FHA loan vs conventional loan
An FHA loan is made by a private lender and insured by the Federal Housing Administration, and it accepts smaller down payments and lower credit scores than most conventional loans. A conventional loan is not insured by the government and follows Fannie Mae or Freddie Mac rules. Which fits depends on your credit, your savings and the home.
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Compare both for your home
Ask for both and compare the two loan estimates side by side for the same home.
Fidelity Residential · NMLS #103098 · Equal Housing Lender
Who stands behind the loan, and what that buys you
An FHA loan is made by a private lender and insured by the Federal Housing Administration, part of HUD. The government does not lend the money; it insures the lender against loss, and in return you pay mortgage insurance. Because of that insurance, FHA accepts smaller down payments and lower credit scores than most conventional loans. The home must be your main residence.
A conventional loan is not insured by the government. It follows Fannie Mae or Freddie Mac rules, and some programs for first-time and lower-income buyers allow a smaller down payment. With a smaller down payment it usually carries private mortgage insurance, and monthly mortgage insurance on a conventional loan is the only kind you can ask to remove.
If your credit and savings could fit a conventional loan as well, ask for both and compare the two loan estimates side by side for the same home.
At a glance
- FHA loan: insured by the government; more flexible on credit and the down payment; mortgage insurance on every loan; your main residence only
- Conventional loan: not insured by the government; follows Fannie Mae or Freddie Mac rules; monthly mortgage insurance can come off later; a main home, a second home or a rental
- Both: made by a private lender; documented income; a loan limit set for each county
FHA loan and conventional loan compared
The questions that separate the two most common home loans.
| Question | FHA loan | Conventional loan |
|---|---|---|
| Who stands behind it | A private lender, with the loan insured by the Federal Housing Administration | A private lender; not insured by the government; follows Fannie Mae or Freddie Mac rules |
| The down payment | FHA’s minimum is smaller than most conventional loans ask for; a documented gift or an approved assistance program can cover it | Some programs for first-time and lower-income buyers allow a smaller down payment; a gift from family can help within program rules |
| Credit | FHA accepts lower scores than most conventional loans, and it sets waiting periods after a bankruptcy or foreclosure | Each program sets its own credit rules, and the agencies set waiting periods of their own after a bankruptcy or foreclosure |
| Mortgage insurance | Every FHA loan carries an upfront premium, usually added to the loan, and an annual premium paid with your monthly payment; with a larger down payment the annual premium ends after a set number of years, with a smaller one it lasts for the life of the loan | Usually private mortgage insurance with a smaller down payment; monthly mortgage insurance can be removed on request once your balance falls to a set share of the home’s original value, and federal law ends it a little later |
| The home | Your main residence: a house of one to four units when you live in one, an FHA-approved condominium, or a manufactured home that meets HUD’s rules; the home must meet HUD’s safety and soundness standards | A main home, a second home or a rental of one to four units; condominiums in projects that meet agency standards |
| Loan size | Up to the FHA loan limit for the county | Up to the conforming limit set each year for the county; above it, a jumbo loan |
| Residency | U.S. citizens and lawful permanent residents qualify on the same terms | Permanent residents and lawfully present visa holders qualify on the same terms as citizens |
| Who it often suits | Buyers with a smaller down payment or a lower credit score than most conventional loans accept | Buyers whose credit and savings fit the agencies’ rules, and anyone buying a second home or a rental |
When an FHA loan fits better
When your credit or your savings are where FHA is more flexible.
- A lower credit score. FHA accepts lower scores than most conventional loans.
- A smaller down payment. FHA’s minimum is smaller than most conventional loans ask for, and a documented gift or an approved assistance program can cover it.
- Help from family or an assistance program. A gift from a relative, or a down payment assistance program FHA allows, can help with the money for closing.
- The home you live in. FHA loans are for your main residence, including a house of up to four units when you live in one of them.
When a conventional loan fits better
When your credit and savings fit the agencies' rules, or the home is not your main residence.
- Mortgage insurance you can remove. Monthly mortgage insurance on a conventional loan is the only kind you can ask to remove, and federal law ends it a little later on its own.
- A second home or a rental. A conventional loan can finance a second home or a rental of one to four units; FHA is for the home you live in.
- Stronger credit and savings. When your file fits the agencies’ rules, ask for a conventional quote alongside the FHA one and compare the mortgage insurance on each.
- A condominium the agencies accept. Condominiums in projects that meet agency standards can be financed.
How to choose between them
Check your credit and savings
A loan officer reviews your income, debts, savings and credit, and tells you which loans fit.
Check the home
For FHA, the home must be your main residence and meet HUD’s standards; for a condominium, ask early whether the project meets the program’s rules.
Ask for both
If your file fits both, ask for an FHA and a conventional quote for the same home.
Compare the loan estimates
Lay the two loan estimates side by side: the mortgage insurance, the cash to close and the total cost over the time you expect to keep the loan.
Questions about FHA and conventional loans
Should I use an FHA loan or a conventional loan?
FHA accepts smaller down payments and lower credit scores than most conventional loans, and every FHA loan carries mortgage insurance. If your credit and savings could fit a conventional loan as well, ask for both and compare the two loan estimates side by side for the same home.
Are FHA loans only for first-time buyers?
No. Any buyer can use an FHA loan, as long as the home will be their main residence and the loan fits FHA’s rules and the county loan limit.
Which kind of mortgage insurance can be removed?
Only monthly mortgage insurance on a conventional loan. On an FHA loan the annual premium follows FHA’s own rules; refinancing into a different loan later is one way some owners remove it.
Can I buy a second home or a rental with an FHA loan?
No. FHA loans are for the home you live in. A conventional loan can finance a second home or a rental, and investment property loans cover the other options.
Can family help with the down payment?
Yes, on both, within each program’s rules. A documented gift from a relative can cover the down payment on an FHA loan, and a gift from family can help on a conventional loan.
Can a permanent resident get either loan?
Yes. Lawful permanent residents qualify on the same terms as U.S. citizens.
Do you lend in my state?
Fidelity Residential is licensed in many states. The full, current list is on NMLS Consumer Access (opens in a new tab), or call us at 732-686-9999.
Want both options side by side?
Get a quote, apply online, or ask a licensed loan officer to compare an FHA loan and a conventional loan for the same home.
This page is general information, not a commitment to lend. Programs, terms and eligibility depend on credit, income, property and underwriting review and are subject to change without notice.
Reviewed by Robert Shamie, CEO, NMLS #241428 · Last reviewed:
Fidelity Residential (PFN Lending Group, Inc., NMLS #103098) is a direct mortgage lender licensed in 40 states and the District of Columbia, with 26 years in business.