Conventional vs FHA: Compare Side-by-Side

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.## The Differences Between Conventional and FHA MortgagesChoosing 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.### Highlights: Conventional MortgageConventional 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:- A down payment of at least 3 percent- Verified source of income- A minimum credit score of 620- Loan amounts within local mortgage limits- Structurally sound and habitable properties### Highlights: FHA MortgageFHA 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:- A minimum down payment of 3.5 percent- Verifiable income requirements- Flexible credit score requirements- Eligibility for residential properties with 1-4 units- No penalties for early loan repaymentThese 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.
Mortgages At-A-Glance
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 |
Compare Mortgage Statistics
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 |
Compare Mortgage Products
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 |
Compare Mortgage Insurance
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 |
Compare Occupancy Rules
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 |
Compare Citizenship Rules
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 |
Compare Credit Rules
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 |
Compare Property Rules
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 |
Compare Ownership Rules
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 |
Compare Income Rules
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 |
Compare Assets & Downpayment Rules
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 |
Compare Loan Traits
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 |
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