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With extensive loan options available to buyers looking to purchase their dream home, finding a loan to suit your homeownership goals and financial needs may seem daunting.

We will discuss both conventional and FHA loans—what they’re all about and their advantages and disadvantages to help you determine which home loan may be a potential match for you to feel confident in buying your dream home.


Conventional loan basics

Conventional loans, also referred to as traditional loans, are any mortgages that are not a part of a specific government program. This is one of the most popular types of mortgages and is widely offered among lenders, banks, and credit unions.

Homebuyer benefits of conventional loans may include:

  • Flexible loan terms and options
  • Lower down payment options
  • Higher loan limits
  • Mortgage insurance may not be required for the entirety of the loan

Conventional loans come in various terms: Borrowers may choose between a 15-year or 30-year loan term, and the loan can either have fixed-rate or adjustable-rate mortgages (ARMs).

This gives potential homebuyers the flexibility to select a loan that suits their budget and financial goals.

You may qualify for a lower interest rate if you have a strong credit history and a higher credit score. Lower interest rates, in turn, could mean lower monthly mortgage payments and help buyers save more money in the long run.

Generally, conventional loans do not require upfront mortgage insurance premiums like other mortgage options, which can save you money when you close on your home. Monthly mortgage insurance may be required, however, for a portion of the loan term.

Lastly, conventional mortgages may be used for different properties, including primary residences, second homes, and investment opportunities.

Buyers may typically expect fewer property condition requirements than other home loans, like those that are backed by the government, like FHA and VA home loans.


What is an FHA loan?

An FHA loan is a mortgage insured through the Federal Housing Administration. It’s designed to make homeownership more accessible, especially for first-time homebuyers and those with lower credit scores.

While they benefit many first-time buyers, FHA loans can also be used for current homeowners and buyers looking to build.

One of the benefits is the low-down payment requirement. With an FHA loan, it’s possible to put down as little as 3.5% of the home’s purchase price.

With many traditional mortgages, you may expect to pay anywhere between 10-20% of a home’s purchase price. This is a significant amount of savings for borrowers looking to purchase a home.

FHA loans also have more lenient credit score requirements, allowing buyers with lower credit scores or limited credit history to still be able to purchase a home.

Like conventional loans, FHA loans come in fixed-rate and adjustable-rate options, providing flexibility in choosing the best loan type to fit your needs.

While FHA loans typically require the home to be a buyer’s primary residence, they may be used for various purposes, such as:

  • Purchasing a home
  • Refinancing for a lower payment
  • Renovating a home
  • Energy-efficient home improvements
  • Purchasing/refinancing a manufactured or mobile home

It’s crucial for buyers to work with an FHA-approved lender who can provide guidance on eligibility requirements and help determine which FHA loan would best fit their needs and financial goals.


How do the conventional and FHA loans compare?

Each loan option comes with its own benefits but comparing the two together may help clarify your choice.

Conventional loan potential pros:

  • No upfront mortgage insurance premium
  • No monthly mortgage insurance if you meet down payment requirements
  • Flexible loan limits
  • Lower interest rates for borrowers with high credit scores

Conventional loan potential cons:

  • Typically, higher down payment requirements
  • Stricter credit score requirements
  • Potentially higher closing costs
  • Lower-credit borrowers may not qualify for lower interest rates

FHA loan potential pros:

  • Lower down payment requirements
  • Minimum credit score requirement of only 600
  • Potentially lower interest rates
  • Flexible debt-to-income ratio requirements

FHA loan potential cons:

  • Upfront and ongoing mortgage insurance premiums
  • Loan amount limitations
  • Property condition requirements

Differences between conventional and FHA

Two major differences between FHA and conventional loans are the mortgage insurance premiums and loan limits.

Mortgage insurance is a critical component of FHA loans. You may expect to pay an upfront mortgage insurance premium (UFMIP) and an annual mortgage insurance premium (MIP).

The UFMIP is a one-time, upfront fee that is typically added to your total loan amount rather than paid out of pocket. The MIP is factored into your monthly mortgage payment and can vary depending on your loan amount, loan-to-value ratio, and loan terms.

With conventional loans, you may be able to cancel your private mortgage insurance (PMI) once you reach a certain level of equity in your home.

Conventional and FHA loans also have different loan limitations.

The FHA sets a maximum loan amount based on the median home prices in a given area. These limits can vary by location, so the maximum loan amount may vary from one county to another.

Conventional loans comply with conforming loan limits set by the Federal Housing Finance Agency (FHFA). These loan limits can also vary by county and are higher in higher-cost housing markets determined by the FHFA.

It’s essential to speak with a conventional and FHA loan lender to review the most up-to-date information on loan limits in your desired location.


Which loan is right for you?

To help determine what loan would best suit your needs, you should review your budget and determine how much you can afford.

If you’re a first-time homebuyer with limited funds or a lower credit score, an FHA loan may be the better route. Conversely, if you have a higher credit score or sufficient funds to make a larger down payment then a conventional loan may be more beneficial.

At The Federal Savings Bank, we understand that home mortgages aren’t one-size-fits-all.

That’s why we offer:

  • Conventional loan
  • FHA loan
  • VA loan
  • USDA loan
  • Mortgage refinance
  • Jumbo loans
  • Construction loans

We’re veteran-owned and operated and live by our commitment to serve all communities.

We may be focused on mortgages—but we’re also dedicated to your dreams.

Connect with The Federal Savings Bank today to learn more about our loan offerings.


Subject to credit approval. Terms and conditions may apply. Subject to VA eligibility requirements. Property insurance is required on all loans secured by property.

This article is intended for general informational and educational purposes only and should not be construed as financial or tax advice. For more information on financial planning or investment advice, consult a registered investment advisor or financial planner. For tax advice, please consult a tax professional.

This information is intended for educational purposes only. Products and interest rates subject to change without notice. Loan products are subject to credit approval and include terms and conditions, fees and other costs. Terms and conditions may apply. Property insurance is required on all loans secured by property. VA loan products are subject to VA eligibility requirements. Adjustable Rate Mortgage (ARM) interest rates and monthly payment are subject to adjustment. Upon submission of a full application, a mortgage banker will review and provide you with the terms, conditions, disclosures, and additional details on the interest rates that apply to you individual situation.