Conventional vs FHA Loans
Mortgage Broker
Chris Carter
Published on August 1, 2020

Conventional vs FHA Loans

It seems to be widely believed that FHA loans are only for 1st time buyers, and conventional loans are for everyone else. This isn’t necessarily the case though. The differences are mostly with regard to minimum credit scores required, as well as loan flexibility. So let’s talk about both a bit…

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Minimum down payment

FHA loans have a minimum down payment of 3.5%, while conventional mortgages require 3% down minimum for 1st time buyers, and 5% down for others. These low down programs are going to be for those buying a primary residence.

Credit scores

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FHA loans are easier to qualify for, with a minimum credit score of 620. Luckily for many buyers, don’t require nearly the depth of credit as conventional loans.

Conventional loans typically require a credit score of 620 or higher, though 680 and above come with better finance terms.

Debt-to-income ratios

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Your debt-to-income ratio, or DTI, is the percentage of your monthly pretax income that you spend to pay your debts, including your mortgage, student loans, auto loans, child support and minimum credit card payments. The higher your DTI, the more likely you are to struggle with paying your bills. Your debt-to-income ratio must be 55% or less to qualify for an FHA loans. Conventional loans allow debt-to-income ratios up to 50%.

Mortgage insurance

Mortgage insurance  protects the lender in case of default. Conventional loans require borrowers to pay for mortgage insurance if their down payment is less than 20%. FHA loans require mortgage insurance regardless of down payment amount. Other differences are:

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  • FHA mortgage insurance premiums cost the same no matter your credit score. Private mortgage insurance on conventional loans costs more if you have a low credit score, but it may cost less than FHA mortgage insurance if your credit score is above 720.
  • FHA mortgage insurance premiums last for the life of the loan if you make a down payment of less than 10%. You can get rid of FHA mortgage insurance by refinancing to a conventional loan. By contrast, PMI is automatically canceled on conventional loans after your equity reaches 78% of the purchase price.
  • Both FHA and private mortgage insurance costs vary according to the size of the down payment.

Loan limits

Both conventional and FHA loans limit the amount you can borrow, and the maximum loan sizes vary by county. Regulators may change the loan limits annually.

The 2020 FHA loan limit is $331,760 in low-cost areas and $765,600 in expensive markets.

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Conventional loans are subject to the conforming loan limit set by the Federal Housing Finance Agency. In 2020, that limit is $510,400 for most of the U.S. Non-government mortgages that exceed that threshold are called jumbo loans


As far as mortgage refinancing goes, the edge goes to FHA “streamline” refinancing. With no income verification and likely no home appraisal, it’s about as easy a refi as you can get.

If you bought your home with an FHA loan, and have been in the home long enough to have 20% equity or more, refinancing into a conventional mortgage may offer you some monthly payment savings, and since FHA mortgage insurance can’t be removed otherwise, this is often times a good bet. To learn about your options, here is a good place to start.

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