Compare FHA with Conventional Loans

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First of all - some definitions.

A Conventional Loan is a loan under the current FNMA or FHLMC lending Limits, called Fannie Mae and Freddie Mac.


An FHA loan is a loan insured by HUD.

While many folks who have heard of FHA loans associate them with purchases or first time homebuyers, FHA loans are also available for rate and term refinances, and Cash Out Refinances up to 85% of the value of your home.


Conventional loans usually require a larger down payment. And, if you have less than perfect credit you may not qualify for many conventional loans and find yourself being offered loans with higher interest rates and/or fees than you expected.


The best thing to do is compare the cost of the conventional loan to an FHA loan line-by-line.


  • What are the fees and closing costs?
  • What is the interest rate?
  • How much is the mortgage insurance?
  • How much down payment is required?


For some borrowers, a conventional loan may be less expensive. For many others, it will be more expensive than FHA.

FHA loans have mortgage insurance, as opposed to Private Mortgage Insurance (PMI) for conventional loans. The next article will cover the cost of mortgage insurance.