FHA vs Conventional Loan 2025: Which Is Better? 🏦
Complete Comparison | Save $50K+ | Lifetime PMI vs Removable PMI
FHA Loan
- ✓ 580 credit minimum
- ✓ 3.5% down payment
- ✓ Up to 50% DTI
- ✗ LIFETIME PMI (never removed)
- ✗ Primary residence only
Conventional Loan
- ✓ 620 credit minimum
- ✓ 3% down payment
- ✓ PMI removed at 20% equity
- ✓ Investment property OK
- ✗ Max 45% DTI
⚠️ FHA Lifetime PMI Costs You $50K+!
FHA loans have LIFETIME PMI that costs $200-300/month forever ($72K-$108K over 30 years). Conventional PMI is removed at 20% equity, saving you $50,000+. Compare FHA vs conventional rates to see which saves you more.
Get Pre-Approved (Both Loan Types) →The FHA vs conventional loan decision can save or cost you $50,000+ over 30 years. This complete comparison uses data from your 10-day research to show you exactly which loan type is better for YOUR situation. Key insight: if you have 620+ credit, choose conventional to avoid lifetime FHA PMI.
📊 Complete FHA vs Conventional Comparison Table
| Factor | FHA Loan | Conventional Loan |
|---|---|---|
| Minimum Credit Score | 580 (can be lower with 10% down) | 620 (better rates at 680+) |
| Down Payment | 3.5% minimum | 3% minimum |
| Upfront Insurance Premium | 1.75% financed into loan | $0 upfront |
| Monthly PMI | LIFETIME unless refinance | Removed at 20% equity (~7-10 years) |
| Debt-to-Income Ratio | Up to 50% acceptable | Maximum 45% |
| Property Restrictions | Primary residence only; strict property condition rules | More flexible; can be investment property |
| Loan Terms | 15 or 30 years only | Multiple term options |
| Manufactured Homes | Not eligible if built before 1976 | Broader property types allowed |
💰 Long-Term Cost Comparison: $300,000 Home
🏦 FHA Loan Costs
🏠 Conventional Loan Costs
💎 Conventional Saves You $38,066 in PMI!
If you have 620+ credit, choose conventional to save $38K+ over FHA lifetime PMI.
Compare Conventional Rates →✓ 620+ credit ✓ 3% down ✓ PMI removed at 20% equity
🎯 Which Loan Should YOU Choose?
Choose FHA If:
- ✓ Credit score 580-619: FHA is your only option for low down payment
- ✓ High debt-to-income ratio (45-50%): FHA allows more debt
- ✓ Minimal savings: 3.5% down vs 3% conventional (small difference)
- ✓ Plan to refinance in 5-7 years: Once you have 20% equity, refinance to conventional to remove PMI
Choose Conventional If:
- ✓ Credit score 620+: You qualify for conventional, avoid lifetime PMI
- ✓ DTI under 45%: You meet conventional requirements
- ✓ Long-term ownership (10+ years): PMI removal saves $38K-$50K+
- ✓ Investment property: FHA doesn't allow rentals, must use conventional
- ✓ Want flexibility: Conventional has more property type options
❓ Frequently Asked Questions
What is the difference between FHA and conventional loans?
FHA loans require 580 credit score, 3.5% down, have 1.75% upfront PMI plus lifetime monthly PMI, allow up to 50% DTI, and are for primary residence only. Conventional loans require 620 credit score, 3% down, have no upfront PMI, monthly PMI removed at 20% equity, allow up to 45% DTI, and can be used for investment properties.
Is FHA or conventional better for first-time buyers?
FHA is better if you have lower credit (580-619) or minimal down payment savings. Conventional is better if you have 620+ credit score because PMI is removed at 20% equity, saving you $50,000+ over the life of the loan. If you qualify for conventional, choose it to avoid lifetime FHA PMI.
Can I remove PMI from an FHA loan?
NO. FHA loans originated after June 2013 have LIFETIME PMI that cannot be removed unless you refinance to conventional. This costs you $200-300/month for 30 years = $72,000-$108,000 extra. Only way to remove FHA PMI is to refinance to conventional once you have 20% equity.
What credit score do I need for FHA vs conventional?
FHA minimum: 580 credit score (can go as low as 500 with 10% down). Conventional minimum: 620 credit score (680+ for best rates). If you have 620+, choose conventional to avoid lifetime PMI. If you have 580-619, FHA is your only option for 3.5% down.
How much does FHA PMI cost vs conventional PMI?
FHA PMI: 1.75% upfront ($5,250 on $300K loan) + 0.55-0.85% annually ($137-212/month) for LIFE. Conventional PMI: $0 upfront + 0.3-1.5% annually ($75-375/month) until 20% equity. Over 30 years, FHA PMI costs $49,320-$76,320 vs conventional $9,000-$45,000 (removed after 7-10 years).
Can I use FHA for investment property?
NO. FHA loans are for PRIMARY RESIDENCE ONLY. You must live in the property for at least 1 year. Conventional loans can be used for investment properties, second homes, and vacation homes. If buying rental property, you MUST use conventional loan.
Which loan has lower interest rates FHA or conventional?
FHA typically has 0.25-0.5% LOWER interest rates than conventional (6.0% vs 6.5%). However, lifetime PMI makes FHA MORE EXPENSIVE long-term. Even with lower rate, FHA costs $50,000+ more over 30 years due to PMI that never goes away.
Should I refinance from FHA to conventional?
YES! Once you have 20% equity (typically 5-7 years), refinance from FHA to conventional to remove PMI. This saves you $200-300/month for remaining loan term. Example: Refinance after 7 years saves $55,200-$82,800 over next 23 years. Always refinance FHA to conventional when you hit 20% equity.
🚀 Get Pre-Approved for Both Loan Types
Compare FHA and conventional offers side-by-side. See which saves you more.
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