FHA vs conventional - the key differences side by side
The FHA Path to Yes
FHA financing opens the door with a low down payment and a credit review built for real life. The tradeoff is mortgage insurance premiums (MIP). This handout compares FHA to conventional so you can evaluate which path fits your situation - and shows the exit strategy to build equity and leave MIP behind.
| Factor | FHA Loan | Conventional Loan |
|---|---|---|
| Down payment | A low down payment for qualified buyers (per current HUD guidelines) | Typically requires a larger down payment; lower down payment options exist for qualified buyers |
| Credit review | Flexible - reviews full credit picture, past challenges evaluated in context | Generally requires stronger credit profile; less flexibility for past challenges |
| Mortgage insurance | Upfront MIP + monthly MIP (duration depends on term and LTV per HUD guidelines) | PMI required below a certain LTV; drops when equity threshold is reached |
| Loan limits | FHA limits set by county/MSA annually; conforming and high-balance amounts available in NoVA | Conforming and high-balance limits; no government cap (for non-conforming/jumbo) |
| Property standards | FHA minimum property requirements apply; home must be safe, sanitary, and structurally sound | Standard lender appraisal; generally less restrictive property requirements |
| ARM option | 5/1 ARM available with caps per HUD guidelines; rate can rise after initial period | Multiple ARM products available; rate can rise after initial period |
| Best for... | Buyers who want a low down payment or have a non-traditional credit profile | Buyers with stronger credit and a larger down payment who want to avoid FHA MIP structure |
Program parameters per current guidelines, subject to change
| FHA Parameter | Current Guideline |
|---|---|
| Down payment (min, qualified buyers) | As low as 3.5% for eligible borrowers per current HUD 4000.1 |
| Upfront MIP | 1.75% of base loan amount, typically financed into the loan |
| Annual MIP | Varies by term, loan amount, and LTV per current HUD tables; duration varies |
| 5/1 ARM caps (typical) | 1%/1%/5% (initial/annual/lifetime) per FHA guidelines; confirm current caps |
| ARM qualifying note | Per HUD guidelines, ARM qualifying may use a note rate that can ease debt-to-income ratios; the rate can rise after the initial period |
MIP facts What MIP actually means, at a glance
Your journey FHA milestones - renter to owner
Know your credit picture
Pull your reports early; FHA allows flexible review even with past challenges.
Get pre-approved
Shows sellers a ready buyer and reveals your true purchase range before you shop.
Review property eligibility
FHA requires the home meet minimum standards; confirm early to avoid delays.
Shop with confidence
Shop knowing your budget and that your loan is structured and ready to go.
Make an offer
A clean, well-structured FHA offer with a strong pre-approval can compete.
FHA appraisal
Confirms value and property standards; a move-in-ready home typically passes.
Underwriting
Respond to conditions quickly and avoid any new debt or large purchases.
Clear to close
Keep income, employment, and credit steady until you sign at the table.
Close and own
Keys in hand - you built equity from day one. Your equity review starts here.
Two separate wins - keep them in separate buckets
Four questions to evaluate your FHA path
Is your down payment savings modest today?
FHA's low down payment option may let you stop renting sooner - before saving a larger conventional down payment.
Is your credit picture non-traditional?
FHA's flexible review can open doors that conventional scoring alone might not - medical bills, past hardships, thin file.
Are your qualifying ratios a challenge?
The FHA 5/1 ARM may ease qualifying ratios per HUD guidelines. The rate can rise after the initial period - evaluate your plans carefully.
Do you have a clear exit plan?
FHA MIP removal through refinance or paydown requires planning. We model your equity path from day one.
See your own numbers - free
We run FHA vs conventional for your situation: down payment, MIP vs PMI, qualifying picture, and your equity path.
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