Purchase Tips · February 1, 2025
FHA vs. Conventional Loans: Which Is Right for You in 2025?
These are the two most popular mortgage programs but they serve different borrowers. Here is how to choose based on your credit, down payment, and long-term goals.
The right choice depends on your credit score, down payment, and how long you plan to stay.
Key Differences at a Glance
| | FHA | Conventional | |---|---|---| | Min. Credit Score | 580 | 620 | | Min. Down Payment | 3.5% | 3% | | Mortgage Insurance | Life of loan (usually) | Cancelable at 20% equity | | Loan Limit | County-based | $766,550 (2025) |
The Mortgage Insurance Problem with FHA
FHA charges 1.75% upfront MIP (added to your balance) plus 0.55% annual MIP monthly for the LIFE of the loan if you put less than 10% down. On a $300,000 FHA loan: $1,650/year in MIP — $49,500 over 30 years even after building substantial equity.
Conventional PMI cancels at 22% equity automatically. You can request cancellation at 20%.
When FHA Makes Sense
Credit below 620, DTI above 45%, need the 3.5% minimum down, or buyer needs up to 6% seller concessions.
When Conventional Wins
Credit above 680, plan to build equity and cancel PMI, buying a second home or investment property.
HMS models both scenarios with total cost comparisons. Call 309-222-8286.