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Quick Guide: FHA vs. Conventional Loan

June 1, 2021

Quick Guide: FHA vs. Conventional Loan


If you’re in the market for a mortgage, you may be wondering which loan is better: FHA or Conventional?

The answer is dependent on many factors, but we’ll walk you through some key differences: 

1. Better standard rate with FHA 

With an FHA, you may be able to get a better rate than you could with a conventional loan, depending on your credit score. 

2. Mortgage Insurance Premium (PMI) is typically higher with FHA than with Conventional. 

Not only is this part of your monthly payment going to be higher, but FHA will charge a funding fee of 1.75% up front as well, which will be rolled into your loan. 

3. Your PMI will drop off on a conventional loan, but it stays on an FHA.

Both loans require a mortgage insurance (PMI) but with a conventional loan, that insurance premium will eventually drop off, or, if your down payment is 20% or more, then you won’t be required to have PMI at all. With an FHA, your PMI is there for the long haul, and that can make a big difference in your monthly payment. 

4. You could make a smaller down payment with an FHA 

FHA requires a standard 3.5% down payment, while Conventional requires 5% down, depending on your credit score. 

Depending on your credit score, down payment, and monthly payment needs, you may be surprised which loan option is better for you.

“Definitely talk to a lender, and have them run different scenarios to see which option works best for you,” said Grant Deyoe, a Capital Homes Preferred Lender with RCB Bank. 

We are always happy to help you get an idea of what you need in a home, and what you want to pay, and helping you find a trusted lender that will help get you the best loan possible.