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Buying a home is one of the biggest financial decisions you’ll ever make, and choosing the right mortgage can make a significant difference in your long-term costs. In 2025, both FHA and conventional loans remain popular options for homebuyers, but they come with different benefits, requirements, and costs. Here’s a breakdown to help you decide which might be the better fit for you this year.
What Is an FHA Loan?
An FHA loan is a mortgage insured by the Federal Housing Administration (FHA). It’s designed to help first-time homebuyers and those with less-than-perfect credit achieve homeownership. These loans are popular because they offer more flexible credit requirements and lower down payment options.
Key Features of FHA Loans:
- Lower Credit Score Requirements: Typically, you can qualify with a credit score as low as 580 (with a 3.5% down payment), or 500-579 with at least 10% down.
- Low Down Payment: Just 3.5% down for buyers with credit scores of 580 or higher.
- Flexible Debt-to-Income (DTI) Ratios: FHA loans often allow higher DTI ratios than conventional loans, making it easier for borrowers to qualify.
- Mortgage Insurance Premium (MIP): FHA loans require both upfront and annual mortgage insurance, which can add to the overall cost.
For more on FHA loans, check out our FHA Mortgage Loan Guide.
What Is a Conventional Loan?
Conventional loans, unlike FHA loans, are not backed by the government. They are offered by private lenders and adhere to guidelines set by Fannie Mae and Freddie Mac. These loans are ideal for borrowers with stronger credit profiles and stable incomes.
Key Features of Conventional Loans:
- Higher Credit Requirements: Generally, you’ll need a credit score of at least 620, though many lenders prefer 680 or higher for the best rates.
- Low Down Payment Options: As low as 3% for first-time buyers or those meeting certain income requirements.
- No Ongoing Mortgage Insurance: If you put down at least 20%, you can avoid private mortgage insurance (PMI) altogether.
- Lower Long-Term Costs: Typically, conventional loans come with lower long-term costs if you have strong credit.
Learn more in our Conventional Loan Guide.
FHA vs. Conventional Loans: Key Differences
| Feature | FHA Loan | Conventional Loan |
| Minimum Credit Score | 580 (3.5% down) | 620 (3% down) |
| Down Payment | 3.5% (or 10% for lower scores) | 3% (first-time) or 5% (repeat buyers) |
| Mortgage Insurance | Upfront and annual MIP | PMI (if <20% down, can be removed) |
| Debt-to-Income Ratio | Typically up to 50% | Typically up to 43%-45% |
| Loan Limits | Varies by county | Higher limits available in some cases |
For a deeper dive into these differences, see our FHA vs. Conventional Loan Guide.
Pros and Cons of FHA Loans
Pros:
- Easier to qualify with lower credit scores.
- Lower down payment requirements.
- Assumable mortgage, potentially saving buyers money if rates rise.
Cons:
- Mortgage insurance is required for the life of the loan if less than 10% down.
- Lower loan limits in some areas.
- Homes must meet stricter property standards.
Pros and Cons of Conventional Loans
Pros:
- No PMI if 20% down payment.
- Generally lower interest rates for high-credit borrowers.
- More flexibility with property types.
Cons:
- Stricter credit score and financial requirements.
- Larger down payment needed to avoid PMI.
Which Is Right for You?
Choosing between an FHA and a conventional loan largely depends on your financial situation, credit score, and long-term goals. Here are a few scenarios where one might be better than the other:
- FHA Loan Might Be Better If: You have a lower credit score, need a smaller down payment, or are a first-time buyer.
- Conventional Loan Might Be Better If: You have strong credit, can afford a larger down payment, or want to avoid ongoing mortgage insurance.
FAQs
What credit score do you need for an FHA loan?
A minimum of 580 with 3.5% down, or 500-579 with 10% down.
Can you remove PMI from an FHA loan?
No, unless you refinance to a conventional loan or make a large down payment initially.
Which is cheaper long-term: FHA or conventional?
Conventional loans can be cheaper long-term if you have strong credit and can avoid PMI.
Read Next
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Get Expert Financing
- Matched with investor-friendly lenders
- Fast pre-approvals-no W2s required
- Financing options fro rentals, BRRRR, STRs
- Scale your portfolio with confidence
Our advice is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.
