An FHA loan is insured by the Federal Housing Administration — that government backing allows lenders to approve borrowers with lower credit scores, smaller down payments, and higher debt-to-income ratios. A conventional loan follows guidelines set by Fannie Mae and Freddie Mac — no government insurance, stricter qualification but often lower long-term costs for well-qualified borrowers.
FHA requires 3.5% down with a credit score of 580 or higher. Conventional loans can go as low as 3% for first-time buyers through HomeReady or Home Possible programs, though 5% is more typical. The difference on a $350,000 home is small — $12,250 (FHA) vs. $10,500-$17,500 (conventional). Both allow gift funds.
FHA allows credit scores as low as 580 with 3.5% down (and even 500 with 10% down). Conventional loans start at 620, but you won't get competitive rates until 700+. If your credit score is between 580 and 680, FHA is almost always better. Above 720, conventional typically wins.
FHA charges an upfront mortgage insurance premium of 1.75% plus an annual premium of 0.55% that stays for the life of the loan (if you put less than 10% down). Conventional PMI typically runs 0.5%-1.5% annually — but it can be removed once you reach 20% equity. That removal option is worth thousands over the life of the loan.
FHA appraisals include a property condition inspection — working utilities, no exposed wiring, functioning heating, no significant structural issues. Conventional appraisals focus on value, not condition. If you're buying a fixer-upper, conventional may give you fewer hurdles.
Choose FHA if: your credit score is below 700, you have limited savings, you're using gift funds, or you have a higher debt-to-income ratio.
Choose conventional if: your credit score is 700+, you can put 5-10% down, you want PMI to go away at 20% equity, or you're buying a second home or investment property.
At AFC Mortgage Group, we model both FHA and conventional scenarios for every borrower who qualifies for either. We show you the monthly payment, total interest, total mortgage insurance cost, and the break-even point. Call us at (203) 452-9899 or get pre-approved online to see your real numbers.
AFC Mortgage Group LLC | NMLS #2801 | Monroe, CT | Family-Owned Since 1998
Become homeowners. AFC Mortgage Group will help you navigate the loan process, secure financing, and purchase your dream home.
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