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Updated: September 22, 2024
This guide to Conventional vs FHA mortgages compares the key differences and similarities between two popular first-time home buyer mortgages to help you choose the best loan for your home purchase.
Choosing the right mortgage is crucial for a first-time home buyer. The two most popular mortgages for first-time buyers, Conventional and FHA mortgages, share some features but also differ in several important ways.
Conventional mortgages are home loans backed by Fannie Mae or Freddie Mac under the Federal Housing Finance Agency (FHFA). They are categorized into conforming and non-conforming mortgages. Conforming mortgages follow FHFA mortgage guidelines and loan limits, while non-conforming mortgages, often referred to as jumbo mortgages, exceed these limits.
These loans are available in fixed-rate (30-year, 20-year, 15-year, 10-year) and adjustable-rate options, offering flexibility in terms and payment plans. To qualify, home buyers generally need:
FHA loans, insured by the Federal Housing Administration, are designed to make homeownership more accessible and affordable, especially for first-time buyers. FHA loans have been supporting home buyers since 1934 by offering mortgage default insurance to banks.
FHA mortgages are available in 30-year and 15-year fixed-rate, or adjustable-rate formats, subject to specific loan limits. Key features include:
These more flexible guidelines make FHA loans suitable for those who may not qualify for other loan types, offering opportunities for a wider range of home buyers.
| Loan Feature | Conventional | FHA |
| Minimum Loan Size Allowed | None | None |
| Maximum Loan Size Allowed | See Loan Limits | See Loan Limits |
| Maximum Household Income Allowed | No Restrictions | No Restrictions |
| Minimum Credit Score Required | 620 | 500 |
| Debt-to-Income Maximum - Standard | 50.00% | 43.00% |
| Debt-to-Income Maximum with Compensating Factors | 50.00% | 50.00% |
| Minimum Downpayment Required | 3.00% | 3.50% |
| Maximum Loan-To-Value Allowed | 97.00% | 96.50% |
| Maximum Combined Loan-to-Value Allowed | 105% | 100% |
| First-Time Homebuyer Education Required | No | No |
| Minimum Age Allowed | Minimum Legal Age | Minimum Legal Age |
| Maximum Age Allowed | None | None |
| First-Time Home Buyers Allowed | Yes | Yes |
| First-Time Home Buyers Only | No | No |
| Low-Down Payment Mortgage Classification | No | Yes |
| Income Verification Required | Yes | Yes |
| Military Service Required | No | No |
| States Allowed | All States | All States |
| Homeowners Insurance Required | Yes | Yes |
| Escrow Taxes & Insurance Required | Recommended | Yes |
| Loan Feature | Conventional | FHA |
| Average Interest Rate: Last Year | 4.97% | 4.99% |
| Average Loan Size: Last Year | $402,642 | $279,773 |
| Average Approval Rate: Last Year | 70.51% | 75.02% |
| Market Share: Last Year | 69.70% | 17.97% |
| Purchase Mortgages Originated: Last Year | 3,442,038 | 887,234 |
| Loan Feature | Conventional | FHA |
| 1-Year ARM Available | Yes | Yes |
| 5-Year ARM Available | Yes | Yes |
| 10-Year Fixed-Rate Mortgage Available | Yes | Yes |
| 15-Year Fixed-Rate Mortgage Available | Yes | Yes |
| 20-Year Fixed-Rate Mortgage Available | Yes | Yes |
| 25-Year Fixed-Rate Mortgage Available | No | Yes |
| 30-Year Fixed-Rate Mortgage Available | Yes | Yes |
| Temporary Buydowns Available | Yes | Restricted |
| Loan Feature | Conventional | FHA |
| Funding Fee / Guarantee Fee | No | No |
| Upfront Mortgage Insurance Premium | No | Yes |
| Annual Mortgage Insurance Premium | No | Yes |
| Private Mortgage Insurance | Yes | No |
| Loan Feature | Conventional | FHA |
| Primary Residence | Yes | Yes |
| Second Home | Yes | Restricted |
| Vacation Home | Yes | No |
| Investment Property | Yes | No |
| Non-Occupant Co-Borrower | Yes | Yes |
| Loan Feature | Conventional | FHA |
| U.S. Citizen Allowed | Yes | Yes |
| Permanent Resident Alien Allowed | Yes | Yes |
| Non-Permanent Resident Alien Allowed | Yes | Yes |
| Foreign National Allowed | Yes | Yes |
| Buyers With Diplomatic Immunity Allowed | Yes | Yes |
| Loan Feature | Conventional | FHA |
| Credit Scoring Model | Tri-merge | Tri-merge |
| Non-Traditional Credit References Allowed | Yes | Yes |
| Deferred Student Loans | Lesser of 5% of balance or monthly payment | Actual Payment or 0.5% of Loan Balance |
| Deferred Debt Calculation | Lesser of 5% of balance or monthly payment | Lesser of 5% of balance or monthly payment |
| Pay Off Medical Collections Prior To Closing | Not Required | Not Required |
| Pay Off Non-Medical Collections Prior To Closing | Not Required | Required when collections exceed $2,000 |
| Bankruptcy, Chapter 7 | 2-Year Waiting Period | 2-Year Waiting Period |
| Bankruptcy, Chapter 13 | 4-Year Waiting Period | 1-Year From Filing |
| Short Sale | 4-Year Waiting Period | 3-Year Waiting Period |
| Foreclosure | 7-Year Waiting Period | 3-Year Waiting Period |
| Judgments & Liens Allowed | Must be satisfied | Must be satified |
| Federal Income Tax Delinquency Allowed | Must be satisfied | No |
| Loan Feature | Conventional | FHA |
| Minimum Square Footage Allowed | No minimum | No minimum |
| Maximum Square Footage Allowed | No maximum | No maximum |
| Single-Family Residences Allowed | Yes | Yes |
| Condominiums Allowed | Yes | Yes |
| Non-Warrantable Condominiums Allowed | No | No |
| Co-ops Allowed | Yes | Yes |
| Townhomes Allowed | Yes | Yes |
| 2-4 Unit Homes Allowed | Yes | Yes |
| Manufactured Homes Allowed | Yes | Yes |
| Fraternity and Sorority Houses Allowed | No | No |
| Tiny Homes Allowed | Yes | Yes |
| Modular Homes Allowed | Yes | Yes |
| Cob Homes Allowed | No | No |
| Shipping Container Homes Allowed | Yes | Yes |
| Condotels Allowed | No | No |
| Bed & Breakfast Allowed | No | No |
| Working Farms Allowed | No | No |
| Working Ranches Allowed | No | No |
| Houseboats Allowed | No | No |
| Log Homes Allowed | No | Yes |
| Geodesic Homes Allowed | No | No |
| Timeshares Allowed | No | No |
| Homes with Solar Panels Allowed | Restricted | Restricted |
| 3-D Printed Homes Allowed | Yes | No |
| Leasehold Estates Allowed | Yes | Yes |
| Mixed-Use Properties Allowed | No | Yes |
| Flood Zones Allowed | Only where insurable | Only where insurable |
| Properties With More Than 20 Acres Allowed | No | Yes |
| Properties with PACE Allowed | No | No |
| Loan Feature | Conventional | FHA |
| Inter Vivos Revocable Trust Allowed | Yes | Yes |
| Closing in a Corporation Allowed | No | Yes |
| Community Land Trust Allowed | Yes | Yes |
| Non-Profit Organizations Allowed | No | Yes |
| Municipal Government Agencies Allowed | No | Yes |
| Loan Feature | Conventional | FHA |
| W-2 Income Allowed | Yes | Yes |
| Self-Employment Income Allowed | Yes | Yes |
| Investment Income Allowed | Yes | Yes |
| Retirement Income Allowed | Yes | Yes |
| Trust Income Allowed | Yes | Yes |
| Social Security Income Allowed | Yes | Yes |
| Military Income Allowed | Yes | Yes |
| Rental Income Allowed | Restricted | Restricted |
| Asset Depletion as Income Allowed | Yes | No |
| Offer Letter Income Allowed | Yes | No |
| Disability Income Allowed | Yes | Yes |
| Alimony and Child Support Income Allowed | Yes | Yes |
| Boarder Income Allowed | No | Restricted |
| Accessory Dwelling Unit Income Allowed | No | Yes |
| Cannabis Industry Income Allowed | Yes | No |
| Automobile Allowance as Income Allowed | Yes | Yes |
| Housing Allowance as Income Allowed | Yes | Yes |
| Temporary Leave Income Allowed | Yes | Restricted |
| Bank Statements as Income Allowed | No | No |
| Debts Paid By Others as Income Allowed | Yes | No |
| Loan Feature | Conventional | FHA |
| Seasoning Requirements | 60 Days | 30 Days |
| Reserves Required | No | No |
| Cash Gift For Downpayment Allowed | Yes | Yes |
| Seller Concessions, Maximum | 3.00% | 6.00% |
| Salary Advance for Downpayment Allowed | No | No |
| Relocation Funds for Downpayment Allowed | Restricted | Restricted |
| Gift of Equity Allowed | Yes | Yes |
| Sweat Equity Allowed | Yes | Yes |
| Crypto for Downpayment Allowed | Yes | Restricted |
| Cash Value For Credit Card Rewards Allowed | Yes | No |
| Cash Value For Airline Rewards Allowed | Yes | No |
| Loan Feature | Conventional | FHA |
| Assumable Mortgage Allowed | No | Yes |
| Trailing Co-Borrower Allowed | Yes | Yes |
| Maximum Properties Financed Allowed | 10 | 1 |
| Flipped Homes Allowed | Restricted | Restricted |
| Arms-Length Transaction Required | Yes | No |
| Occupancy Deadline | 60 days | 60 days |
| Delayed Financing Allowed | Yes | No |
| Prepayment Penalty Allowed | No | No |
| Termite Inspection Required | No | Yes |
| Power of Attorney Allowed | Yes | Yes |
| Repair Allowances Allowed | No | No |
| Gifts From Charitable Organizations Allowed | No | No |
This comparison between Conventional and FHA mortgages is based on official mortgage guidelines from the FHFA and FHA. The details may change without notice and can vary between lenders.
Individual mortgage lenders may have their own variation of these guidelines, called lender overlays, which could affect the approval process.
If a lender denies your mortgage application, it does not mean all lenders will. Different mortgage companies have different approval criteria, and you may be approved by another lender.
Consult with multiple lenders to explore your mortgage options.
Check your eligibility and begin your application now.
Eager to learn more and make an informed decision? Explore our comprehensive guides on Conventional Mortgages and FHA Loans. When you’re ready to proceed, start your mortgage pre-approval at Homebuyer.com.
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