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 |
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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