When buying a home as a primary residence, many borrowers find themselves comparing FHA loans and conventional loans. Both offer low down payments, competitive rates, and flexible underwriting—but there are key differences that can impact your monthly payment, upfront costs, and long-term savings.
Let’s break down how these loan types compare so you can make the most informed decision possible.
๐ FHA Loans Are for Primary Residences Only
First, it’s important to note: FHA loans and low-down-payment conventional programs like HomeReady and Home Possible are only available for primary residences. If you’re purchasing a second home or investment property, you’ll need to consider conventional options with higher down payments.
๐ต How Much Do You Need for a Down Payment?
FHA Loan:
- Minimum 3.5% down
- Always available for primary residences (no first time home buyer restriction)
Conventional Loan:
- 3% down is available if:
- You’re a first-time homebuyer, or
- Your qualifying income is ≤ 80% of the area median income (AMI) → Check eligibility here
- 5% down is required for:
- Multi-unit homes
- Borrowers who have owned property in the last 3 years and exceed AMI limits
Winner: โ FHA is slightly more flexible, but qualified buyers can take advantage of the 3% down
๐ Monthly Mortgage Insurance and Interest Rates
FHA typically offers:
- Lower interest rates
- Lower monthly mortgage insurance premiums (MIP)
However, it also includes:
- A 1.75% upfront mortgage insurance premium (UFMIP), usually rolled into the loan
-
Example:
Purchase price: $350,000
Down payment: $12,250 (3.5% of purchase price)
Base loan before UFMIP: $337,750 (purchase price minus down payment)
UFMIP: $5,910 (1.75% of base loan amount)
Total loan amount: $343,660 ($337,750 Base Loan Amount + $5,910 UFMIP)
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- Mortgage insurance that lasts for the life of the loan
Conventional loans offer:
- Cancellable PMI when your loan hits 20% equity
- No upfront MI costs
Winner: โ๏ธ FHA wins on short-term affordability, but conventional loans often save more long-term.
๐ Appraisal Requirements and Property Condition
FHA appraisals tend to be more strict on the property condition and flag issues such as:
- Peeling paint
- Broken windows
- Missing handrails
- Exposed utility lines
Conventional loans are generally more flexible with cosmetic or minor issues.
Winner: โ Conventional—especially when buying older homes or properties that may need minor repairs.
๐ Refinancing Options: Streamline vs. Full-Doc
FHA Streamline Refinance
- No income or asset verification
- No appraisal required
- Partial refund of UFMIP if refinanced within 3 years
Conventional Refinance
- Full documentation required
- An appraisal may be necessary
- PMI can be removed if equity increases
Winner: ๐ FHA wins for simplicity, but conventional loans offer more flexibility and savings over time.
๐ Can Mortgage Insurance Be Removed?
- FHA: Mortgage insurance lasts for the life of the loan unless you refinance or sell
- Conventional: PMI can be cancelled at 20% equity (automatically drops at 22%)
Winner: ๐งพ Conventional is a better long-term bet if you plan to build equity quickly.
๐ Are the Loans Assumable?
FHA loans are assumable, meaning a future buyer could take over your low-rate mortgage
Conventional loans are not assumable
This makes FHA an excellent strategic choice in a rising-rate environment.
Winner: ๐ FHA wins on future flexibility
| Feature | FHA Loan | Conventional Loan |
| Minimum Down Payment | 3.5% | 3% (if eligible), otherwise 5%. |
| Eligible Use | Primary Residence Only | Primary residence. Second home or investment (with larger down payment) |
| Interest Rate | Typically lower | Typically higher |
| Monthly MI | ~0.50%–0.55% of loan amount (flat rate, not credit score-dependent) | Strongly credit score dependent—may be lower than FHA with 720+ credit |
| Upfront MI | 1.75% UFMIP | None |
| MI Cancellation | Not cancellable (life of loan) | Cancellable at 20% equity |
| Appraisal Strictness | High (health/safety-focused) | Moderate (more lenient) |
| Refinance Option | Streamline available | Full documentation required |
| Assumable? | Yes | No |
๐ค Which Loan Type Is Right for You?
Choose FHA if you have limited funds, modest credit, or want a lower monthly payment
Choose conventional if you qualify for 3% down, want to cancel PMI, or plan to build equity quickly
๐ฌ Let’s Review Your Options Together
At Resolute Lending, we provide side-by-side comparisons so you can choose the best loan for your situation—not just now, but for the years ahead.
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