The Key Differences Between FHA Loans And Conventional Loans

Posted on: 5 April 2017

If you have never bought a home before, the process of getting a home loan might be somewhat confusing to you. One question you might have during this process is which type of loan you should get. There are several common types, but two of the most common are FHA loans and conventional loans. Here are several of the key differences between these two types of home loans.


A conventional loan is a loan that is not backed by the federal government, while an FHA loan is. The Federal Housing Administration backs FHA loans, and this means that the FHA will pay the balance of a loan if the borrower defaults. With a conventional loan, no one repays the loan if the borrower defaults.

Credit scores

Qualifying for a conventional loan is often harder than qualifying for an FHA loan because of the credit requirements. People will only generally qualify for conventional loans if they have great credit scores. Because of this, people with lower credit scores will generally apply for FHA loans.

Down payment requirements

Another key difference between these types of loans is the requirements relating to down payments. With a conventional loan, you will typically be able to borrow only 80% of the home's value. In other words, you will need to put a down payment on the property that is equal to at least 20%.

With an FHA loan, you may only be required to put down 3.5% of the purchase price, and this is primarily because these loans are backed by the FHA. The lenders that offer these have a lower amount of risk on these loans, because they will not have to worry about losing money.

If you do not have a lot of money to put down on a house, choosing an FHA loan might be the better option for you.


Each of these types of loans has insurance requirements, but the types are very different. With a conventional loan, you will only be required to pay insurance to the lender if you borrow more than 80% of the home's value. This type of insurance is called private mortgage insurance (PMI). If you have a large enough down payment, you will not have to pay it.

With an FHA loan, you will have to pay insurance no matter how much you borrow or put down on the house you purchase. This type of insurance is called mortgage insurance premium (MIP), and it is required for all FHA loans.

After reading through these main differences, you may understand which type would be better for your situation. If you would like to apply for a loan, contact a lender or mortgage company to find out how to get started with the process.