One of the biggest decisions you’ll make when buying a home is choosing the right type of loan. Should you go with an FHA loan or a conventional loan? Each option has its pros and cons, and the right choice depends on your financial situation, credit score, and homeownership goals.
In this post, we’ll cover:
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The key differences between FHA and conventional loans
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Which loan is better for first-time buyers
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How to decide which loan works best for you
Step 1: Understanding FHA Loans
What is an FHA loan?
An FHA loan is backed by the Federal Housing Administration (FHA) and is designed to help low-to-moderate income buyers afford a home.
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Lower down payment – You only need 3.5% down if your credit score is 580 or higher.
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Easier credit requirements – You can qualify with a lower credit score (as low as 500 with 10% down).
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More flexible debt-to-income ratio – FHA loans allow a higher percentage of your income to go toward debt.
Downside of FHA loans:
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Mortgage Insurance (PMI) – FHA loans require mortgage insurance for the entire life of the loan unless you refinance.
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Property restrictions – The home must meet FHA standards, which means it can’t have major safety or structural issues.
Who should get an FHA loan?
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First-time homebuyers with lower credit scores
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Buyers with limited savings for a down payment
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Those who need more lenient approval requirements
Step 2: Understanding Conventional Loans
What is a conventional loan?
A conventional loan is not backed by the government and typically requires stricter financial qualifications.
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Higher loan limits – Conventional loans allow you to buy more expensive homes.
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No mortgage insurance with 20% down – If you put at least 20% down, you won’t have to pay private mortgage insurance (PMI).
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More flexibility – Conventional loans can be used for investment properties, second homes, and fixer-uppers.
Downside of conventional loans:
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Higher credit score needed – Most lenders require at least 620-640 for a conventional loan.
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Stricter debt-to-income limits – Lenders prefer that no more than 43% of your income goes to debt payments.
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Higher down payment for best rates – While you can get a conventional loan with as little as 3% down, a higher down payment gets you better terms.
Who should get a conventional loan?
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Buyers with higher credit scores (620+)
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Those who can put at least 5-20% down
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People looking to avoid long-term mortgage insurance
Step 3: Which Loan is Right for You?
Still not sure which loan to choose? Here’s a quick guide:
Go with FHA if…
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Your credit score is below 620
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You have less than 5% saved for a down payment
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You need more flexible approval requirements
Go with Conventional if…
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Your credit score is 620 or higher
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You can afford a 5-20% down payment
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You want more loan options (investment properties, fixer-uppers, etc.)
Important Tip: If you start with an FHA loan, you can always refinance into a conventional loan later to remove mortgage insurance.
Final Thoughts: FHA vs. Conventional—What’s Best for You?
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FHA loans are great for first-time buyers with lower credit scores and smaller down payments.
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Conventional loans offer more flexibility and no long-term mortgage insurance if you put down 20%.
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Choose based on your financial situation—not just what sounds good on paper!
The best loan for you depends on your credit, savings, and long-term goals. Make sure to explore both options before making a decision.
Watch the Full Conversation
Want a deeper dive into FHA vs. conventional loans? Watch this part of the discussion here:
Video Timestamp: 1:03:13 - 1:12:44
In Part 12, we’ll cover VA loans—how they work, who qualifies, and why veterans should take advantage of them.
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