FHA Mortgage vs Conventional Mortgage

While most folks when looking to buy a home rely on their mortgage company to advise them, its important to know the key differences between an FHA loan and a Conventional Loan. The word Conventional Loan means loans under Fannie Mae and Freddie Mac. FHA loans are government insured loans where conventional loans are issued by a bank and then securitized by Fannie Mae or Freddie Mac

With FHA you can buy a home, have a home built, refinance to take out cash or refinance to lower your rate and payment.

The main benefits of FHA over Conventional loans have to due with the approval and credit requirements. FHA has the most lenient requirements when getting a home loan. With an FHA loan it will have a lower interest rate, lower down payment and they work with all types of credit. With Conventional they general only accept good credit or better and want a sizable down payment. The chart below outlines the reasons why FHA is a better choice:

Type of Mortgage Conventional Loan FHA Loans Conventional Financed MI Conventional Lender Paid MI
Purchase Price $300,000 $300,000 $300,000 $300,000
Mortgage Amount W/5% Down $285,000 $289,987 $289,547 $285,000
Interest Rate W/1.75 points 5.25% 4.50% 5.25% 5.75%
Principal Interest Payment $1,573.78 $1,469.90 $1,626.50 $1,663.11
Mortgage Insurace Payment $185.25 $118.75 Built into MTG Built into MTG
Total Mortgage Payment-P&I
and Mortgage Insurance
$1,759.03 $1,588.67 $1,626.50 $1,663.11
Monthly Saving Winner against all
3 read below


Other Reasons why FHA Is a Better Choice:
More Loan Options: With the FHA there are several loan programs.

  • Can be used for new homes
  • Mobile and manufactured homes
  • New construction
  • Home Improvement and repair loans
  • Condominiums & Townhomes
  • Homes with acreage

Streamline Refinance Eligibility: Once you get an FHA mortgage you can always refinance later to lower your payment, change your term or get cash back. The refinance process is called a streamline process where it’s a simple process that does not require a new appraisal and has a reduced income and credit review.