What is the difference between conventional and fha loan?

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When it comes to financing a home purchase, there are various options available to borrowers. Two popular choices are conventional loans and FHA loans. Both options have their own unique features and requirements. In this article, we will explore the difference between conventional and FHA loans, helping you understand which option may be best suited for your needs.

Conventional Loans

Definition: Conventional loans are mortgage loans that are not insured or guaranteed by a government agency. These loans are typically offered by private lenders such as banks, credit unions, and mortgage companies.

Down Payment: One of the main differences between conventional and FHA loans is the down payment requirement. Conventional loans generally require a higher down payment compared to FHA loans. While the exact amount may vary, conventional loans often require a down payment of at least 5% to 20% of the home’s purchase price.

Credit Score: Conventional loans typically have stricter credit score requirements compared to FHA loans. Borrowers with a higher credit score are more likely to qualify for a conventional loan. A credit score of 620 or higher is usually required, although some lenders may have different criteria.

Private Mortgage Insurance (PMI): If you make a down payment of less than 20% on a conventional loan, you will likely be required to pay for private mortgage insurance. PMI protects the lender in case the borrower defaults on the loan. This additional cost can increase your monthly mortgage payment.

FHA Loans

Definition: FHA loans are mortgage loans that are insured by the Federal Housing Administration (FHA), which is part of the U.S. Department of Housing and Urban Development (HUD). These loans are designed to help individuals with lower credit scores and limited down payment funds to become homeowners.

Down Payment: One of the main advantages of FHA loans is the lower down payment requirement. Borrowers can often qualify for an FHA loan with a down payment as low as 3.5% of the home’s purchase price. This makes FHA loans a popular choice for first-time homebuyers and those with limited savings.

Credit Score: FHA loans are more lenient when it comes to credit score requirements. Borrowers with a credit score of 580 or higher may be eligible for an FHA loan with a 3.5% down payment. However, borrowers with a credit score between 500 and 579 may still qualify, but they will need to make a larger down payment, typically around 10%.

Mortgage Insurance Premium (MIP): Unlike conventional loans that require private mortgage insurance, FHA loans have a different form of insurance called mortgage insurance premium (MIP). MIP consists of an upfront premium at the time of closing and an annual premium that is paid monthly along with the mortgage payment. The purpose of MIP is to protect the lender in case of default.


In summary, the main difference between conventional and FHA loans lies in the down payment requirement, credit score criteria, and the type of mortgage insurance required. Conventional loans generally have higher down payment requirements, stricter credit score criteria, and may require private mortgage insurance. On the other hand, FHA loans offer lower down payment options, more lenient credit score requirements, and require mortgage insurance premium. Understanding these differences can help borrowers make an informed decision about which loan option is best suited for their specific circumstances.


– www.fha.com
– www.investopedia.com
– www.bankrate.com