country, including most of NH. Rockingham and Strafford Counties also qualify for a higher conventional limit of $962,550.
Both FHA and conventional loans have higher limits for 2, 3, and 4-unit properties.
[See 2026 FHA and conventional loan limits by county →]
Debt-to-Income Ratio Differences
FHA loans are generally more flexible when it comes to debt-to-income (DTI) ratios, allowing up to 55% or sometimes higher. Conventional loans typically allow up to 50% DTI. This means FHA underwriting can be more lenient for borrowers carrying higher levels of debt.
Learn more about debt-to-income ratio requirements → contact Renee Duval to discuss
Which Loan Is Right for You?
Every borrower’s situation is unique. The right loan program depends on your credit score, down payment, how long you plan to stay in the home, and your long-term financial goals. There is no one-size-fits-all answer.
Contact Renee Duval today for a free consultation to review your options and find the mortgage program that best fits your needs — and gets you the lowest possible rate and payment.