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Conventional Loans Versus FHA Loans

This blog is a comparison between conventional loans, also called fixed-rate mortgages, and Federal Housing Authority Loans (FHA Loans). The other loan types–VA loans (for veterans) and USDA Loans (for rural development, or farms)–are a bit more straightforward in their intended audiences and qualifications.  Most people have an idea of what a conventional loan entails, but are less aware of the pros and cons of FHA loans. Since conventional loans are a good basis for comparison for any any other loan types, they’re a good way to understand exactly why one would opt for an FHA loan, if such an option presents itself.


A conventional loan is defined as any loan not provided, qualified, or secured by a government entity. This fact serves as the foremost distinction between conventional loans and the other three loan types, as each have ties to government agencies and carry criteria that reflects their provider. Conventional loans are generally secured by lending entities like banks, credit unions, and private mortgage companies. The most prevalent examples of these are Federal National Mortgage Association (Fannie Mae) and the Federal Mortgage Home Loan Corporation (Freddie Mac). While the names of these prestigious organizations may sound like government entities, they are in fact government-sponsored publicly traded companies. FHA loans are those approved and insured by the Federal Housing Authority. As they are insured by a government agency, they are not considered conventional loans. FHA Loans offer lower requirements to qualifying home buyers as a way for the US government to support homeownership to lower-income families.

Main Differences

The following list defines the specific differences between conventional loans and FHA loans from a numbers standpoint:

● The minimum credit score for a conventional loan is 620, which is about average to
slightly above average. As such, homebuyers with detrimental items like repossessions
and evictions on their credit report may look to FHA loans as an alternative, since the
minimum credit score for this loan type is a much more lenient 500.
● The down payment on a conventional loan is always between 3 and 20% depending on
credit. FHA loan down payments vary as well, but less so, offering low down payments
(3.5%) for homebuyers with scores above 580, and 10% rates for homebuyers with low
credit scores between 500 and 579.
● Conventional loans can be 10, 15, 20, or 30 years in length, whereas FHA loans are
always either 15 or 30 years.
● Homebuyers using conventional loans can forego mortgage insurance with a sufficient
down payment; FHA loans require mortgage insurance premiums require a percentage
of mortgage insurance premiums upfront, which will continue for a specified duration
depending on the length of the loan.
● A down payment gift can be used to satisfy 100% of the down payment for an FHA loan,
where only part of a down payment gift can be used for conventional loans if the down
payment is less than 20%.
FHA loans are eligible for down payment assistance programs; conventional loans are
● FHA loans have lower interest rates than conventional loans.
● The maximum loan amount of a conventional loan is $424,000, where FHA loan
maximums vary according to location.

Loans can be technical challenges to even the most experienced buyers, so we offer comprehensive consulting services to help you sort out these or any other parameters that may be unclear. Call us at 314-336-9111 or use any of the means provided here to find out if you pre-qualify for a conventional or FHA loan.

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