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The Federal Housing Administration (FHA) insures FHA loans, which let people with credit scores of 580 or higher and down payments of 3.5% or less buy homes. The government insurance protects lenders from borrowers who don't pay back their loans, so they can approve loans for buyers who might not be able to get traditional financing. Since 1934, when Congress started the program to help more people buy homes during the Great Depression, FHA loans have helped American home buyers.
The truth is that FHA loans are not only for first-time buyers. A lot of people think that these loans are only for first-time home buyers, but anyone who meets the requirements can use FHA financing, no matter how many homes they've bought before. The program is mostly for people who have bad credit, don't have a lot of savings, or have more debt than they can afford to pay off.
The Federal Housing Administration does not lend money. Instead, approved lenders make and service FHA loans, and the FHA protects them from default. This deal lets mortgage companies take on more risk by lending to people with bad credit and small down payments. When you get an FHA loan, you pay for the insurance that protects your lender by paying your mortgage insurance premiums.
There are two types of FHA loans: fixed-rate and adjustable-rate. With a fixed-rate FHA mortgage, the interest rate stays the same for the whole loan term. This means that your monthly payments will be the same every month during the repayment period. Rate that can change FHA loans have a fixed rate for the first few years, usually three, five, seven, or ten years. After that, the rate changes every year based on market indices. Most borrowers like fixed rates because they are stable, but adjustable rates might have lower initial payments.
These loans are called nonconforming mortgages because they don't have to meet the standards set by Fannie Mae and Freddie Mac, which are government-sponsored companies that buy most conventional mortgages. The Department of Housing and Urban Development sets the rules that FHA loans must follow. This difference is important because it lets FHA loans help people who wouldn't be able to get regular loans.
A conventional loan is a mortgage that private lenders give out without any help or insurance from the government, like the FHA, VA, or USDA. Fannie Mae and Freddie Mac are two government-backed companies that buy mortgages from lenders and turn them into mortgage-backed securities. They make the rules for these loans. About 70% of all home purchase loans in the last few years were conventional loans. This means that they are the most common kind of mortgage in the US.
Conventional loans are riskier for private lenders because the government doesn't insure them against borrowers not paying back the loan. Conventional loans usually require higher credit scores, bigger down payments, and stricter debt-to-income ratios than loans backed by the government. This is because they are riskier. If you don't pay back the loan, the lender is fully responsible for any losses. Private mortgage insurance will help protect you a little bit if your down payment is less than 20%.
There are two types of regular loans: conforming and nonconforming. Fannie Mae and Freddie Mac set all the rules for conventional loans that follow them. The highest loan amounts change every year depending on how the housing market is doing. In most counties, the most you can borrow with a conforming loan in 2026 is $832,750. In some areas with high costs, the most you can get is $1,249,125. Fannie Mae and Freddie Mac can buy these loans from lenders, which means they have the best rates and terms.
Fannie Mae and Freddie Mac make the rules for conventional loans. If a loan doesn't follow those rules or goes over the limits, it is called a nonconforming conventional loan. A jumbo loan is the most common type of nonconforming conventional mortgage. People who need to buy homes or land in expensive areas can use them. To get these loans, you usually need to put down 10% to 20% of the loan amount, have a credit score of 700 or higher, and have a lot of cash on hand.
Conventional mortgages, like FHA loans, can have fixed or adjustable rates and last from 8 to 30 years. The 30-year fixed-rate mortgage and the 15-year fixed-rate mortgage are two of the most common types of mortgages. The 30-year fixed-rate mortgage spreads payments over three decades, while the 15-year fixed-rate mortgage builds equity faster and has lower interest rates. The length of your loan affects how much you pay each month and how much interest you will pay over the life of the loan.
Your credit score is very important in deciding what kind of loan is best for you and how much interest you'll pay. Lenders look at your credit score to see how well you've handled debt in the past and how likely you are to pay your mortgage on time. Knowing what credit score requirements are helps you figure out which programs you can apply for and when you should work on improving your credit before you do.
Most lenders use the FICO scoring model to figure out your credit score. This model gives you a score between 350 and 850 points based on five things: your payment history, the amounts you owe, the length of your credit history, new credit accounts, and the mix of your credit. Experian, Equifax, and TransUnion are the three main credit bureaus that keep track of your credit information. Your score may be a little different between bureaus, depending on which accounts they have on file and how creditors report your payment history.
When you apply for a mortgage, lenders get credit reports from all three bureaus. If you're applying alone, they use your middle score as the qualifying score. If you and a co-borrower are applying together, most traditional lenders will use the lower middle score between you two. Fannie Mae now lets some lenders average the median scores of all borrowers instead of just the lowest score. This could make it easier for couples to qualify if one person has much better credit.
If you can make a down payment of at least 3.5%, FHA loans will work for people with credit scores as low as 580. You can technically get an FHA loan with a credit score between 500 and 579, but you'll have to put down 10% more. Most FHA lenders require a minimum credit score of 580 to 600 because borrowers with scores below this level are more likely to default, even with a bigger down payment.
Most lenders want borrowers to have credit scores of at least 620, but some lenders want scores of 640 or higher. Fannie Mae and Freddie Mac got rid of their minimum credit score requirements on November 16, 2025. Instead, they looked at overall credit risk through a holistic analysis. Even though this has changed, most lenders still have minimum score requirements because lower credit scores are still linked to higher default rates, which means lenders have to charge higher interest rates to make up for the extra risk.
No matter what kind of loan you get, your credit score will affect the interest rate on your mortgage. A drop of 20 points in your credit score usually means that your interest rate goes up by 0.25 to 0.50 percentage points. For instance, a borrower with a 780 credit score might get a 6.5% interest rate on a regular loan, but a borrower with a 640 score might get a 7.5% rate on the same loan amount and down payment. Over the course of a 30-year loan, this rate difference makes a big difference in costs.
To be honest, getting your credit score up before you apply for a mortgage can save you tens of thousands of dollars in interest. The difference between a 6.5% rate and a 7.5% rate on a $300,000 loan is $191 more in monthly payments and $68,760 more in interest over 30 years. If it means getting much better loan terms, it might be worth it to wait six months to raise your credit score from 640 to 700 before buying a home.
The down payment is the part of the home's price that you pay up front at closing. This lowers the amount you need to borrow. If you make a larger down payment, your loan-to-value ratio goes down, your monthly payments go down, and you may be able to avoid mortgage insurance or get better interest rates. But it takes time to save up a big down payment, and knowing the minimum requirements for each loan type can help you plan when to buy a home.
If your credit score is 580 or higher, you can make a down payment as low as 3.5% on an FHA loan. If you want to buy a $350,000 home with an FHA loan and the minimum down payment, you'll need to put down $12,250 right away. You must raise your down payment to 10% if your credit score is between 500 and 579. For the same house, this would mean paying $35,000. Most FHA borrowers choose the 3.5% option because it takes a long time for buyers with little money to save up the extra 6.5%.
Conventional loans let first-time home buyers put down as little as 3% and repeat buyers as little as 5%, but the exact amount depends on the lender and loan program. Fannie Mae's HomeReady loans and Freddie Mac's Home Possible loans are two examples of programs that are specifically designed for borrowers with low down payments. These programs let borrowers with low income or assets make down payments of only 3% and have flexible qualification requirements.
For regular loans, the magical 20% down payment mark is very important. If you put down at least 20%, you won't have to pay for private mortgage insurance, which usually costs 0.5 to 1.5% of your loan amount each year. PMI could add $125 to $375 to your monthly payment on a $300,000 loan until you have 20% equity. For borrowers who can afford larger down payments, getting rid of this cost makes conventional loans a lot cheaper.
FHA loans don't give you the same benefit if you make a bigger down payment. If you put down less than 10%, you'll have to pay mortgage insurance premiums no matter how much you put down. You can only cancel your mortgage insurance after 11 years of payments, though. This restriction makes FHA loans less appealing to borrowers who have a lot of savings but can't get a conventional loan because of their credit problems.
I always tell borrowers that they should think about both short-term and long-term costs when deciding how much to put down. If you put down the least amount, you can buy sooner and save money for moving costs, furniture, repairs, and emergencies. But bigger down payments lower your monthly payments and total interest costs while building equity faster. Use real numbers for the price you want to pay to figure out both situations before deciding which one is best for you.
People who have trouble saving enough money can get help with their down payments. Many states, counties, and cities offer grants or second mortgages that can help you pay for part or all of your down payment. However, these programs usually have income limits and limit where you can buy. First-time home buyer programs offer the most help, but in some cases, repeat buyers may also be able to get help. Before you start looking for a house, do some research on programs in your area to learn about their eligibility requirements and how to apply.
Mortgage insurance protects lenders from losing money if borrowers don't pay back their loans. This insurance doesn't help you directly, but it lets lenders approve mortgages with lower down payments by moving the risk of default to insurance companies. Knowing how mortgage insurance works with each type of loan will help you figure out your real monthly housing costs and decide which option costs less over time.
FHA loans need two kinds of mortgage insurance premiums: one that you pay up front and one that you pay every year. The upfront mortgage insurance premium is 1.75% of the base loan amount and is due at closing. If you take out a $300,000 loan, the upfront premium will cost you $5,250. Most people who borrow money add this cost to their loan amount instead of paying it in cash. This means you'll pay interest on it for the whole time you have the loan. In this case, adding the upfront premium to your loan raises your balance to $305,250.
FHA loan mortgage insurance premiums are between 0.15% and 0.75% of the loan amount each year, and they are paid in monthly installments. Your loan term, loan amount, loan-to-value ratio, and down payment size will all affect the exact rate. If you take out a 30-year loan for more than $726,200 with a 5% down payment, the highest annual rate you'll pay is 0.75%. This comes to $187.50 a month or $2,250 a year on a $300,000 loan.
If you put down less than 10%, FHA mortgage insurance lasts for the life of your loan, which is the hard part. You can only get rid of it by selling your home or refinancing into a regular loan. You can cancel your FHA mortgage insurance after 11 years of payments if you put down 10% or more and your loan-to-value ratio has gone down enough through your payments.
When you get a conventional loan, you buy private mortgage insurance from private companies instead of a government agency. PMI usually costs between 0.5% and 1.5% of your loan amount each year. The rates depend on your credit score, the size of your down payment, and the type of loan you have. Insurance companies see borrowers with higher credit scores and bigger down payments as less risky, so they charge them lower PMI rates.
The best thing about PMI over FHA mortgage insurance is that you can stop paying it once you have 20% equity in your home. When your loan-to-value ratio drops to 78% through your scheduled payments, federal law says that lenders must automatically end PMI. When your LTV reaches 80%, you can also ask for cancellation, but lenders may want a new appraisal to make sure your home's value is still the same. Borrowers who plan to stay in their homes for a long time will find that conventional loans are much cheaper than FHA loans because of this cancellation option.
PMI comes in more than one payment plan, not just the usual monthly premium. You have three options for paying for your PMI: a single upfront premium at closing, a split premium that combines an upfront payment with lower monthly payments, or lender-paid PMI, where the lender pays for your insurance in exchange for a slightly higher interest rate. Depending on how long you plan to keep the loan and whether you plan to refinance or sell it in a few years, each option has its pros and cons.
To find out which loan has the lower total cost of mortgage insurance, you need to figure out how much you'll pay over the time you own the home. If a borrower plans to stay in their home for 10 years and puts down 5%, an FHA loan might cost $35,000 in total mortgage insurance premiums. A conventional loan with PMI that ends after 5 years might cost $18,000. But if the FHA loan has a lower interest rate that saves you $100 a month, the money you save on interest could make up for the higher insurance costs.
The interest rate on your home buyer loan influences your payment. This greatly impacts the loan's cost and monthly payments. Your rate relies on the economy, your income, your debt-to-income ratio, the loan term, and the property you wish to buy. Know how FHA and conventional loan rates differ to choose the loan with the lowest total cost, including mortgage insurance and other expenses.
The government backs FHA loans, so lenders don't lose money. This means that FHA loans may have lower interest rates for those with similar credit histories. FHA loans may have reduced interest rates. FHA loans may have a 6.25% interest rate if a normal loan has 6.5%. A $300,000 loan with a quarter-point difference saves $44 a month, or $15,840 over 30 years. To determine which loan is cheapest, compare lower interest rates and greater mortgage insurance premiums.
The Federal Reserve's money management decisions affect interest rates for both types of loans. Mortgage rates normally rise with the federal funds rate to fight inflation, although not necessarily by the same amount. Mortgage rates fall as the Fed lowers interest rates to boost the economy. Inflation, GDP growth, and employment statistics affect mortgage-backed securities demand. Mortgage rates may fluctuate.
Your interest rate depends most on your credit score. Credit score ranges affect lender rates. Your rate drops 0.125 to 0.50 percentage points for every 20 to 40-point score decline. A typical loan with 6.25% APR may be available to someone with 760 credit. A 7.25% APR is possible with a 660 credit score. If you borrow $300,000, this one-point interest rate differential will cost you $206 more each month and $74,160 more over 30 years.
How much you put down might affect your interest rate, especially for conventional loans. reduced loan-to-value ratios reflect reduced risk, therefore lenders charge less when you put down more. Raising your down payment from 5% to 10% may lower your rate by 0.125 to 0.25 percentage points. Usually, reaching 20% saves 0.125 to 0.25 points and eliminates PMI. FHA rates don't vary much when you modify your down payment since government insurance protects lenders regardless of equity.
Paying interest in advance at closing and getting discount points lowers your continuing rate. You pay 1% of your loan amount for each point, and the rate normally drops 0.25 percentage points, depending on the market. For a $300,000 loan, you pay $3,000 upfront but save $52 a month due to a 0.25% interest rate cut. Points are beneficial if you want to maintain the loan for at least five years. You'll recoup your investment after 58 months.
Lenders offer higher rates for longer payback periods to offset the risk of rising interest rates. 15-year fixed-rate mortgages have 0.50 to 0.75 percentage points cheaper interest rates than 30-year ones. You save a lot on interest since you pay off the principle faster and pay less interest. Interest on $300,000 @ 6% for 30 years is $347,515. The identical 15-year, 5.5% loan costs $123,519 in interest. However, monthly payments rise from $1,799 to $2,451.
Your dream home must fulfill certain condition criteria before lenders would accept your mortgage. However, FHA and conventional loan criteria range greatly. Knowing assessment guidelines might help you spot issues before making an offer. Because of this, sellers sometimes select conventional over FHA financing. When sellers have many offers, property condition may make or break a sale.
The Federal Housing Administration (FHA) requires tighter evaluations to ensure dwellings satisfy safety and livability criteria. FHA appraisers must ensure homes are safe, clean, and free of health or safety hazards. The assessor looks at the foundations, roofing, outer walls, electrical systems, plumbing, heating equipment, and how simple it is to get to the property to make sure everything works well and fulfills FHA criteria.
FHA appraisal standards prohibit cracked foundation walls that let water in, missing or broken roof shingles that show the materials underneath, peeling paint on homes built before 1978 due to lead-based paint concerns, exposed electrical wiring, broken or missing stair handrails, or insufficient public street access to the property. The appraiser will also note faulty furnaces, water heaters, substantial water damage, and structural issues.
Before closing, the seller must correct FHA appraisal issues. In competitive marketplaces, sellers don't want to perform costly repairs that may exceed the winning price, making this restriction annoying. Buyers can't lawfully pay for repairs until they acquire a house. Sellers must resolve issues or the sale won't go through. Some sellers reject FHA bids to prevent this, even if it reduces their buyer base.
Traditional appraisals compare recently sold properties to the one in issue to determine its value. Normal appraisers identify serious property defects that diminish its value, but they don't mandate repairs before closing. If the appraised worth of the home matches its condition and you have the money to undertake the repairs after you close, you can acquire a normal loan to buy a house that needs maintenance.
The lender orders the appraisal and sends the report in 7–14 days. The appraiser visits the property, takes photographs inside and out, measures square footage, and researches comparable sales. They then create a lengthy report that contains the property's estimated worth, condition, neighborhood, and sales analysis. This report helps lenders determine if the residence is worth the loan amount.
Home assessments typically cost $300 to $600, although they might cost more for hard-to-sell, larger, or remote houses with no sales data. The appraisal is paid for when the lender requests it or when you close on the loan, when all costs are due. The lender picks an appraiser from a list of reliable and honest candidates. If the assessment is too low, you can appeal by providing similar sales data or requesting a second evaluation.
Each lending program has distinct property requirements. A single-family home, condo in an FHA-approved building, townhouse, or property with two to four units where you live is eligible for an FHA loan. Condos without FHA approval, investment properties, vacation homes, and rural properties with more land can be bought with conventional loans. They become more flexible. Conventional financing offers more possibilities and fewer constraints for rare property purchases.
Your debt-to-income ratio tells you what percentage of your gross monthly income goes toward paying off bills like your proposed mortgage payment, credit card minimums, car loans, student loans, personal loans, and other bills. This ratio helps lenders figure out if you can pay your mortgage and all of your other bills. The DTI requirements are one of the biggest differences between FHA and conventional loans. This is important for people who have a lot of other debt besides their mortgage.
Finding out your DTI is a two-step process. To start, add up all of your monthly minimum debt payments. This includes the suggested mortgage payment, which covers the principal, interest, property taxes, homeowners insurance, HOA fees, and mortgage insurance. Second, divide this number by your gross monthly income before taxes and other deductions. Your DTI is 45.7% if your total monthly debts are $3,200 and your gross monthly income is $7,000. Lenders know exactly how to figure out this ratio, so make sure you have the right numbers for all of your debts before you apply.
Most of the time, FHA loans let borrowers have debt-to-income ratios of up to 50%. Some lenders will even lend to people with ratios as high as 57% if they have a lot of cash on hand, little consumer debt, or a great payment history. This flexibility is good for people who make a lot of money but also have student loans, medical debt, or other debts that traditional lenders might think are too high. FHA loans are great for new graduates, doctors with a lot of student loan debt, or families with a lot of bills to pay because the DTI limits are higher.
Most regular loans only let you have a debt-to-income ratio of 45% or less. Some lenders, on the other hand, will accept ratios of up to 50% for borrowers with credit scores over 720 and enough cash on hand to cover six months' worth of mortgage payments. Fannie Mae and Freddie Mac set these DTI rules, but some lenders may have stricter rules based on how much risk they are willing to take and how they manage their portfolios. If your DTI gets close to these limits, lenders will probably look at your application more closely and ask for more paperwork.
If you want to get a mortgage, you should try to lower your debt-to-income ratio first. This will make it more likely that you'll be approved and may even get you better interest rates. Paying off credit cards, personal loans, or small medical bills that you can afford with the money you've saved will lower your DTI. Getting a raise, a promotion, a part-time job, or freelance work that pays well can also help, but lenders will want proof that this income is stable and likely to continue. Don't take on any new debt, like car loans or loans to buy furniture, while you're getting ready to apply for a mortgage.
Some debts don't count toward your DTI calculation at times. You don't have to include installment loans with less than 10 months of payments left in your DTI if you don't want to. But if you do this, the lender won't count the payments you still owe when they decide how much money you can borrow. You can leave out debts that someone else is paying, like a car loan for a car your ex-spouse kept after the divorce, if you can show with 12 months of bank statements that you haven't made any payments on the account.
People who have a lot of debt compared to their income should think hard about whether they should add a mortgage payment, even if they are approved for the loan. You can't really afford that much just because lenders say you can. Plan your housing costs carefully, keep an emergency fund that can cover at least three months' worth of expenses, and make sure you can keep saving for retirement and other financial goals even after you get a mortgage. If you don't have enough money in your budget, you could end up stressed and at a higher risk of losing your home if unexpected expenses come up.
Where you live and what kind of loan you get will determine how much you can borrow. This means that you can get a different kind of mortgage for each type of home. If you're buying in a housing market where prices are high, knowing the loan limits can help you decide if FHA or conventional financing is right for you. These limits change every year based on how much home prices go up, so make sure to check the latest numbers before you apply.
Most counties in the US will only lend you up to $832,750 for a conventional conforming loan in 2026. According to Fannie Mae and Freddie Mac, this is the average price for a home with one family. In places where things are expensive, like Alaska, Hawaii, Guam, the U.S. Virgin Islands, and some counties that are also expensive, conventional limits can go up to $1,249,125. Parts of California, Colorado, Connecticut, Florida, Georgia, Idaho, Maryland, Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Tennessee, Utah, Virginia, Washington, West Virginia, Wyoming, and the District of Columbia are all high-cost areas.
The FHA loan limits depend on the median home prices in each county. The lowest limit is $541,287 in the cheapest areas, and the highest is $1,249,125 in the most expensive areas. The Department of Housing and Urban Development sets these limits every year using formulas that take into account the area's housing costs and conforming loan limits. To find out what your county's FHA limit is, go to the HUD website and look for it by state and county. Most cities and towns are somewhere in the middle of these two amounts, depending on how cheap their housing is.
If you live in a place where the cost of living is high, you can only borrow up to $1,249,125 with an FHA or conventional loan. This means that people who want to borrow money in expensive markets can get the same amount of money with either option. When choosing between FHA and conventional financing, this means that credit scores, down payments, and mortgage insurance costs are more important than the most money that can be borrowed. But in places where FHA limits are lower than conventional conforming limits, conventional loans give buyers more money to spend when they want to buy homes that are at the top of the local price range.
You can still get the house you want even if you go over your loan limits. It just needs different kinds of cash. You can lower your loan amount by putting down more money. You can put down $67,250 plus closing costs if you want to buy a $900,000 home in an area where the conventional loan limit is $832,750. This keeps the amount of your loan at the highest level that is still okay. This method keeps the good rates and terms that come with regular conforming loans.
People who need to borrow more than the usual FHA limits but can't get FHA loans because their target home is too big for FHA limits in their county can get jumbo loans. Most of the time, these non-conforming conventional loans require credit scores of 700 or higher, down payments of 10% to 20%, debt-to-income ratios below 43%, and a lot of cash reserves equal to 6 to 12 months of mortgage payments. The interest rates on jumbo loans are between 0.25 and 0.75 percentage points higher than the rates on normal loans. But if you have good credit, jumbo rates might be better than FHA rates.
Some lenders have special programs that let you get around loan limits by structuring the loan in a creative way. Two mortgages that work together are called a piggyback loan. The first one is for the most money you can borrow, and the second one is for the extra money you need. You could get a first mortgage of $832,750 and a second mortgage of $100,000 to buy a $950,000 home with a down payment of $17,250. This arrangement keeps your first mortgage within acceptable limits, and the second loan makes up for the differences. However, the interest rates on second mortgages are usually 1 to 3 percentage points higher than those on first mortgages.
Closing costs are all the fees you have to pay to finish buying a home, other than your down payment. These fees usually range from 2% to 5% of the loan amount. These costs include the services of lenders, title companies, lawyers, appraisers, and government agencies that help you transfer property ownership and set up your mortgage. If you know the differences in closing costs between FHA and conventional loans, you can make a better budget and compare the true costs of each loan option.
There are a lot of closing costs that are the same for both types of loans. For example, appraisal fees range from $300 to $600, credit report fees range from $30 to $50 per borrower, title search fees range from $200 to $400, title insurance premiums range from $1,000 to $2,000, survey costs range from $300 to $500 in states that require them, attorney fees range from $500 to $1,500 when attorneys handle closings, recording fees range from $50 to $250 depending on your county, and prepaid items like property taxes, homeowners insurance, and mortgage interest cover the time from closing to your first payment.
The FHA upfront mortgage insurance premium is the biggest difference in closing costs between FHA and conventional loans. On a $300,000 loan, this 1.75% fee comes to $5,250. On a $500,000 loan, it comes to $8,750. Most people who borrow money add this fee to their loan amount instead of paying it in cash at closing. But if you include it in your closing cost calculation, you can compare loan types more accurately. If you choose a single-premium PMI payment structure, conventional loans don't charge upfront mortgage insurance.
No matter what kind of loan you want, lender origination fees and points can be very different. This is why it's important to get loan estimates from more than one lender. Some lenders charge 0.5% to 1% of the loan amount as an origination fee to process your application. Others charge a flat fee of $500 to $1,500, and still others include origination work in their overall pricing without breaking it down. Both types of loans let you buy down your interest rate with discount points, which cost 1% of the loan amount per point.
For similar properties and loan amounts, the third-party fees that service providers charge are usually the same for all types of loans. If you're getting an FHA or conventional mortgage, the costs of title insurance, appraisals, surveys, pest inspections, and attorney services are the same. However, in some areas, FHA loans may require extra inspections, like termite inspections or well water testing. Depending on local standards and the property, these inspections could add $100 to $500 to your closing costs.
Seller concessions let sellers help pay for your closing costs, which means you don't have to bring as much money to closing. FHA loans let sellers give up to 6% of the home's purchase price, while conventional loans let sellers give up to 3% for down payments below 10%, 6% for down payments between 10% and 25%, and 9% for down payments above 25%. When you make an offer, try to get the seller to agree to concessions, especially in markets where buyers have the upper hand and sellers want to close deals quickly.
Some lenders offer mortgages with no closing costs. These loans don't have any or very low upfront costs because they include these costs in a slightly higher interest rate. This choice is good for buyers who don't have a lot of cash on hand for closing but can make higher monthly payments. For instance, a lender might give you a $300,000 loan at 6.5% with $9,000 in closing costs or the same loan at 6.875% with no closing costs. If you keep the loan for 145 months, the higher rate will cost you an extra $62 a month, which means you will break even on the closing costs you didn't have to pay.
FHA loans are best for certain types of buyers and situations where traditional loans aren't available or are much more expensive. Knowing when FHA loans are really helpful can help you choose the right loan type for you. Just because your credit isn't perfect or you don't have a lot of money for a down payment doesn't mean that FHA loans are right for you.
FHA loans are usually better for people with credit scores between 580 and 660 because traditional lenders either turn down these applications or charge much higher interest rates that make up for any savings on mortgage insurance. FHA loans can help you buy a home even if your credit score is low because of missed payments, high credit utilization, or a short credit history. This is because you may not be able to buy a home for years while you rebuild your credit profile.
FHA loans are easier for buyers with little savings who can only put down 3.5% than conventional loans that require 5% down. This difference may not seem like much, but on a $300,000 home, the difference between 3.5% and 5% down is $4,500 in extra savings. This $4,500 could make the difference between being able to buy now and having to wait another six months to a year if you're already having trouble saving for your down payment, closing costs, and moving costs.
People who are buying their first home and don't have good credit or a lot of savings are a key target group for the FHA. These buyers often have two problems: they don't have a long enough credit history to get a good credit score, and they don't have enough money saved up for a large down payment. FHA loans make it possible to buy a home years earlier than with traditional financing because they have easy-to-meet credit score requirements, low down payments, and flexible underwriting.
FHA's higher DTI limits of 50 to 57% are better for borrowers with high debt-to-income ratios because of student loans, medical debt, or other obligations. Conventional limits are only 43 to 45%. Recent college graduates who have good jobs but a lot of student loan debt, medical professionals finishing their residencies, or families who have to pay child support are often over the usual DTI limits even though they have good jobs and career prospects. FHA underwriting knows that high DTI ratios don't always mean someone is financially irresponsible.
People who want to own a home for five years or less may prefer FHA loans, even if they can get a regular loan when FHA rates are lower. Since you won't have the loan for long enough for the differences in mortgage insurance to add up, a lower interest rate saves you money right away every month without worrying about insurance costs in the future. But before you choose based on short-term savings, do a lot of math to compare both options over the time you expect to own the car.
People who have had financial problems in the past, like bankruptcy, foreclosure, or short sales, can get FHA loans faster than they can get regular loans. FHA requires waiting periods of two years after bankruptcy discharge, three years after foreclosure, and three years after short sale. In contrast, conventional waiting periods are four years after bankruptcy, seven years after foreclosure, and four years after short sale. These shorter waiting times let you buy a home again while your credit is still getting better.
For borrowers who meet higher qualification standards, conventional financing has a lot of benefits, especially when it comes to long-term costs and property flexibility. You can avoid choosing FHA financing just because it's easier to qualify when conventional loans would be better for your finances if you know when they offer better value.
People with credit scores over 700 almost always pay less over time with conventional loans than with FHA loans. This is because they can get better interest rates and don't have to pay mortgage insurance if they put down 20%. Even if you put down less money, conventional PMI becomes cheaper than FHA insurance once you have enough equity to cancel it. If your credit score is over 700 and you plan to stay in your home for at least seven years, conventional financing usually costs thousands of dollars less in total payments.
If you can afford a down payment of 10% or more, you should strongly consider a conventional loan. This is because increasing your down payment to 20% will save you more money by lowering your monthly PMI costs. Every extra percentage point you put down lowers your yearly PMI rate by 0.05 to 0.10 percentage points. More importantly, if you reach 20% down, you won't have to pay PMI anymore. FHA mortgage insurance stays in place no matter how much equity you have unless you refinance or sell.
Conventional loans are good for people who plan to own their home for a long time (10 years or more) because they can build equity through payments and appreciation. Once they reach 20% equity, they can ask for the cancellation of mortgage insurance. This makes savings grow over time, unlike FHA loans, where mortgage insurance lasts for the life of the loan. If you take out a $300,000 loan and stop paying PMI after five years, you'll save $12,000 over the next five years compared to FHA financing.
In competitive markets where sellers get more than one offer, buyers say that conventional financing makes their offers more appealing. Sellers like conventional buyers better because conventional appraisals focus on value instead of the condition of the property. This lowers the chance that the appraisal will need repairs before closing. In hot markets, where there are a lot of buyers, conventional financing can make the difference between getting your offer accepted and losing the home to someone else.
People who are buying homes that might not meet FHA condition standards should use conventional financing to avoid problems with the appraisal. FHA appraisals often fail for homes that need small repairs, older homes with original systems, or fixer-uppers that need cosmetic work after closing. However, conventional loans appraise these homes just fine. If you're good with your hands and want to buy a home that needs work, conventional loans give you more options than FHA loans do.
Conventional loans make it easier for buyers to buy condos because not all condo projects have FHA approval. Before approving projects for FHA financing, FHA requires condo associations to meet certain requirements about owner-occupancy rates, budget reserves, and insurance coverage. Conventional loans can be used for any condo that meets the standards set by Fannie Mae and Freddie Mac. These standards are less strict than those set by the FHA. Before you assume that FHA financing is available, make sure that the condo you want has FHA approval.
Conventional loans have higher loan limits in areas where FHA limits are lower than conventional conforming amounts. This is good for high-income borrowers who can easily afford larger monthly payments. If you want to buy a home that costs $750,000 but the FHA limit is $625,000, you can get a conventional loan with good terms for up to $832,750. If you use FHA, you would need to make a much bigger down payment to stay within the lower limit, or you would have to look into more expensive jumbo financing.
When choosing between FHA and conventional loans, you should think about your whole financial situation, not just the requirements for getting one. The type of loan that is easier to get approved for doesn't always give you the best value over time. Think about a lot of things carefully before you pick a way to pay for something.
You should check your credit score with all three major bureaus. Then, to find out your debt-to-income ratio, add up your gross income and all of your monthly bills. You can see what kinds of loans you can get and what interest rates you can get with these two numbers. If your credit score is over 680 and your DTI is less than 43%, you probably qualify for both types of loans. The size of your down payment, how long you plan to own the property, and how much the total cost is will all affect your choice.
Find out how much money you have for a down payment and what percentage of the total price you want to pay. If you can put down 20% or more, conventional loans are probably cheaper because you don't have to pay for mortgage insurance. If you can only put down 3.5% to 10%, compare the monthly payments and total costs over 5, 7, 10, and 15 years for both types of loans in great detail. Include all of the costs, like the principal, interest, mortgage insurance, homeowners insurance, and property taxes.
Before you make a decision based on short-term savings, think about how long you plan to own the property. Many buyers don't know how long they'll live in their first home. They want to move after three years, but they end up staying for seven to ten years because of stable jobs, school needs, or the state of the market. If you really think you'll stay for at least seven years, the total cost is more important than the lower monthly payments. If you know you'll move in less than five years, how much you can afford to pay each month is more important than how much insurance will cost in the long run.
Check out the exact house you want to buy and see if it might have issues with FHA appraisals. Carefully walk around the property and look for issues with the roof, the foundation, or old systems that could lead to FHA repair requirements. Even if FHA loans look cheaper on paper, you might want to get a regular loan if you see any problems. If your offer is turned down or you make sellers do expensive repairs, you lose your bargaining power and the deal may fall through.
Don't trust online estimates or guesses about your qualifications. Instead, get preapproved with real lenders for both types of loans. Lenders look at your whole financial picture, including your job history, proof of assets, and credit report details that online calculators can't check. With a proper preapproval, you can see the real interest rates, fees, and monthly payments for each type of loan. This way, you can make real comparisons instead of just guesses. Apply with at least three lenders so you can compare prices and the quality of their service.
Don't forget to add the 1.75% upfront mortgage insurance premium when you compare FHA closing costs to regular closing costs. If you pay this large fee up front, it will have a big impact on how much cash you need to close. If you add it to your loan, your loan balance and monthly payments will go up. Many people who borrow money only think about comparing down payments. They don't know that FHA upfront insurance costs half as much as the lower down payment requirement.
Don't just think about whether or not you can get a mortgage; think about your whole financial situation. Do you have enough money saved for emergencies after you pay your down payment and closing costs? Are you ready for unexpected home repairs that could cost you thousands of dollars in your first year? Will you still save for retirement and other financial goals after you get a mortgage? Pick a loan that will keep you financially stable, not just barely qualified. You might feel stressed and be more likely to lose your home if you go too far to buy it.
FHA and conventional loans both provide paths to homeownership, but they serve different buyer profiles and create distinct cost structures over time. FHA loans excel for borrowers with credit scores between 580 and 680, limited savings for down payments, or higher debt-to-income ratios who need flexible qualification standards. These government-backed mortgages charge lower interest rates but require mortgage insurance for the life of the loan, making them expensive for long-term homeownership despite easier approval.
Conventional loans reward borrowers with strong credit scores above 700, substantial down payments approaching 20%, and plans for long-term homeownership. The ability to cancel private mortgage insurance once you build equity creates significant savings compared to FHA loans, though stricter qualification standards prevent many buyers from accessing conventional financing. Conventional loans also provide more property type flexibility and avoid the strict appraisal requirements that complicate FHA transactions.
Your best choice depends on your credit score, available down payment, debt-to-income ratio, target property characteristics, planned ownership period, and total financial situation. After years in this business, I've learned that the cheapest loan on paper doesn't always deliver the best outcome. Focus on finding financing that you can afford comfortably while leaving resources for emergencies, maintenance, and life's unexpected expenses. Calculate costs over your realistic ownership timeline, not just your hopeful move-out date, because most homeowners stay longer than they initially plan.
Work with experienced lenders who will analyze both options for your specific situation rather than pushing you toward one loan type. Get preapproved with multiple lenders, compare their loan estimates carefully, and ask questions about anything you don't understand. The loan you choose today affects your monthly budget and financial flexibility for years to come, so invest the time necessary to make an informed decision. Whether you choose FHA or conventional financing, buying a home represents a major milestone worth celebrating when you find the right financing fit.
You can switch from an FHA to a normal loan if you have enough equity and acceptable credit. Most lenders will refinance your mortgage with 5% equity and 620+ credit. Better rates are available with 20% equity and a 700+ score. Refinancing eliminates FHA mortgage insurance, saving hundreds each month. To refinance, you must pay 2%–5% of your loan in closing expenses. see your breakeven threshold to see if refinancing is worth it.
FHA loans have lower interest rates for borrowers with similar credit histories. Lenders are safer with government insurance. The difference is normally 0.125 to 0.50 percentage points, depending on your credit score and down payment. Over time, FHA's higher mortgage insurance expenses offset its lower interest rates. Conventional rates may be better than FHA rates for those with credit scores above 720 who put down 20% or more to avoid mortgage insurance. Do not assume FHA loans are always best. Compare quotes from many providers for both loans.
Like ordinary loans, FHA loans close in 30–45 days. FHA appraisal requirements may delay closing if the home needs repairs. Each loan type takes 7–14 days to review. FHA appraisers must ensure the property fulfills FHA criteria. The vendor may need to correct items. Before closing, the seller must resolve appraisal issues and schedule a follow-up inspection. Traditional assessments consider value, not condition, therefore property concerns seldom delay closings.
FHA loans need a year of primary residence. Vacation houses, second homes, and rental properties aren't eligible for FHA loans. FHA loans allow two- to four-unit homes, but you must live in one and rent the others. FHA loans allow house hacking. Buying a second home or investment property requires a standard financing. These loans usually need a 10%–25% down payment.
If you put down 3.5%, you can receive an FHA loan with a 580 credit score. With a 500 credit score, you may borrow with 10% down. The lowest scores most lenders allow are 580–600. Most standard lenders require 620 credit scores, while some require 640. Both forms of loans offer lower interest rates for good credit. Traditional rates are recommended for scores over 740. Scores between 580 and 740 improve FHA rates. Every 20 points of credit score improvement lowers your rate by 0.125 to 0.25%.
You just need 3.5% down for an FHA loan if your credit score is 580 or above. Put 10% down if your credit score is 500–579. First-time buyers can put 3% down on a conventional loan, while repeat buyers can put 5%. Some programs need 10% to 15%, depending on credit score and loan type. FHA mortgage insurance is required until you put down 10% and hold the loan for 11 years. For traditional loans up to 20%, no mortgage insurance is needed. Determine the total cost with different down payment levels before deciding how much to put down.
FHA loans are speedier for bankruptcy, foreclosure, and short sale victims. You can acquire an FHA loan two years after Chapter 7 bankruptcy or one year into a Chapter 13 repayment plan if the court approves and you have a flawless payment history. After a short sale or foreclosure, FHA requires three years to recover. You can't acquire a standard loan for four years following bankruptcy, foreclosure, or short sale. Financially struggling people can purchase houses faster with lower FHA waiting times, but they must show credit improvement.
FHA assessments impose high property condition criteria that may necessitate costly renovations before closing, thus sellers generally reject FHA bids. After the appraisal, the seller must remedy roof, foundation, and safety issues or the deal will fail. In competitive marketplaces with several offers, sellers prefer conventional purchasers since they don't have to discuss repairs and assessments. FHA purchasers may offer sellers greater purchase prices, larger earnest money deposits, or more flexible closing dates to offset the risk and hassle of FHA financing.
If you put down less than 10%, FHA mortgage insurance covers the whole loan. Sell or refinance it to get rid of it. FHA insurance ceases after 11 years with 10% down. PMI ceases when planned payments exceed 78% of LTV. Pay for a fresh assessment to cancel 80% LTV. This large gap makes traditional financing a house cheaper over time. PMI may be canceled after 5-10 years, while FHA insurance costs thousands and lasts forever.
FHA loans are available to anybody with good credit, a down payment, and a debt-to-income ratio. An FHA loan requires a high income to cover your mortgage, property taxes, insurance, and other housing bills while maintaining your debt-to-income ratio below 50%. You can't be disqualified if your income is unlimited. You can acquire a regular FHA loan regardless of your income. However, several FHA and down payment assistance programs have income restrictions.
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