If you’re a first-time homebuyer, the mortgage world can feel overwhelming. Among the biggest decisions you’ll face early on: Should you go with an FHA loan or a conventional loan?
Both loan types help people buy homes, but they’re designed for slightly different borrowers and come with different qualification rules, costs, and long-term implications.
This guide will break down the key differences — and help you figure out which loan is the better fit for you.
What Is an FHA Loan?
An FHA loan is a mortgage insured by the Federal Housing Administration (FHA), a government agency. It was created to help lower-income and first-time buyers qualify for homeownership — even if their credit isn’t perfect or they don’t have a big down payment.
Because the government backs the loan, lenders are more willing to approve buyers who might not qualify for conventional financing.
Key FHA Features:
- Minimum credit score: 580 (with 3.5% down)
- Minimum down payment: 3.5%
- Debt-to-income (DTI) ratio: More flexible than conventional
- Mortgage insurance: Required for the life of the loan
- Loan limits: Vary by county
What Is a Conventional Loan?
A conventional loan is not backed by the government. It’s offered by private lenders and typically follows guidelines set by Fannie Mae and Freddie Mac. These loans usually require stronger credit, but they come with more flexibility and fewer fees over time if you qualify.
There are conventional options designed for first-time buyers — including programs with down payments as low as 3%.
Key Conventional Features:
- Minimum credit score: Usually 620
- Minimum down payment: 3%–5%
- Mortgage insurance: Required if putting less than 20% down, but can be removed later
- Loan limits: Higher than FHA in some cases
- More competitive rates and terms for strong borrowers
FHA vs. Conventional: Side-by-Side Comparison
| Feature | FHA Loan | Conventional Loan |
|---|---|---|
| Minimum Down Payment | 3.5% | 3%–5% |
| Minimum Credit Score | 580 (sometimes lower) | 620+ |
| Mortgage Insurance | Required for life of loan | Required under 20% down, can be removed |
| Debt-to-Income Ratio | More flexible | Stricter limits |
| Loan Limits | Lower | Higher |
| Property Standards | Stricter appraisal/condition rules | More flexible |
Pros of FHA Loans (Especially for First-Time Buyers)
- ✅ Easier credit qualification
- ✅ Smaller down payment requirements
- ✅ More lenient on student loans and other debt
- ✅ Fixed-rate options help with budgeting
FHA is a great option if:
- Your credit score is in the 580–640 range
- You’re working with limited savings
- You’ve had past credit issues but are financially stable now
Cons of FHA Loans
- ❌ Mortgage insurance is permanent unless you refinance
- ❌ Higher upfront and monthly insurance costs
- ❌ Stricter property condition requirements (can affect fixer-uppers)
- ❌ Lower loan limits (may not work in high-cost areas)
Bottom line: You pay more in mortgage insurance over time — even if you’ve built strong equity.
Pros of Conventional Loans
- ✅ Lower long-term cost if you qualify
- ✅ Can remove mortgage insurance once equity reaches 20%
- ✅ More flexible on home condition and types
- ✅ Often better for higher-income buyers or those with strong credit
Conventional is ideal if:
- Your credit score is 680 or higher
- You can put 5%–10% down
- You want more control over fees and insurance
Cons of Conventional Loans
- ❌ Harder to qualify with lower credit or higher DTI
- ❌ May require more documentation
- ❌ Less forgiving of short credit history or past delinquencies
What About First-Time Buyer Programs?
Many lenders and states offer special programs for first-time buyers, including:
- Down payment assistance
- Grants or forgivable loans
- Discounted mortgage insurance
- Lower rate loan programs
Tip: These programs often work with either FHA or conventional loans — ask your lender or local housing agency.
How to Choose What’s Best for You
Start by asking:
- What’s my current credit score?
- How much do I have saved for a down payment?
- What kind of home do I want to buy — and where?
- Will I stay in the home long enough to benefit from equity?
Then compare real loan estimates — not just assumptions — from multiple lenders. Seeing the monthly payment, upfront costs, and total long-term expense side by side makes the decision clearer.
Still unsure? A good mortgage advisor can walk you through both options and explain what’s best for your goals.
Need Help Finding the Right Loan?
At Trusted in Town, we work with vetted mortgage experts who know how to break down the pros and cons for your specific situation. We don’t just send you to whoever’s paying for leads — we connect you with people who earn your business through service and results.
Contact us today to get matched with a mortgage advisor who can help you compare FHA vs. conventional and choose the best path forward.