When it comes to buying a home, one of the biggest decisions you’ll face is which type of mortgage to choose. Two of the most common options are conventional loans and FHA loans—and each comes with its own set of pros and cons. Whether you're a first-time homebuyer or a seasoned investor, understanding the differences can help you make a smarter, more confident decision.
Let’s break it down:
🏡 What Is a Conventional Loan?
A conventional loan is a mortgage that is not backed by a government agency. These loans are offered by private lenders and typically conform to the guidelines set by Fannie Mae and Freddie Mac.
✅ Pros of Conventional Loans
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Lower Down Payment Options: Depending on your credit score, you could qualify for a conventional loan with as little as 3% down. For a $300,000 home, that’s just $9,000 upfront!
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Great for Investment Properties: Unlike FHA loans, conventional loans can be used to purchase investment properties, making them a popular choice for real estate investors.
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Private Mortgage Insurance (PMI) Isn’t Forever: If you put down less than 20%, you’ll need to pay PMI. However, once you’ve built 20% equity in your home, you can ask your lender to remove it. Better yet, it’s automatically canceled once your loan balance reaches 78% of the home’s original value.
⚠️ Cons of Conventional Loans
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Higher Credit Requirements: You’ll generally need a minimum FICO score of 620 to qualify.
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Stricter Waiting Periods After Financial Hardship: If you’ve experienced bankruptcy or foreclosure, expect to wait longer—2 to 4 years after bankruptcy and 3 to 7 years after foreclosure—before qualifying.
🏠 What Is an FHA Loan?
An FHA loan is insured by the Federal Housing Administration and is designed to help borrowers who might not meet the stricter requirements of conventional loans. These are especially helpful for first-time buyers or those with lower credit scores.
✅ Pros of FHA Loans
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Easier Credit Qualification: FHA loans are available to borrowers with FICO scores as low as 500—a big win if your credit history is less than perfect.
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Still Low Down Payments: Even with lower credit, you can score a low down payment:
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3.5% down with a credit score of 580+
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10% down with a score between 500–579
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⚠️ Cons of FHA Loans
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Mandatory Mortgage Insurance: Unlike conventional loans, mortgage insurance is required for most FHA loans—and it usually lasts for the life of the loan.
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Upfront mortgage insurance premium (UFMIP): 1.75% of your loan amount
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Annual premium: Ranges from 0.15% to 0.75% depending on your loan size, term, and down payment
Note: If you put down 10% or more, you can stop paying the annual premium after 11 years.
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Limited Use for Investment Properties: You can only use an FHA loan to buy an investment property if you live in the property full-time. That’s a dealbreaker for most investors.
🧠 Which Loan Is Right for You?
Choosing between a conventional and FHA loan depends on your credit score, financial situation, and long-term goals. A higher credit score and plans to invest might make a conventional loan the way to go. But if you’re just starting out and need some flexibility, an FHA loan could be your ticket to homeownership.
👉 Pro Tip: The Jenkins Group can connect you to a trusted mortgage advisor to explore your options and find the loan that fits your journey best.
Still have questions? The Jenkins Group is here to help you navigate the path to homeownership—every step of the way. Contact us Today!
