FHA vs Conventional Loans: Complete 2025 Comparison
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July 4, 2025

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If you’re shopping for a mortgage in 2025, it’s essential to understand the key differences between FHA and conventional loans. This guide dives into rates, requirements, loan limits, pros & cons, and expert tips to help you choose the right option for your home purchase.


Key Differences at a Glance

FeatureFHA Loan (2025)Conventional Loan (2025)
Down payment3.5% (580+ credit) or 10% (500–579) 3% for qualified buyers, typically 5–20%
Credit score580+ (or 500+ w/ higher down payment)620+ minimum, best rates at 740+
Debt-to-income (DTI)Up to ~50–55% with flexibilityGenerally ≤43–50%, stricter underwriting
Loan limits$524,225 standard; up to $1,209,750 in high-cost areas$806,500 standard; up to $1,209,750 (or $1.8M in AK/HI)
Mortgage insurance (MI)Upfront (1.75%) + annual MIP; typically lasts entire loanPMI required if <20% down; removable after 20% equity
Interest ratesSlightly lower and more stable; ~6.25–6.75% todayAround ~6.45–7.42% based on credit profile
Property usePrimary residence onlyPrimary, secondary, and investment properties

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Interest Rate Trends for 2025

  • FHA rates typically range from 6.25% to 6.75% based on credit and lender
  • Conventional rates hover around 6.45%–7.42%, depending on borrower profile
  • Forecasts project 30-year fixed rates ending around 6.3–6.7% by year-end

Pros & Cons Breakdown

FHA Loans

Pros:

  • Lower down payment and credit score requirements—ideal for credit-challenged or low-saving borrowers
  • Higher DTI flexibility; viable for applicants with student loans or higher debt
  • Assumability and streamline refinance benefits

Cons:

  • Mandatory mortgage insurance (upfront + annual) often more expensive and longer-lasting
  • Limited to primary homes and FHA-approved property conditions
  • Lower borrowing cap in standard-cost markets

Conventional Loans

Pros:

  • More favorable long-term cost if you have high credit and a sizable down payment
  • PMI can be canceled with equity ≥20%, reducing mortgage costs
  • Flexibility for property types beyond a primary residence 
  • Potential for lower interest rates if your credit score is strong

Cons:

  • Higher credit threshold and stricter underwriting criteria
  • Larger down payments often required to reach best terms 

Rate & Payment Sample

Loan TypeRate (Est.)Payment (P&I) for $400k, 30-yr
FHA~7.34%$2,758/month 
Conventional~7.11%$2,684/month

Conventional edges out in monthly savings—but FHA may be more accessible if savings or credit are tight.


Which Loan Fits You?

  • FHA is often best for first-time buyers, low credit scores, high DTI, or small down payments.
  • Conventional suits borrowers with credit >620, ability to put down 5–20%, long-term wealth plans, or desire to cancel PMI.
  • You can start with FHA and later refinance to conventional once equity and credit improve.

Tips to Strengthen Your Application

  1. Improve your credit – even small boosts can significantly lower rates.
  2. Explore down payment assistance – FHA allows gifts/co-borrowers; check local programs
  3. Shop lenders – rates vary; compare FHA vs conventional quotes to find the best deal.
  4. Evaluate PMI vs MIP cost – run mortgage calculators to assess long-term impact.

Frequently Asked Questions

Are FHA loans assumable?

Yes—FHA loans are assumable, allowing future buyers to take over your loan at its rate 

Who can access FHA?

Borrowers with 580+ credit and 3.5% down (or 500+ with 10% down); up to 50–55% DTI.

When should I choose conventional?

If you have credit ≥620, can put down ≥5%, plan to stay long-term, and want to cancel PMI later.

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Choosing between an FHA vs conventional loan in 2025 doesn’t have to be confusing. Use this comparison to assess your financial picture, credit profile, and long-term goals. Need tailored advice? Reach out to our mortgage experts today!

Let us help you turn your homeownership dream into reality.

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  • 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.

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