Comparing Low Down Payment Programs – Conventional vs. FHA Home Loans

Conventional vs FHA

If you are looking to purchase a home with the lowest down payment available, it generally comes down to either looking into a Conventional home loan or an FHA home loan.

(Side Note: for those that qualify for it, a VA loan is a great program, with no minimum down payment required).

In this article, we will compare the lowest down payment options available, for purchasing a home using a Conventional and FHA loan and compare both programs.

As with any home loan, everyone’s situation is unique and it always makes sense to speak with a lender and qualify for a home loan program that fits your specific needs.

Loan Program Comparisons – Conventional vs. FHA:

Down Payment

Conventional Loans: A 3% minimum down payment is required is for all first-time homebuyers, using a conventional loan. I addition, if your income does not exceed the median income limit of the metropolitan area you are purchasing a home in, you can potentially also only put down 3%, even if you have owned or currently own another property (using Fannie Mae’s HomeReady program – see our article on this program).

All other home buyers require a 5% minimum down payment.

FHA Loans: A 3.5% minimum down payment is required for the purchase of a new primary home using an FHA loan. There is no first-time home buyer or income restriction on FHA loans.

Mortgage Insurance:

Conventional Loans: If you put down less than 20% on a conventional loan, you will have mortgage insurance. However, that mortgage insurance is reduced if you can qualify for the Fannie Mae HomeReady program. In addition, the mortgage insurance can be removed, without refinancing, once you have 20% equity in your home, on all conventional loans.

FHA Loans: All FHA loans have both monthly mortgage insurance for the life of the loan and up-front mortgage insurance (rolled into the loan at closing). In general, the mortgage insurance costs of FHA loans will be more expensive than that of a conventional loan and the only way to eliminate it, is to refinance out of an FHA to a Conventional loan.

Interest Rates:

Conventional Loans: Conventional generally have some of the lowest interest rates available, but are often time just higher than FHA loans. However, the less expensive monthly mortgage insurance costs associated with conventional loans, often negates the lower interest of FHA loans.

FHA Loans: FHA loans also have some of the lowest interest rates available as well, and as mentioned, are often slightly lower than conventional loans. This becomes even more a factor, with someone that has less than perfect credit, as FHA loans penalize someone less (when it comes to interest rate), with a lower credit score, then do conventional loans.

Other Factors:

There are many other factors to take into consideration as well, when comparing Conventional and FHA loans.

For instance, Conventional loans have higher loan limits than FHA loans, so if you are looking to purchase a higher priced home, the Conventional loan may be your only option.

On the other hand, when it comes to bankruptcy, foreclosure or a short sales, FHA loans have shorter waiting periods.

VERDICT – Conventional vs. FHA:

            It depends on your situation, as with most things in life. If you can qualify for the Fannie Mae HomeReady program and only have to put 3% down, then in almost all cases, it makes sense to use that program.

If you cannot qualify for that program, then usually the next deciding factor is credit score. In general, if you have a very high credit score and have the 5% down payment, then the conventional loan would again win out. If you only have a 3.5% down payment or your credit is less than perfect, than the FHA home loan might make the most sense.

As always, everyone’s situation is unique and to properly look into your specific situation, make sure and consult with a licensed local lender such as Strategic Mortgage.

For more information on current home loan programs and options for existing and potential home owners, please contact Bill Kamboukos of Strategic Mortgage at (480) 219-3682 or by emailing: or online at  

Strategic Mortgage, LLC – AZBK#0909514 – NMLS#158804 – Equal Housing Lender

Vasilios Kamboukos – NMLS#160440

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