Nov 30, 2026 · By Oanh Nguyen · Broker & Loan Officer · Home Loans
When buyers start talking with lenders, two loan types come up most: conventional and FHA. Both can help you buy a home. Both have strengths. And the "better" one depends on your credit, your down payment, the property and your plans.
In this post, I'll explain how each loan type works, how they compare on credit, down payment, mortgage insurance, property rules and loan limits, and how to decide which one fits you.
I'm a broker and a licensed loan officer. This post is general education, not a loan offer. I'm not listing rates, payment amounts, credit score minimums or down payment percentages, because they change and vary by lender. A loan officer can compare both options for your exact situation.
What Is a Conventional Loan?
A conventional loan isn't insured or guaranteed by a government agency. Most conventional loans follow guidelines set by Fannie Mae or Freddie Mac, which buy loans from lenders. Loans that fit their size limits and rules are called conforming loans.
Loans above the conforming limit are called jumbo loans. They follow each lender's own rules. In the Bay Area, where prices are high, many buyers need jumbo loans.
What Is an FHA Loan?
An FHA loan is insured by the Federal Housing Administration, part of HUD. FHA doesn't lend money directly. You apply through an FHA-approved lender, and FHA insures the loan.
FHA loans are designed to help more people buy homes, including buyers with smaller down payments or less-than-perfect credit. HUD says you don't have to be a first-time buyer to use an FHA loan.
FHA loans are for homes you'll live in as your primary residence. The basic FHA purchase program covers one- to four-unit properties.
How They Compare
Credit
- FHA guidelines are often more flexible on credit history and scores than many conventional programs.
- Conventional loans usually reward stronger credit with better pricing.
Every lender may also add its own requirements, called overlays. Ask about them.
Down payment
- FHA allows lower down payments for eligible borrowers. HUD also allows gift funds from certain sources.
- Conventional loans also have lower down payment options for some buyers, plus options for larger down payments.
The right comparison depends on how much you plan to put down. Ask your loan officer to show both at the same down payment.
Mortgage insurance
This is often the biggest difference.
- Conventional loans usually require private mortgage insurance (PMI) when the down payment is below a certain level. PMI can often be removed later, once you reach enough equity and meet the conditions.
- FHA loans require mortgage insurance premiums: an upfront premium, usually added to the loan, and an annual premium paid monthly. How long the annual premium lasts depends on the loan's terms and down payment.
Because of these differences, an FHA loan may cost less at first for some buyers, while a conventional loan may cost less over time for others. Compare the total cost over the years you plan to keep the loan.
Property requirements
- FHA loans require the home to meet HUD's property standards. The FHA appraisal also looks at certain health and safety items. Homes needing significant repairs may need work before closing.
- FHA condos generally need to be in an FHA-approved project, or meet other approval rules. Ask early if you're looking at condos.
- Conventional loans have property standards too, but they're often less strict on condition.
Loan limits
- FHA has maximum loan limits that vary by county and are updated each year. HUD publishes them.
- Conventional conforming loans also have limits, set each year by the Federal Housing Finance Agency, which vary by county. High-cost areas like ours have higher limits.
- Above those limits, buyers usually need a jumbo loan.
With Bay Area prices, loan limits can decide which loan types are even possible for a given home.
Seller credits and offers
Both loan types allow seller credits toward closing costs within limits. Some sellers see FHA offers as less flexible, because of the property standards and appraisal requirements. A strong pre-approval and a clear plan can help.
Side-by-Side Summary
| Feature | Conventional | FHA |
|---|---|---|
| Backed by | Not government-insured (most follow Fannie Mae / Freddie Mac rules) | Insured by FHA (HUD) |
| Credit flexibility | Often rewards stronger credit | Often more flexible |
| Down payment | Lower options for some buyers; flexible | Lower options for eligible buyers |
| Mortgage insurance | PMI with smaller down payments; often removable | Upfront and annual premiums; rules depend on terms |
| Occupancy | Primary, second home or investment (by program) | Primary residence |
| Property standards | Standard | HUD property standards |
| Condos | Project review varies | Generally must meet FHA approval rules |
| Loan limits | Conforming limits by county; jumbo above | FHA limits by county |
This is a general comparison. Programs change, and lenders may have extra rules.
Who Might Lean Toward Each
An FHA loan may be worth a close look if you:
- Have credit history that's still building or has some past issues.
- Plan a smaller down payment.
- Have a higher debt-to-income ratio, within program limits.
- Are buying a home in good condition within FHA loan limits.
A conventional loan may be worth a close look if you:
- Have strong credit.
- Plan a larger down payment.
- Want mortgage insurance you may be able to remove later.
- Are buying a condo that isn't FHA-approved.
- Are buying a second home or investment property.
- Need a loan amount above FHA limits.
Many buyers qualify for both. In that case, compare Loan Estimates side by side.
How to Compare Them Fairly
- Use the same price and down payment for both.
- Compare the total monthly payment, including mortgage insurance.
- Compare cash to close, including any upfront mortgage insurance.
- Think about how long you'll keep the loan. Mortgage insurance rules can change which loan costs less over time.
- Consider the property. Will it meet FHA standards? Is the condo approved?
- Ask about refinancing later, if your situation changes.
Your Loan Estimate makes this comparison easier. Lenders must give you one within three business days after you apply.
Questions to Ask Your Loan Officer
- Do I qualify for both conventional and FHA?
- What would my total monthly payment be with each, at the same price and down payment?
- How does mortgage insurance work on each, and when could it end?
- What would my cash to close be with each?
- Are there lender overlays that affect me?
- Is the home or condo I'm considering eligible for FHA?
- What are the current loan limits in my county for each?
- If my credit improves later, could I refinance? What would it cost?
What About Jumbo Loans?
In the Bay Area, many homes cost more than the conforming and FHA loan limits allow. For those, buyers usually need a jumbo loan.
Jumbo loans follow each lender's own guidelines. They often have stricter requirements for credit, down payment and reserves. Some lenders offer jumbo options with different down payment levels.
If your target price range is near or above the local limits, ask your loan officer to show you a jumbo option alongside conventional and FHA. The right loan type may depend on the exact price of the home you choose.
Can You Switch Later?
Some buyers start with an FHA loan and later refinance into a conventional loan once they've built equity or improved their credit, often to change how mortgage insurance works. Refinancing has costs and isn't guaranteed, so don't count on it. But it's an option to discuss.
Common Myths
"FHA is only for first-time buyers." Not true. HUD says you don't need to be a first-time buyer.
"Conventional loans always require a big down payment." Not always. Some conventional options allow smaller down payments for eligible buyers.
"FHA is always cheaper." Not always. Mortgage insurance rules can make the total cost higher over time for some buyers.
"Sellers won't accept FHA offers." Many do. A strong pre-approval and a well-prepared offer matter more.
A Hypothetical Example
This example is made up to show the process. It is not based on any real client or loan, and it does not show rates, payments or terms.
A buyer with good but not excellent credit is shopping for a townhome. They plan a modest down payment.
Their loan officer runs both options at the same price and down payment. The FHA option has a lower monthly payment at first. The conventional option has a slightly higher payment, but its mortgage insurance could be removed later.
They also check the townhome complex. It isn't FHA-approved. That settles it: they choose the conventional loan. If they'd been buying a single-family home, the choice might have gone the other way.
Key Takeaways
- FHA can be more flexible on credit and down payment for eligible buyers.
- Conventional can cost less over time for buyers with stronger credit or larger down payments.
- Mortgage insurance rules are often the deciding difference.
- Property condition and condo approval can rule FHA in or out.
- Loan limits matter at Bay Area prices, and jumbo loans may be needed.
- Compare both at the same price and down payment.
Frequently Asked Questions
Is FHA or conventional better?
It depends on your credit, down payment, property and plans. Compare both at the same price and down payment.
Can I get an FHA loan if I'm not a first-time buyer?
Yes. HUD doesn't require FHA borrowers to be first-time buyers.
Can I remove mortgage insurance?
Conventional PMI can often be removed later under certain conditions. FHA premium rules depend on your loan's terms. Ask your lender.
Can I use an FHA loan on a condo?
Generally, the condo project must meet FHA approval rules. Check early.
What are loan limits?
The maximum loan amounts for FHA and conforming conventional loans, set each year and varying by county. Above them, buyers usually need a jumbo loan.
Can I use FHA for an investment property?
FHA loans are for primary residences. Some buyers purchase a 2–4 unit property, live in one unit and rent the others, within FHA rules.
How do I know which I qualify for?
Get pre-approved. A loan officer can review both options for you.
Which loan is better for a fixer-upper?
Both have property standards. FHA's are often stricter about condition. FHA also has a renovation program, the 203(k), that combines purchase and repair costs. Conventional renovation options exist too. Ask your loan officer which fits the property.
Do both loan types allow gift funds?
Many conventional and FHA programs allow gift funds for a home you'll live in, with documentation rules. Talk with your lender before any money moves.
Will my credit score decide which loan I get?
It's one important factor. Down payment, debts, income, the property and your plans matter too. Your loan officer can show you how each option prices for your profile.
The Bottom Line
Conventional and FHA loans both help buyers purchase homes, but they differ on credit flexibility, down payment, mortgage insurance, property standards and loan limits. FHA can be more flexible for some buyers. Conventional can cost less over time for others, especially with stronger credit or a larger down payment.
Compare both at the same price and down payment, look at total cost over time and check the property's eligibility.
Want to see both options side by side? Let's compare conventional and FHA options for your situation. I'll walk you through each Loan Estimate so you can choose with confidence.
Sources
- U.S. Department of Housing and Urban Development, Buying a Home: https://www.hud.gov/helping-americans/buying-a-home
- HUD, "How can FHA help me buy a home?": https://answers.hud.gov/FHA/s/article/How-can-FHA-help-me-buy-a-home
- HUD, "How does HUD define a First-Time Homebuyer?": https://answers.hud.gov/FHA/s/article/How-does-HUD-define-a-first-time-homebuyer
- HUD, 203(b) Mortgage Insurance: https://www.hud.gov/hud-partners/single-family-sfh203b
- Consumer Financial Protection Bureau, Loan Estimate explainer: https://www.consumerfinance.gov/owning-a-home/loan-estimate/
- NMLS Consumer Access (verify any loan officer's license): https://www.nmlsconsumeraccess.org/
Compare conventional and FHA options for your situation. Call or text me at 408-780-1188, or email onrealtygroup@gmail.com.
Oanh Nguyen · Broker & Loan Officer · On Realty Group, brokered by LPT Realty · BRE #02133991 · NMLS 2020335
Equal Housing Opportunity.
Loan disclosure: Oanh Nguyen, Broker | Loan Officer, On Realty Group, brokered by LPT Realty, BRE #02133991, NMLS #2020335. This post is general education, not a loan offer, rate quote or commitment to lend. Loan programs, guidelines and eligibility change and are subject to lender review and approval.
Disclaimer: This post is general information only, not an appraisal or legal, tax or financial advice; data comes from the public sources linked above, is believed reliable but not guaranteed, and can change at any time.