Question 1

What is the main difference between an FHA loan and a Conventional loan?

Accepted Answer

An FHA loan is insured by the federal government (HUD/FHA), allowing for lower credit scores (down to 580 with 3.5% down) and higher debt-to-income ratios, but requires mandatory upfront and monthly MIP. A Conventional loan is backed by private investors or GSEs (Fannie Mae/Freddie Mac), requiring a 620+ credit score, but does not charge upfront insurance and allows private mortgage insurance (PMI) to be cancelled once you reach 20% equity.

Question 2

What is the minimum credit score for an FHA loan vs. a Conventional loan?

Accepted Answer

FHA loans require a minimum credit score of 580 for a 3.5% down payment, and 500 for a 10% down payment. Conventional loans typically require a minimum credit score of 620.

Question 3

Can I get a Conventional loan with only 3% down?

Accepted Answer

Yes. Programs like Conventional 97, Fannie Mae HomeReady®, and Freddie Mac Home Possible® allow qualifying first-time or low-to-moderate-income buyers to purchase a home with only a 3% down payment.

Question 4

Which loan is better if my credit score is over 740?

Accepted Answer

If your credit score is 740 or higher, a Conventional loan is almost always significantly cheaper than an FHA loan. With a 740+ score, Conventional PMI rates are low (0.30%-0.50%), there is no 1.75% upfront fee, and PMI cancels automatically once you reach 20% equity.

Question 5

What are the debt-to-income (DTI) ratio limits for FHA vs. Conventional?

Accepted Answer

Conventional loans usually cap DTI at 43% to 45%. FHA loans are more lenient, regularly approving DTIs up to 45% to 50% (and sometimes higher with strong compensating factors like high cash reserves).

Question 6

Are property appraisal requirements stricter for FHA loans?

Accepted Answer

Yes. FHA appraisals assess both market value and strict HUD Minimum Property Standards (MPS) regarding safety, security, and soundness (e.g. peeling paint on pre-1978 homes, handrails, roof lifespan). Conventional appraisals primarily focus on fair market valuation and structural integrity.

Question 7

What is FHA Upfront Mortgage Insurance Premium (UFMIP)?

Accepted Answer

Upfront MIP is a mandatory one-time fee equal to 1.75% of your base loan amount. It is charged by HUD at closing and is almost always rolled into the total loan amount so you do not have to pay it in cash out of pocket.

Question 8

How much is FHA monthly MIP?

Accepted Answer

For 30-year FHA mortgages under $726,200, the annual MIP rate is 0.55% of the base loan if you put down less than 5%, and 0.50% if you put down 5% or more. This annual fee is divided by 12 and added to your monthly mortgage payment.

Question 9

Does FHA MIP ever drop off or cancel automatically?

Accepted Answer

If you put down less than 10%, FHA MIP remains for the entire 30-year life of the loan. If you put down 10% or more, FHA MIP automatically cancels after 11 years (132 monthly payments).

Question 10

How do I get rid of FHA mortgage insurance if I put down 3.5%?

Accepted Answer

The only way to remove FHA MIP when you put down less than 10% is by refinancing the mortgage into a Conventional loan once you have built at least 20% equity in the property.

Question 11

When does Conventional PMI cancel?

Accepted Answer

Under the Homeowners Protection Act of 1998, you can request PMI cancellation once your principal balance reaches 80% of original property value. Servicers are legally required to automatically terminate PMI once the balance is scheduled to reach 78% LTV.

Question 12

Can I remove Conventional PMI early if my home value increased?

Accepted Answer

Yes. Most conventional loan servicers permit PMI removal based on a new appraisal if you have at least 20% to 25% equity based on current market value, provided you meet seasoning requirements (usually 2 years).

Question 13

Can down payment money come from a gift?

Accepted Answer

Yes! Both FHA and Conventional loans allow 100% of your down payment to come from an eligible gift from a family member, provided you have a signed gift letter and proof of fund transfer.

Question 14

What is the maximum seller concession allowed for FHA vs Conventional?

Accepted Answer

FHA allows sellers to contribute up to 6% of the purchase price toward borrower closing costs and prepaid items. Conventional loans allow up to 3% seller concessions for down payments under 10%, 6% for 10%-24% down, and 9% for 25%+ down.

Question 15

What are the 2026 FHA and Conforming loan limits?

Accepted Answer

In 2026, the baseline Conforming loan limit is $766,550+ for single-family homes. The FHA national floor in low-cost counties is $498,257, and the high-cost ceiling reaches $1,149,825 in designated high-cost housing markets.

Question 16

Can I buy a multi-family property (2-4 units) with an FHA or Conventional loan?

Accepted Answer

Yes. Both FHA and Conventional loans finance 2-, 3-, and 4-unit residential properties with low down payments, as long as you live in one of the units as your primary residence.

Question 17

How soon can I refinance an FHA loan into a Conventional loan?

Accepted Answer

There is generally no waiting period (seasoning) required to refinance an FHA loan into a Conventional rate-and-term refinance, provided you qualify with sufficient equity and credit.

Question 18

What is the waiting period after bankruptcy or foreclosure for FHA vs Conventional?

Accepted Answer

FHA requires a 2-year waiting period after Chapter 7 bankruptcy and 3 years after foreclosure. Conventional loans require a 4-year waiting period after Chapter 7 bankruptcy and 7 years after foreclosure.

Question 19

Can I use an FHA loan for a second home or vacation property?

Accepted Answer

No. FHA loans are strictly for owner-occupied primary residences. Conventional loans can be used for primary homes, second homes/vacation properties, and investment properties.

Question 20

Is an FHA loan assumable by a future homebuyer?

Accepted Answer

Yes! FHA loans are assumable, meaning if interest rates rise in the future, a qualified buyer can take over your existing low-rate FHA mortgage, making your home more attractive to buyers.

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