The two most common loan types for home buyers are FHA and conventional. Choosing between them correctly could save you tens of thousands of dollars.
FHA Loans
Backed by the Federal Housing Administration. Key characteristics:
- Minimum down payment: 3.5% (with 580+ credit score)
- Minimum credit score: 580 (though most lenders prefer 620+)
- Mortgage insurance: Required regardless of down payment. Upfront MIP of 1.75% + annual MIP of 0.55–1.05% depending on LTV and term
- DTI limits: Up to 57% with compensating factors
- Loan limits: $498,257 in most areas; higher in high-cost counties like Orange County ($1,149,825 in 2024)
Conventional Loans
Not government-backed, but following Fannie Mae/Freddie Mac guidelines.
- Minimum down payment: 3% (with PMI)
- Minimum credit score: 620 (740+ for best rates)
- Mortgage insurance (PMI): Required only until 80% LTV. Then it’s automatically canceled
- DTI limits: Typically up to 43–45%
- Loan limits: $766,550 (standard) / up to $1,149,825 in high-cost areas
When FHA Wins
- Lower credit score (580–679)
- Limited down payment savings
- Higher debt-to-income ratio
- Self-employed with complex tax returns
When Conventional Wins
- Credit score 680+ (especially 740+)
- Can put 20% down (no PMI at all)
- Want to cancel PMI before 20% equity
- Buying a higher-value home
- Plan to sell quickly (FHA MIP stays longer)
The PMI Factor
FHA MIP never goes away on loans with less than 10% down — you’d have to refinance to get rid of it. Conventional PMI cancels automatically once you hit 80% LTV.
We can run exact numbers for your specific purchase price, down payment, and credit score to show you the total cost of each option.