The decision should come from comparing actual loan scenarios, not general rules. Here is the full comparison.
Step 1: Compare the Down Payment
Both programs can provide relatively low-down-payment options for eligible buyers.
Do not choose solely based on:
"FHA is 3.5% and conventional is 20%."
That is an outdated oversimplification.
Qualified conventional buyers may have much lower down-payment options.
Step 2: Compare Mortgage Insurance
FHA
Uses FHA mortgage insurance.
Conventional
May use PMI when equity/down payment is below applicable thresholds.
Compare:
- Upfront cost
- Monthly cost
- Duration
- Cancellation possibilities
Step 3: Compare Interest Rate
One loan may have a lower note rate.
But rate alone is not enough.
Add:
- Mortgage insurance
- Points
- Fees
- Cash to close
Step 4: Compare Credit Pricing
A borrower with excellent credit may receive very attractive conventional pricing.
Another borrower may find FHA far more competitive.
Same home. Same price. Different borrower. Different result.
Step 5: Compare Property
FHA property standards may matter for a home needing significant repairs.
Conventional financing may handle the property differently.
But conventional is not automatically:
"anything goes."
The lender still requires acceptable collateral.
Step 6: Compare Condo Eligibility
FHA condo rules and conventional condo rules differ.
If buying a condo, both financing programs may involve review of the association/project.
Step 7: Compare Seller Concessions
Both have contribution limits and requirements.
Ask your lender what is usable BEFORE Lisa structures the offer.
Step 8: Consider How Long You'll Keep the Mortgage
Mortgage-insurance treatment can matter over time.
If you expect to own the property for 2 years vs. 20 years, the same loan structure may not be equally attractive.
Step 9: Consider Future Refinance
You may plan to refinance later.
But future refinancing is never guaranteed.
Rates, income, credit and value can change.
Choose a loan you can live with even if your future refinance takes longer than expected.
Example: Buyer A
- Credit: moderate
- Cash: limited
- Income: stable
FHA may price better.
Example: Buyer B
- Credit: excellent
- 5% down
- Strong reserves
Conventional may provide attractive PMI and pricing.
Example: Buyer C
Property needs repairs.
The property itself may push the comparison in a different direction.
What Should You Ask the Lender?
Request side-by-side comparisons showing:
- Rate
- APR
- Down payment
- Cash to close
- Mortgage insurance
- Monthly payment
- Fees
- Estimated long-term cost
Use the same purchase price, closing date and down-payment scenario for a fair comparison.
Lisa's Take
The label on the loan is not the goal.
Buying the right home with financing you understand is the goal.
For the whole FHA library, visit the FHA Home Loans hub or the Financing a Home resource center.
