FHA Loan vs. Conventional Loan

February 22, 2012 148 Comments »
FHA Loan vs. Conventional Loan

Mortgage match-ups: “FHA vs. Conventional”

Our latest mortgage match-up pits FHA loans against conventional loans, both of which are popular options for homeowners these days.

In recent years, FHA loans surged in popularity, largely because subprime lending (and Alt-A) was all but extinguished as a result of the ongoing mortgage crisis.

Some even claim FHA loans are the “new subprime,” mainly because of the low down payment and credit score requirements, despite originally being designed for low and moderate-income borrowers.

But you don’t have to be a subprime borrower to take advantage of an FHA loan.

FHA Loans Are a Great Low Down Payment Option

As noted, these government-backed home loans have become insanely popular. The main selling point of an FHA loan is the 3.5% minimum down payment requirement.

However, in order to qualify for the flagship low down payment option, you need a minimum credit score of 580.

And 580 is just the FHA’s guideline – individual banks and mortgage lenders still need to agree to offer such loans.  So there’s a very good chance you’ll need an even higher credit score. Of course, a 580 credit score is pretty dismal…

[How to get a mortgage with a low credit score.]

Along with that, an eligible donor can provide gift funds for 100% of the borrower’s closing costs and down payment.  And no reserves are required if it’s a 1-2 unit property.  In other words, you don’t need much if any cash to finance your home purchase.

Update: You can now get a conventional loan with just 3% down thanks to new guidelines issued by Fannie Mae and Freddie Mac.

FHA Loans Good for Those with Poor Credit


The screenshot above details when FHA wins out over conventional lending, and it tends to happen if credit scores fall below 680.

The other major selling point to an FHA loan is that the minimum credit score is 500. Again, this is subject to lenders actually offering programs for scores this low. And scores between 500 and 579 require a minimum down payment of 10%.

But FHA loans can be a good option for those with poor credit who are determined to get a mortgage.

Another benefit to going with an FHA loan is the higher loan limit, which is as high as $729,750. This can be a real lifesaver for those living in high-cost regions of the country (this limit has since dropped to $625,500 as of 2014).

Meanwhile, conventional conforming loans backed by Fannie Mae and Freddie Mac are capped at $625,500. Anything above that is considered a jumbo loan, and will come with a higher mortgage rate.

Are FHA mortgage rates lower than conventional?

Speaking of rates, FHA loans tend to come with slightly lower interest rates, though one has to consider the entire payment (with mortgage insurance included) to determine what’s the better deal.

The box above assumes an interest rate of 4% for an FHA loan and 4.29% for a similar conventional one. But throw in the mortgage insurance and the picture can change quite a bit.

FHA Loans Subject to Mortgage Insurance

We’ve talked about some benefits of FHA loans, but there are drawbacks as well.

The major one is the mortgage insurance requirement. Those who opt for FHA loans are subject to both upfront and annual mortgage insurance premiums.

The upfront mortgage insurance requirement is unavoidable, and the annual premium can only be avoided if you have 22 percent or more home equity and a loan term of 15 years or less.

All other borrowers must pay the annual mortgage insurance premium for a minimum of five years, which will clearly increase the cost of the mortgage.

[Note that FHA insurance premiums are also slated to increase!]

Keep in mind that FHA loan offerings are also pretty basic. They offer both purchase money mortgages and refinance loans, but the choices are slim.

In other words, you’ll most likely be stuck with a 30-year or 15-year fixed, or a 5/1 adjustable-rate mortgage. So if you’re looking for something a little different, the FHA probably isn’t for you.

Update: Many FHA loans now require mortgage insurance for life, making them extremely unattractive and expensive!

***Update 2: The FHA is lowering annual mortgage insurance premiums by 50 basis points, which should make FHA loans a cheaper option in many cases!!!

Conventional Loans Offer Many More Options

That being said, let’s discuss conventional loans, an alternative to FHA loans which tend to offer a lot more variety.

With a conventional loan, which includes both conforming and non-conforming loans, you can get your hands on pretty much anything from a 1-month ARM to a 30-year fixed, and everything in between.

So if you want a 10-year fixed mortgage, or a 7-year ARM, a conventional loan will be the way to go.

Conventional mortgages also aren’t capped at a certain loan limit, assuming they are non-conforming. For those who need a true jumbo loan, a conventional mortgage will be the only way to obtain financing.

Are Fannie Mae and FHA the same thing?

Nope, Fannie Mae is one of the government-sponsored enterprises (public company) that issues conforming mortgages, whereas FHA stands for Federal Housing Administration, a government housing agency.

No Mortgage Insurance Requirement on Conventional Loans

Additionally, you won’t be subject to mortgage insurance premiums if you go with a conventional loan, assuming you put 20% down, or have at least 20% equity when refinancing.

Even if you’re unable to put 20% down, there are low down payment programs that don’t require mortgage insurance.

In fact, the Fannie Mae Homepath program only requires a three percent down payment and does not require mortgage insurance (the DP requirement has since been increased to 5%).

However, there are select lender programs that offer 3% down with no MI, so in some cases you can put down even less than an FHA loan without being subject to that pesky mortgage insurance.

Generally, conventional mortgages require a down payment between five and 20 percent, so low down payment borrowers will still want to consider FHA loans first.

You Can Get Conventional Loans Anywhere

Another plus to conventional mortgages is that they’re available at pretty much every bank and lender in the nation.  That means you can use any bank you wish and/or shop your rate quite a bit more.  Not all lenders offer FHA products, so you might be limited in that respect.

Additionally, conventional loans can be used to finance just about any property, whereas some condo complexes (and some houses) aren’t approved for FHA financing.

The FHA has minimum property standards that must be met, so even if you’re a great borrower, the property itself could hold you back from obtaining financing.  In other words, you might have no choice but to go the conventional route.

The same goes for second homes and non-owner investment properties. If you don’t intend to occupy the property, you will have no choice but to go with a conventional loan.

Final Word: Is an FHA Loan better than Conventional?

These days, both FHA loans and conventional loans could make sense depending on your unique loan scenario. You can’t really say one is better than the other without knowing all the particulars.

Both offer competitive mortgage rates and closing costs, so you’ll really have to do the math to determine which is best for your particular situation.

Even with mortgage insurance factored in, it may be cheaper to go with an FHA loan if you receive a lender credit or a lower mortgage rate as a result.

Conversely, a slightly higher mortgage rate on a conventional loan may make sense to avoid the costly mortgage insurance tied to FHA loans.

Generally speaking, those with low credit scores and little set aside for down payment may do better with an FHA loan, whereas those with higher credit scores and more sizable down payments could save money with a conventional loan.

Your loan officer or mortgage broker will be able to tell if you qualify for both types of loans, and determine which will cost less both short and long-term.  Ask for a side-by-side cost analysis, but also make sure you understand why one is better than the other. Don’t just take their word for it!

Lastly, be sure to consider the property as well, as both types of financing may not even be an option.

FHA Loan Advantages

  • Lower down payment requirements (not anymore if you get 97% LTV via conventional)
  • Lower credit score requirements
  • Lower mortgage rates
  • May be easier to qualify for than a conventional loan
  • No prepayment penalty
  • No reserve requirement (for 1-2 unit properties)
  • Gift funds can cover 100% of closing costs and down payment
  • Streamlined FHA refinances are fast, cheap, and easy

FHA Loan Disadvantages

  • Subject to mortgage insurance (for full term of mortgage in many cases)
  • Mortgage insurance harder to cancel
  • Fewer loan options than conventional loans
  • Only available on owner-occupied properties
  • Many condominium complexes aren’t approved for FHA financing
  • Loan limit of $625,500 in high-cost areas, much lower in more affordable regions
  • Generally only allowed to have one FHA loan

Conventional Loan Advantages

  • No mortgage insurance requirement if 80% LTV or lower
  • Can cancel existing mortgage insurance at 80% LTV
  • Can be used on all property and occupancy types
  • Many more loan program options
  • Can hold numerous conventional loans
  • No maximum loan limit and conforming limit higher than the FHA floor
  • More lenders to choose from (nearly every bank offers conventional loans)

Conventional Loan Disadvantages

  • Higher down payment requirements
  • Higher credit score requirements
  • Higher mortgage rates
  • May be more difficult to qualify than FHA loan
  • Mortgage insurance still required for loans above 80% LTV
  • Reserves often required to qualify
  • Possible prepayment penalty


  1. Justin McClelland February 15, 2013 at 11:40 am -

    I appreciate you breaking down these differences in summary. It surely beats reading thru the dry content of hud.gov and other sites to get a quick snapshot of the two types.

  2. Leora June 30, 2013 at 8:06 am -

    Thanks for the side-by-side comparison. I’m going to have the bank show me both options to see which will cost me the least. I know the insurance costs went up, but if the interest rate is cheaper, it could be better to go with the FHA.

  3. Betty November 6, 2013 at 6:20 pm -

    I was told that my rate on an FHA loan would be about 0.25% cheaper than a conventional loan, but with mortgage insurance premiums factored in the costs eclipse the interest rate savings. Why is the FHA charging so much for insurance. What’s the point of offering a low rate if it doesn’t really cost less?!?!?

  4. Colin Robertson November 7, 2013 at 10:06 am -

    It’s great that you picked up on that. You need to look at both the rate and the costs to get an accurate picture of which mortgage may be best for you. The FHA has increased mortgage insurance premiums several times now to shore up its capital reserves after making a bunch of high-risk, bad loans in the past. So essentially today’s FHA borrower is paying for the offenses of the past. If rates and costs were low, the FHA would be inundated with loan applications, as it was before their most recent cost increases.

  5. Andrew March 31, 2014 at 6:06 am -

    yes betty it is pointless im paying almost 300 a month on mip which when u add it up is way more than a regular high interest conventional and Im stuck with it for 9 yrs so point is don’t just look at the low interest rate from fha

  6. Chandru August 31, 2014 at 8:14 am -


    I am planning to purchase a house worth 670k in Culver City area. I heard FHA has a maximum financing of unto 625,500. So, i am making 7% down payment as against 3.5%. I am also paying MIP. So i would want to know can i get any conventional loan with 7% down payment for purchase price 670k….i was told minimum is 10% down for conventional loan for loan value above 430k. Please let me know if i have any option……

    Best Regards

  7. Colin Robertson September 2, 2014 at 11:44 am -


    It’s possible to go conventional with just 5% down (or even lower in some cases), though it might be difficult to find such a lender at the higher loan limits you mentioned. You’re probably better off putting 10% down if possible to expand your options and lower your interest rate. In any case, shop around with a broker and local banks/lenders to see who can do what. Offerings will vary from bank to bank.

  8. Carol October 1, 2014 at 5:03 pm -

    Hello. We thought we were going to have a VA loan, but they denied us. We would like to try conventional. Can you tell me the best way to look for a conventional loan. We already have a loan through a bank, should we start with them since we have a good standing with them?
    Thank you,

  9. Colin Robertson October 1, 2014 at 5:49 pm -

    Hey Carol,

    Banks are okay, but vary in their quality of service, rates, and offerings. So it really depends on the bank in question. You could also try a broker who can shop your scenario around with multiple lenders to see where it’s the best fit. They can also help you with any snags you might run into. Alternatively, a credit union might also be a good avenue to try.

  10. Cathryn October 19, 2014 at 4:41 pm -

    Hi Colin,

    Thank you for this information! It has helped my husband and I have a better understanding as to which loan would suit our needs. Although, I am still confused with the PMI for FHA loans. We plan to put 20% down payment on a home – would we still have to pay the PMI for an FHA loan? I’m not sure what their PMI rules are, but I assume paying 20% down would eradicate the PMI payment over the life of the loan.

    Which loan would you consider best for those who take the 20% down payment route?

  11. Colin Robertson October 20, 2014 at 9:58 am -


    You still have to pay mortgage insurance on an FHA loan even if your LTV is 80% or less. So if you’ve got 20% to put down, a conventional loan should be the better deal because you won’t have to pay PMI every month (or upfront), even if the interest rate is slightly higher on the conventional loan. This is why the FHA has become a lot less popular. Shop around and you’ll see the difference in total payment.

    See the premium chart here:


  12. paul November 17, 2014 at 10:09 pm -

    Hi Colin,
    1st off thank you so much for sharing your knowledge and helping all of us. Our broker/lender qualify’s us for FHA of course with upfront & monthly PMI (around $260 per month) & interest at 3.375%….But we can maybe also qualify for conventional with slight higher 4.25% with no PMI for between 5 to 10% down…Which one works best? My thoughts are conventional but hopefully we qualify cuz I’m self employed….He has to go thru underwriting to make sure we can get conventional. I’d rather do conventional. He also, mentioned we can get out of PMI after 1 or 2 Yrs after having FHA thru refinance….is this true? Please advice us thank you, Colin.

  13. Colin Robertson November 18, 2014 at 10:06 am -

    Hey Paul,

    It really depends on the actual numbers and what you plan to do with the loan/property long term. Sure, you can always refinance out of the FHA, assuming you qualify for a conventional loan when that time comes. And that’s the rub…you say you’re self employed so will you be able to refi in the future without any issues? And will rates still be low at that time? Possibly yes, possibly no. Going with a loan you actually want to stick with has its benefits, assuming that’s your goal. But again, have him/her sit down and really go through the numbers to weigh the pros and cons. FHA is kind of disastrous at the moment because the mortgage insurance is generally in place for life now. Good luck!

  14. Adrienne January 5, 2015 at 8:53 pm -

    Hi Colin,
    My husband and I just passed the four year mark from a former foreclosure. We talked to a bank about the prospect of purchasing a new home. After a little research they gave us the news that we could get a mortgage, but it would have to be an FHA. The terms and conditions do not thrill us. Would we be eligible for a conventional loan after the seven years have passed and the foreclosure is off our credit?

  15. Colin Robertson January 5, 2015 at 9:08 pm -

    Hi Adrienne,

    FHA loans can be pretty expensive compared to conventional loans, but when it’s the only option, you often pay a premium. But do the math either way. The waiting period for conventional loans is generally seven years (3 years with extenuating circumstances), though there’s no absolute guarantee you’ll qualify for a mortgage unless everything else adds up, such as income, job, assets, credit score, and so forth. You may want to get a second (or third) opinion on your financing options.

  16. chuck January 8, 2015 at 9:41 pm -

    hello Colin,

    Really confused on which way to go conventional or FHA. We have great credit and have been approved for conventional already. We plan on putting 5% down on a 30 year note. Since the President has lowered the insurance on the FHA loans would it be even worth looking at?

  17. Colin Robertson January 9, 2015 at 12:51 pm -


    It’s always smart to take the time to compare loan options just in case one turns out to be a better deal for you. Not sure the reduced premiums will completely change the argument, but it’s probably worth a look if you’ve got the time. The problem is the mortgage insurance still stays in force for the life of the loan on FHA loans in most cases…

  18. Alex Bulgueroni January 13, 2015 at 1:58 am -

    Hi Colin,

    I have an existing FHA loan on my primary residence. I want to refinance (cash out) my property, and leave it at 80% LTV. Do I still have to pay mortgage insurance if I choose a FHA loan ? Should I get an conventional instead ?

  19. Colin Robertson January 13, 2015 at 11:00 am -

    Yes, all FHA loans have mortgage insurance requirements now. In the past, certain loans (less than or equal to 78% LTV and 15-year term) could avoid annual mortgage insurance, but not any longer. If you go conventional you won’t have to deal with mortgage insurance. So you may want to look at a conventional option, which might be a lot cheaper. Do the math to see what the best deal is for you.

  20. Elijah January 15, 2015 at 9:02 am -


    I hate to be redundant based on the questions you’ve already been asked above, but I wanted to further clarify. We are 5-years post foreclosure, and have more than 20% to put down. However, the foreclosure makes us only qualify for FHA loans. Would we have PMI for the life of the loan? The LTV criteria has been eradicated? Also, our broker is trying to talk us into the FHA saying that because our debt to income ratio is below 30% on the house we are buying, refinancing to a conventional loan in 24 months when the 7-year foreclosure timeframe has completely passed is going to be “very easy for us”. Do you think she’s being straightforward?

  21. Colin Robertson January 15, 2015 at 10:47 am -


    All FHA loans have mortgage insurance now, though not all have it for the life of the loan. Some only require it for 11 years, though most borrowers will have it for life because they put very little down. Many borrowers with FHA loans eventually refi to conventional loans to get rid of the mortgage insurance, and that’s sound logic. It just depends where interest rates are in two years and if you still qualify for a mortgage…you never know what circumstances may change. But if FHA is your only option, there’s not much else you can do.

  22. Alex Bulgueroni January 17, 2015 at 12:44 am -


    I just wanted to thank you for taking the time to answer all our questions. BIG aloha to you

  23. Colin Robertson January 17, 2015 at 10:59 am -

    Thanks Alex!

  24. Janice January 19, 2015 at 12:21 pm -


    I had the below information sent to me by a mortgage company regarding PMI. Can you verify this?

    “If you have an FHA loan, you need to contact me about the new rules going into effect January 26th. The new rule and rates being as low as they are, you could save hundreds a month and not have to pay for appraisal or increase what you owe. You’ll also get to skip a month of payments.”

    Thank you!

  25. Colin Robertson January 19, 2015 at 5:56 pm -


    The mortgage company is simply highlighting the fact that annual mortgage insurance premiums are being cut by 50 basis points and that interest rates are also low at the moment, so a refinance might lead to a lower monthly mortgage payment. Just be mindful that older FHA loans don’t require mortgage insurance for as long as more recent ones.


  26. jimmy January 23, 2015 at 9:18 am -


    I have FHA loan, the house was 180k and I down payment 19k with 4.7% interest. The owner of the house did pay the closing cost of 5k. Was it good that I went with FHA instead of conventional loan? This is a 30 year term.

  27. Colin Robertson January 24, 2015 at 11:54 am -


    I don’t know what the terms of a conventional loan would have been, so it’s impossible to tell you with certainty. It depends on your FICO score, when you took out the loan, what the PMI vs. MIP would be, how long you plan to hold the loan, etc.

  28. sandy January 29, 2015 at 2:42 pm -

    Hi! Love all the info on here!

    We were approved and passed through underwriting for an FHA 3.5% down on a 155,000 home purchase with 3% seller’s concession. However, we just failed the FHA appraisal due to septic distance from well (needs to be 50 feet, we are at 45 ft) . Our lender said only option is 5% conventional, or wait for the 3% conventional to pass down through corporate so they can offer it. Waiting for the 3% conv. is not an option since we are purchasing an unoccupied short sale. Soo my question is, we just received a revised gfe of 4.625% on our 5% conventional loan. Under the FHA it would have bee 4% even. Is this crazy high? Credit score has gone up 20 points since we first were approved, but lender said they do not run credit again? (score aprox 670). Any advice is appreciated, thanks!

  29. Colin Robertson January 29, 2015 at 5:22 pm -


    It’s possible that conventional rates can be .375% to .50% (or more) higher than FHA. Also if your mortgage insurance is lender-paid, that could explain a higher conventional rate as well because it’s built into the rate.

  30. Micaela February 6, 2015 at 3:29 pm -

    I’m interested in buy a house to live in (not rent out). I don’t have a set time frame to buy one I”m just now starting to look at what I need to learn. After reading your Blog and all the Q&A, I can tell I have a LOT to learn.

    Can you recommend any reading material? I know absolutely nothing about restate/buying a home. I feel like this topic is over my head.

    With the market the way it is and a lot of uncertainty in houses and as well as everyone thinking about the next bubble, finding books on this topic during this time frame is not an easy task.

    Thank you Colin

  31. Cris February 6, 2015 at 3:33 pm -

    Hello…I was under the impression that conventional loan the payment can fluctuate from month to month? So after reading all this I guess I was misinformed. Thank you for the info.

  32. Colin Robertson February 6, 2015 at 9:29 pm -

    Hi Micaela,

    First off, I’m glad you’re taking the time to research and learn. That alone is huge and something many individuals don’t bother to do. I wouldn’t say there’s one single resource that has all the answers…just visiting blogs like mine over time will help you better understand the real estate world. And staying up on the news as much as possible. Oh and Zillow just released a book actually, so that might be a good read. Lastly, you know your own neighborhood best. Within your desired area, single out the good parts, then look at the pros and cons of the property, where it’s located, the school district, the property history, etc. And if prices seem outrageous, they probably are. If it’s cheaper to buy than rent, you might be on to something, especially if you love the home. Good luck!

  33. Colin Robertson February 9, 2015 at 1:08 pm -


    It can if it’s a monthly adjustable-rate mortgage.

  34. Matt February 17, 2015 at 8:46 am -

    My wife and I have a Conventional Mortgage that we’ve been paying into for about 8 years. We’re underwater on our mortgage and have tried numerous times to refinance to save money but had no luck. We are running out of room in our growing family and would like to move but are stuck in our condo. We had thought about renting but it’ll be hard to find someone to cover the amount we pay each month on the mortgage/association. Do you have any suggestions?

  35. Colin Robertson February 17, 2015 at 10:06 am -


    Maybe a broker could help you weigh all your options…they work with a bunch of banks and often know of many different programs that might work. Other than that there is the potential your home’s value isn’t as far off as it used to be, which could open some doors.

  36. jose March 2, 2015 at 8:34 pm -

    Hi I was on short sale January 2012, 3 years ago. Can I get a conventional loan mortgage my credit score is 712 now, also can put 20% down.

  37. Colin Robertson March 3, 2015 at 11:03 am -


    Fannie and Freddie have a two year waiting period if there were extenuating circumstances, otherwise it is four years.

  38. Diane March 4, 2015 at 10:18 am -


    I love reading your answers to the postings on here.
    M situation is I currently have a 1st and a 2nd mortgage on my primary home. My 1st is $151,000 at 4.625 (Conventional loan) and my 2nd (home Equity loan) is $56,000 at 6%. Comps in my area have been selling for up to $280,000. I had to do a short sale on a rental property in 1/2012 due to the renter totally destroying the property making it impossible to fix up and rent again or to sell for the value. I am trying to refinance my primary home now to roll both loans together with a cash out of $10,000 to do some home improvements. My credit score is 649. What is my best option? I have been offered an FHA at 3.25% (paying 1 point) with $12,000 cash out and the settlement costs would be $14,000, making the new loan $235,000 versus $208,000 currently. Should I wait until 1/2016 and do a conventional or take the offer of the FHA at 3.25?

    Reading these posts and your comments have been a huge help.

  39. Colin Robertson March 4, 2015 at 11:12 am -


    The downside, as I’m sure you know, are the MIPs on FHA loans, both upfront and monthly, and for the life of the loan now. At least they recently slashed the upfront one. The upside is that the 3.25% rate is likely much better than the rate you’d probably receive for a conventional loan. And who knows where conventional rates will be in a year. Sure, they could be the same or lower, but they could also be 5% or higher. Do the math and that might help you weigh the pros and cons of taking the FHA loan now or waiting another year.

  40. nary March 5, 2015 at 9:30 pm -

    Hi Colin,
    I am trying to refinance my house. I can’t decide to go with FHA for lower rate 3.5% or conventional loan with higher 4.25% but with no PMI. Which one is best?

  41. deb March 6, 2015 at 11:43 am -

    If I have a sales price of $400,000 and the maximum mortgage in my county is 271050 can the seller carry back a second for the difference

  42. Colin Robertson March 6, 2015 at 6:23 pm -


    If the seller and lender permits it…there’s also the possibility of a piggyback second mortgage with an actual lender. A broker can probably help you navigate potential options.

  43. Colin Robertson March 10, 2015 at 7:50 pm -


    It depends on the cost really, and how long you plan to keep the loan. You’ve really got to do the math to figure that out.

  44. mae March 11, 2015 at 4:53 am -

    stumbled upon this website after searching the pros and cons between fha loan and conventional loan and this article helps a lot in understanding it.

    thank you

  45. Nancy March 22, 2015 at 5:27 pm -

    I am looking at purchasing a home and would like to know if there are requiremets regarding commuting to work distance from your home. Are there requirements for this for FHA and/or conventional loans?

  46. Alex March 22, 2015 at 9:58 pm -

    Hello i want to refinance my house because my interest rated is at 6.5 percent the only loan i qualify is the FHA loan . House payment is 1400 paying only interest nothing to principal and with the FHA loan my payment would drop like $50 .. The only thing is that i dont want to pay the extra insurance for 30 yrs i dont know if its a good plan to go with the FHA loan…

  47. Colin Robertson March 23, 2015 at 5:02 pm -


    You could potentially refinance to FHA then refinance out of FHA later to remove the insurance if you become eligible for other types of loans in the future, but the savings need to be good enough to make sense.

  48. Colin Robertson March 23, 2015 at 5:08 pm -


    If it’s far the underwriter might ask for an explanation.

  49. Pat April 6, 2015 at 9:38 am -

    I had a short sale in Jan 2013 and am now renting…I am looking to buy a condo in a 55+ community that is only $40,000. I have cash for a downpayment and good credit but cannot find anyone to approve a mortgage for me? The condos are not FHA approved. What are my options?

  50. Colin Robertson April 6, 2015 at 2:21 pm -


    Since your short sale was only two years ago, it doesn’t sound like you’d qualify for FHA unless you could prove extenuating circumstances. It’s possible there is a portfolio lender out there willing to lend in spite of a recent short sale, though the interest rate will likely be higher to compensate.

  51. nicole May 4, 2015 at 12:02 pm -

    Ive been approved for FHA, however I found a property that i like and they have re-applied for FHA. but its not reissued as of yet. How long does it take to get reissued? Also, I want to know what is the requirements for state bon, because it says that it is accepted.

  52. Colin Robertson May 4, 2015 at 3:44 pm -

    Hi Nicole,

    Probably best to ask your lender when you can expect an approval as it varies from bank to bank.

  53. mathew0603 May 4, 2015 at 5:49 pm -

    I have an FHA loan with 4.25% rate since 2012 that I bought the house. But am thinking of Refinancing for a better rate or should I wait till 2017 that the PMI will expire on the loan. I have a FICO of 691 now. You input will be appreciated. Thanks

  54. CinCin May 4, 2015 at 6:48 pm -

    Hi Colin. You’re such a lifesaver. Thanks for the informational responses. My question is, Can I roll over down payment and other closing costs into the loan if I have no down payment? The FHA we’re pre-approved for will take a bit longer and I’d like to close faster because we’re moving out of town.

  55. Colin Robertson May 5, 2015 at 3:33 pm -


    You might be able to refinance to conventional and drop the MIP now if the LTV (existing loan balance / current value) is 80% or less. If you refinance into FHA there is now MIP regardless of LTV.

  56. Colin Robertson May 5, 2015 at 3:59 pm -


    The upfront MIP can be financed, as for other closing costs, consider a lender credit (higher interest rate in exchange for covering those costs) or a seller contribution. Your real estate agent/broker/lender should be able to advise you on possible options.

  57. mathew0603 May 5, 2015 at 6:39 pm -

    Thanks for your response.

  58. CinCin May 11, 2015 at 8:27 am -

    Thanks a bunch Colin.

  59. Kan May 14, 2015 at 8:30 pm -

    Hi Colin ,I am already approved for 30 years conventional loan but I have not signed the commitment letter so far.i changed my mind and wants to choose 15 years conventional loan option instead .So,my question is should my lender reevaluate everything again or it is easy step to change from 30yrs to 15yrs.

  60. Colin Robertson May 15, 2015 at 11:39 am -


    They will have to make sure you qualify with the higher 15-year monthly payment. So it will take some evaluation.

  61. tracy May 22, 2015 at 8:30 pm -

    hi Colin.

    I sent my agent a preapproval letter for a fha loan to try and purchase a short sale. however as time passed my lender began to explain to me that the conventional loan would be a better option for me, because I was trying to get out of paying the monthly pmi. will this start the process over with the bank since we have to change all of the paperwork over to conventional? my agent has other back up offers on stand by, in case my contract falls thru

  62. Colin Robertson May 23, 2015 at 7:53 am -


    A pre-approval shouldn’t take long, but a full underwrite could take a bit longer. Ask the lender to be sure.

  63. Omeka May 27, 2015 at 11:08 am -

    Hi Colin first thanks for all the helpful information. I’m renting a home now an the owner wants to sell. His asking price is a lot less then what it’s valued at. It’s a great investment for a first time buyer like myself, but it needs a lot of upgrades an on top of that I would want to enlarge my kitchen. My credit score is 688 an I was interested in applying for a FHA loan but I’m not sure they will allow me to borrow up to the appraisal price so I can have the extra money to do the addition an upgrade. Will I be able to get a FHA loan up to the appraisal price an pay him what he’s asking and then do all the upgrades I want?

  64. Colin Robertson May 28, 2015 at 11:48 am -


    You could look into a FHA 203k loan that includes money for expected renovations.

  65. Peter May 28, 2015 at 10:46 pm -

    Hi Colin,

    My wife and I were approved for an FHA loan up to $250,00 and we told them we can only put a downpayment of $10,000 down if necessary. After condo and house hunting, we realized condos were best but none are FHA approved. Do you know if we would be able to qualify for a conventional or why our lender chose that option? We are first time home buyers and are only looking at condos around 110-130k and we both have credit scores above 780. Thanks.

  66. Colin Robertson May 29, 2015 at 9:07 am -


    It’s true that many condos aren’t eligible for FHA financing, as far as why the lender chose FHA I don’t know. Could be low credit scores or some other issue, or no issue at all. Probably best to ask if you qualify via the conventional route (and to what purchase price) so you can continue your search.

  67. Sarah June 10, 2015 at 3:42 am -

    Me and my husband are searching for the best loan to fit our needs. We already have land and want to built on it. Is the FHA loan possible, since we have land and want to built?? Our land was appraised for 63k, and we started to go with the conventional loan, but we are afraid that we will not qualify or receive a high interest rate because of our credit that we are trying to clean up. What are the ideal credit score for a conventional, we know we would have the 20% down payment. With the FHA can the land stand for the down payment??

  68. Colin Robertson June 10, 2015 at 2:17 pm -


    You could look into the FHA OTC (One Time Close) program and potentially use land in lieu of a down payment. The conventional route requires better credit (620+) in most cases but you can avoid mortgage insurance. Might want to work on your credit as well to broaden your options.

  69. Bob June 11, 2015 at 6:24 am -

    Hi Colin,

    As a seller of a house in Denver, CO where it is a seller’s market do we avoid the FHA loan bid versus the conventional loan? Does the seller have to pick up more costs at closing with a FHA loan? What are the pitfalls for the seller with FHA financing? Thanks for your information!

  70. Colin Robertson June 11, 2015 at 3:33 pm -


    Good question…ultimately a seller should want to select the buyer that is most likely to close, which could be either conventional or FHA. With FHA you probably have a weaker borrower (in most cases) because of lower credit score and/or down payment requirements, which could present more risks in terms of actually closing. That might be the pitfall…though there are plenty of good FHA borrowers out there too. And FHA financing opens the door to more potential bidders. Who picks up what costs can be negotiated regardless of the financing route the buyer takes, though the limits might be different.

  71. Ericka June 14, 2015 at 2:06 am -

    Hi Colin,

    My home has been under an FHA loan which I took out 14 years ago on a 30 year mortgage but my account type on my mortgage company site now says I have a Conventional Without PMI mortgage however, I still pay insurance and taxes through my monthly payment to them. My interest rate is horrible but I don’t know if I can quality for a refinance. Does my loan type saying Conventional Without PMI mean that I can have the mortgage company change my payment amount to only principle and interest payment? Is qualifying for a refinance the same as qualifying for a mortgage, i.e. based on credit? Thanks!

  72. Colin Robertson June 18, 2015 at 10:38 am -


    A refinance is just a type of mortgage. Qualification will be based on your job, income, assets, amount of equity in home to determine LTV, credit score, and so on. When you refinance you can ask for no impounds if you want to pay taxes and insurance on your own.

  73. Janise July 10, 2015 at 6:50 pm -

    With an conventional loan, I have the 7% down payment, DTI is 12% and the credit score. But I have one dang collection for $2000. Will that stop my loan process? How strict are they compared to fha for a first timer?

  74. Ronald July 13, 2015 at 5:22 pm -

    hello Colin,

    I’ve been reading all the Q&A and I have to say, I have a lot to learn but I am learning with all your response. I wanted to get some advise on a situation I am in. I had bad credit a while back (580 score) but now have 690 average score. The bank I am working with is giving me the run around regarding my credit. When they did a hard pull on my credit, there was some collections still on it with a balance totaling $1300. I called the collectors and made settlement. One it was paid, I forward it to the person who is working on my approval loan but haven’t heard back yet (telling me that he’s waiting on the underwriters decision). It has been about a week now And I am losing out on the homes I love. Should I seek another bank to work on my approval? I can’t even get a straight answer or a preappeoved letter. Please let me know if I should wait or seek another. I’ve been working with this person for 2 months now and we are still nowhere.

  75. Colin Robertson July 15, 2015 at 11:31 am -


    It sounds like you might want to shop around…most borrowers speak to a couple banks/lenders at the same time so as not to put theirs eggs all in one basket. It doesn’t sound like they’re giving you good service now, and I wouldn’t want that lack of communication in the future when it comes time to get your loan…

  76. Colin Robertson July 15, 2015 at 12:06 pm -


    For collections at/over $2,000, it may need to be paid off or a payment agreement may need to be in place. However, it may not be an issue for you because your DTI ratio is already so low. If it were closer to the maximum allowed, the collection would potentially be more of a roadblock because it generally needs to be factored into your monthly obligations. A strong borrower profile should help you avoid any problems.

  77. jaimie July 16, 2015 at 12:58 pm -

    Hi Colin,

    We are in a conventional loan paying PMI because we dont have the 80% yet (wont for 9 years). a lender who refinanced our other property is recommending we go FHA for a lower rate and lower PMI, then refi down the road back to conventional. What is your opinion on this?

  78. Colin Robertson July 16, 2015 at 1:11 pm -


    If the math makes sense and doing so coincides with your goal for the house it could be an option for you.

  79. Kaci July 26, 2015 at 5:31 pm -

    Is a NACA loan better than an FHA loan?

  80. Colin Robertson July 27, 2015 at 8:49 am -


    It depends on your situation – compare the rate/costs of each with your personal goal to determine which is best.

  81. ds August 8, 2015 at 8:23 am -

    Hi, just stumbled on your site looking for alternatives for FHA loans. My daughter and her fiance have good incomes for our area (combined 120k), but unfortunately his credit score is not great (in the 600s I think). Hers is 792, but his salary is higher so that brings their score down considerably. Also, after paying off his student loans this year, they won’t have enough to put down 20%. The loan officer is only offering an FHA loan, but seems crazy to be stuck with mortgage insurance for the life of the loan when their incomes would allow them to pay off the 20% principle within the first year or two of the loan. Are there any other mortgage loans available to them with lower down payments and mortgage insurance that doesn’t stay with them forever??

  82. Pat September 27, 2015 at 12:38 pm -

    I am selling my house and will be buying another one. I have a 752 credit score. My sister and I want to buy a house together but she filed bankruptcy 3 years ago due to her husband having a heart attacks and no income. She has since been paying all her bills on time and her credit score is up to 659. Will we be able to get a loan?

  83. Colin Robertson September 28, 2015 at 11:16 am -


    It depends if she can prove extenuating circumstances to shorten the waiting period. Otherwise the waiting period can be pretty long to get a mortgage. If you don’t need her to qualify for the loan, you could potentially keep her off the loan if lenders won’t approve her due to the BK and credit score.

  84. Daniela September 29, 2015 at 8:32 pm -

    Hi, I was recently approved for an Fha 30 year loan. After looking at many places in our price range condos seem like the best option. When I contacted my lender he was able to get me approved for a conventional loan but only at 15yrs. He said “I ran the numbers through Conventional for a 30 year. It will depend on where the market is the day we are under contract but as of now we will have to go 15 year but I will do my best to get you to a 30 year” I don’t understand. Does this make any sense ? Thank you !

  85. Patrice September 30, 2015 at 5:04 pm -

    Hi Colin,

    I stumbled across this by looking for answers to FHA or Conventional. It’s been a great help. My question is I am a first time buyer with a overall credit score of 723. I’ve been approved for a conventional but hearing the amount I may have to bring to closing is extremely high for me. I have the 5% which is about 6600. But the lender is saying I will need around 13k @ closing. Why would that be and should I choose the FHA instead? Please help! And thank you in advance.

  86. Colin Robertson October 1, 2015 at 10:42 am -


    Not sure I’d go with FHA over conventional just because of closing costs, but if you must, then you must. Ask the lender to break down ALL the costs and do a side-by-side comparison to determine the differences. You may also be able to structure the loan where less comes out of pocket, perhaps in exchange for a slightly higher interest rate if that suits you better.

  87. Colin Robertson October 1, 2015 at 10:46 am -


    That’s strange…not sure why they would only offer you a 15-year loan. If anything it would be the other way around because not everyone can afford a 15-year loan that comes with a higher payment…

  88. Shonda October 2, 2015 at 10:07 pm -

    I have been working with a mortgage company since May on a conventional loan. Approved and everything. I new about the PMI issues so definitely did not want FHA. I also have always carried my own escrow and was putting down enough to bring the loan to value amount below 80%. I bought the house April 1, 2015 with my brother in law putting up the cash as the “bank” with the agreement that I refinance immediately. In May as stated I started the process. My mortgage person has drawn the process out with one excuse after another and on the last day of September informed me I can no longer go conventional because I have been in the house less than two years. I made it very clear I needed this done before the rules changed again in August. He said this was one of the new changes. I am furious and don’t know what to do. Is there no way around this? He now says FHA is my only option and I have to escrow and carry PMI for life. Payments will be more than they are now by several hundred dollars and cost me 4k a year in PMI alone.

  89. maxine risper October 3, 2015 at 5:37 pm -

    My mother died, I am the trustee. I want to sell the house to my son. FHA approved the loan , but when they found out I was the seller and related to the buyer. They would not approve the loan. The underwriters said there is a Identity clause in FHA guidelines. that the seller cannot be related to the buyer.Iam totally confused

  90. Renee October 6, 2015 at 5:18 pm -

    Colin, love this site and your informative responses.
    I’m in the process of purchasing a home. Qualify for FHA and conv….leaning toward the conventional 97 program. Do you know if this program is only for first-time homeowners? Thanks for your assistance!

  91. Colin Robertson October 7, 2015 at 11:11 am -


    I believe Freddie Mac allowed all borrowers and Fannie limited it to first-timers, but recently removed that requirement for one-unit principal residences.

  92. Colin Robertson October 7, 2015 at 11:42 am -


    FHA has an “identity of interest” cert that lowers the max LTV to 85% if the purchaser and seller are related.

  93. Colin Robertson October 7, 2015 at 11:50 am -


    You might want to try another loan officer/broker/bank to see what alternatives you have.

  94. Christopher December 6, 2015 at 7:08 am -

    Hi Colin,

    This site is outstanding and your responses are extremely informative. My fiance and I want to purchase a $230,000 house but we only have about $10k to $12k to put down. We both have good credit (780s). Since we can’t put down 20%, we would have to pay PMI on a conventional loan. So for those who can’t put 20% down on a conventional loan, it seems that there’s zero advantage to getting a conventional loan since you have to pay PMI either way. Question: For those who can’t put down 20% and avoid PMI, is there ANY advantage to choosing a conventional loan?

  95. Colin Robertson December 7, 2015 at 11:47 am -


    I’ve mentioned the various advantages of going conforming…more loan options, no PMI for life (or at all), lower DP requirement, etc. Also, it’s possible for someone to get an 80% first mortgage via the conventional route and a second mortgage while avoiding PMI entirely. So there are some complexities involved but for some, like you alluded to, FHA may be the way to go.

  96. John December 31, 2015 at 10:48 pm -

    Thank You Colin for sharing lot of new info here.

    I am currently under escrow for a newly built condo in Orange County and doing 20% down (30 yr fixed rate non-conforming conventional loan) and taking 428k loan and got 3.75 Interest Rate from the bank, and thats how it shows up as listed below. Will i be charged extra money as i see this APR as 3.809? What does that mean? My understanding is that i should simply be charged 3.75 interest rate every year.

    Loan Product 30 Year Fixed
    Interest Rate 3.75%
    APR 3.809%
    Discount Points 0.00%
    Interest Rate Range Locked

  97. Colin Robertson January 6, 2016 at 12:03 pm -


    The APR is usually higher than your interest rate because it factors in certain closing costs to give you a more complete picture of what your total borrowing costs are. Two different rates may appear equal but if there are huge closing costs tied to one rate it may actually be a worse deal even if the rate is lower. In any case your actual rate of 3.75% is what monthly payments should be based on.

  98. Kasey January 6, 2016 at 3:56 pm -

    Hi Colin, thank you very much for your help, awfully kind of you! I am interested in purchasing a condo for $89.000. It is not FHA approved. The realtor said that it has to be a conventional loan, however, I belong to a credit union. Can a credit union do a FHA loan if the condo is not FHA approved? Also, I was wondering if I should go with FHA or conventional loan? I have very good credit but was trying to avoid putting 20% down, I want to put the lowest amount possible for a down payment. However, I’m trying to see what is the best overall. Please advise. Again, with heartfelt thanks for providing us with your knowledge!

  99. Colin Robertson January 6, 2016 at 4:11 pm -


    Lenders can’t override the FHA’s condo approval system. As far as which loan to pick, there are now conventional loan options with just 3% needed for down payment via Fannie and Freddie, which is less than the 3.5% the FHA asks for. But it doesn’t sound like you have a choice anyway…good luck!

  100. Ingrid January 27, 2016 at 4:03 pm -

    I’m looking to refinance and I saw lending tree does not charge, would this be a good option to refinance with?

  101. Colin Robertson January 27, 2016 at 4:07 pm -


    Plenty of banks “don’t charge” upfront but you pay via a higher interest rate. It’s important to look at fees and interest rate, and APR.

  102. GiGi February 9, 2016 at 11:55 am -

    If you go with a conventional loan on a home purchase, can you apply funds to the principal amount of your loan anytime to reduce the debt. I understand your original monthly payment is based on the amount of your loan when it originated is this correct?

  103. Colin Robertson February 9, 2016 at 3:12 pm -


    Any extra payments to principal reduce the overall amount of interest paid and speed up the payoff, but won’t change the monthly payment. The loan is just paid off faster.

  104. Deanna February 17, 2016 at 4:09 pm -

    Hi Colin,

    Thanks for all your time and helpfulness to those in need of your knowledge and support! I’m lost and need help. I purchased my first home with a FHA loan of $153K at 4.875% with monthly PMI of $76.00 back in 2010. I’m a single parent making $54K annual. Current house payment w/ tax’s includ are $1146.00 a month. My FICO score is 770 and I only have a car loan of $8k remaining. I have spoken to paramount equity and they say they can move me into a conventional loan of $192k with (cash out of $29K) at 4.25% for 30 yr with a monthly house payment of $1086.00. Paramount states I will need to go through them for the house appraisal which they say will be $495.00and my title fees and such will be $1500.00 which they say can be added to the loan. Can you please let me know if this sounds (sound). I have educated myself some, but fear is rushing in and I just want to make a good decision and choice for my 7 year old daughter and I. Thank you so much, any help will be a blessing.

  105. Colin Robertson February 17, 2016 at 7:31 pm -


    It is certainly sound to seek out a lower interest rate and drop your mortgage insurance in the process. That makes perfect sense. Not sure why you need/want cash out, that’s another question but you probably have your reasons. Regardless, you may want to shop around to see what other lenders can offer for the same loan scenario. Maybe a different lender can beat that 4.25% rate and do it with less fees. Their fees seem relatively standard, but you’ll never know if something better is out there unless you look.

  106. Lam February 27, 2016 at 2:24 pm -

    Hi Collin,
    Thank you so much for your responses and valuable information. I read through all the questions/answers, but still did not find a similar scenario to mine. I am under contract for a house ($235000), I am putting 5% down payment and my loan officer locked down our interest rate to 4.25% yesterday, saying that it is better than waiting since it may rise. In addition, he said that we have no PMI to pay, but I do not know about the APR. Do you think this interest rate is fair for our down payment and a 30yrs conventional loan?
    PM: the loan is under my husband’s name as he is the only household (income is $37000/year). His credit score is 768 and has no loan at all!
    Thank you in advance!

  107. Colin Robertson February 28, 2016 at 2:35 pm -


    Hard to say without knowing ALL the details, but if only 5% down they are likely building PMI into that rate, which is why it’s probably higher than what you might see advertised. You can always ask what it would be if you were to put say 20% down instead just to get an idea.

  108. Donte March 16, 2016 at 8:03 pm -

    I wish you were our loan officer. You have great knowledge! My scenario is this: my wife and I are buying new construction and we had a pre approval now midway through the house being built we have been told that we were denied for our conventional loan through the builders mtg company. I had a foreclosure process started on my home back in 2010 but it eventually got modified and the payments have been current since then but the lender is saying that because the foreclosure was started and because of the modification we have to wait 7years for conventional. Is this true?? Also my middle score is 686 and we have 95k to put down(17%) should we try elsewhere for a conventional loan or would FHA be our best bet?? Thanks in advance.

  109. Swati March 21, 2016 at 5:18 pm -

    Hello Colin, great stuff and thank you for sharing.

    I am currently on 4.25% without PMI scenario(but I paid 15% down). Since this rate helps only for first couple of years since I don’t meet 20% I cant continue this rate for rest of my 28 years. I am in a process of hunting better mortgage rates but want to know if I don’t want to pay anything, the total emi comes down? To give my statistics,

    $640K home, I paid $96K down 2014 (4.25% no PMI) now the market rate is 3.5-3.6% Can I switch without paying extra from pocket? If so, are there any emi saving? currently I pay $2700 if it comes down by $150-$200 only then I want to refinance. Can you provide me some statistics and your thoughts?


  110. Tony March 21, 2016 at 9:06 pm -

    My FICO scores are 775, 765, and 761. I want to purchase a home in the 200k range and have 40k for a down payment. My income is only about 60k per year though since I work in education. I also pay 800 a month in student loans. That is my only debt payment. My state has a special program for educators who earn less than 70k. It is through an FHA loan. I do not want to pay PMI though. Would I be better off with the FHA or should I seek a conventional loan? Thanks for answering our posts!!!

  111. Colin Robertson March 22, 2016 at 11:32 am -


    It’s definitely worth looking into both options, especially with your stellar credit and large down payment. If you can get a conventional loan you’ll be able to forego PMI and potentially save a good amount monthly.

  112. Colin Robertson March 22, 2016 at 11:36 am -


    There are certainly no cost options and if you can get a new lower rate and avoid most or all closing costs it could make sense. However the loan would reset if you choose the same term.

  113. Natalie April 24, 2016 at 12:17 pm -

    Is a USDA loan better than an FHA if we qualify? Still would put down at least 3-4% on a USDA, just wondered if those numbers come out better. Also, if we qualify for a conventional loan as well, is it better to just go that route? Loan officers are confusing me because each seems to want to push me in varying directions and I don’t feel like I can get a straight answer.

  114. Colin Robertson April 28, 2016 at 3:29 pm -


    You basically have to look at the interest rate, the closing costs (upfront mortgage insurance, other lender and third-party fees), and the total monthly payment (including monthly mortgage insurance) to determine which is best. Sometimes this can be accomplished by comparing APR, assuming the APR factors in all the costs. And also how long you plan to keep the loan. Once compared side by side you should have a better idea.

  115. Ann May 2, 2016 at 1:07 pm -

    Hello Colin:
    Thanks for taking time to respond to questions.
    Here is mine – I am looking to refinance my home. Appraised value is $350k, have $245k left on prior mortgage, have a credit score of 780. I do have several options so hard to narrow down. Which is best FHA or conventional loan?

  116. Colin Robertson May 2, 2016 at 2:29 pm -


    I would assume most people would go conventional because you can avoid costly mortgage insurance entirely and get a low interest rate with 70% LTV and excellent credit. From there you still need to decide between 30-year fixed, 15-year fixed, ARMs, etc.

  117. Socorro May 12, 2016 at 9:01 am -

    Hi Colin!

    I am purchasing a condo for $185K in Long Beach, CA. I am using a conventional loan in which I putting only 3% down. My credit score is at about 785-790. I have zero debt and my annual income is $48K. My concern is that Flagstar Bank is giving me a $1800 credit to apply toward my closing costs. I am apprehensive about the rate as follows (I think it’s too high for my credit score). Would the APR lower much if I put down the $1800 the bank is giving me?

    30 Year Fixed
    Interest Rate: 4.125%
    APR: 4.505%

    My broker says that the rates are not predominantly based on credit score, but on:

    The rate you get depends on many things. When a bank is lending you money the costs are based on the risk the bank is taking on the consumer. 1) credit score 2) credit debt 3) loan to value 4) type of residence 5) borrower credits 6) type of loan application (meaning full doc vs stated) and others. Very important to know that on each one of those categories your initial rate takes a hit. They call those adjustments. And that’s what causes your rates both to change.

    Is the above true??

    I am concerned because this is my first place. Closing escrow May 17th.

    I appreciate all your insight! Thank You!

  118. Colin Robertson May 12, 2016 at 11:55 am -


    Yes, there are adjustments for things like LTV, credit score, type of property, etc. Your biggest hit is probably related to putting just 3% down, so the LTV is super high.

    If you want a lower rate, you can ask them to scrub the credit and pay the closing costs yourself upfront out-of-pocket. So instead of 4.125%, maybe the rate drops to 3.75% and you no longer receive $1,800.

    The lower rate can make sense if you plan to hold the property (and the mortgage) long enough to reap the savings of paying your closing costs today. Hope this makes sense and good luck!

  119. Ashley benton May 25, 2016 at 1:18 am -

    I was wondering the same thing. I was approved for a conventional loan with 0 down payment and a interest rate of 3.8 and the FHA was 3.25 interest rate with about 5,600 down payment The monthly mortgage ended up being about the same so I’m going with the 0 down. But it still is confusing..

  120. Colin Robertson May 25, 2016 at 2:01 pm -


    Make sure you factor in all costs (both monthly and upfront) and the length of time mortgage insurance will be in force…for FHA it could be for the life of the loan.

  121. Rhachael May 31, 2016 at 9:41 pm -

    I am trying to figure out which is the better option for me. I’m looking for a condo/townhouse. I have 5% down payment. My median credit score is right around 680. I was given a rate of around 4.5% for a conventional. My feeling after reading about both types of loans is that conventional would be better because MI will be more expensive with FHA. I know interest rates on FHA are lower but the impression I get is that it often does not make up for the high MI. From what I understand, with conventional the mortgage insurance will drop off after my LTV reaches 78%? Right now I am feeling conventional is the way to go, do you agree?

  122. Colin Robertson June 1, 2016 at 8:32 am -


    You are correct in your assessment, but it doesn’t hurt to run the numbers on both and consider how long you might stay with the condo and the loan…a lot of people move, refinance, etc after just a few years…so it’s not always a clear answer. Good luck!

  123. Allison June 26, 2016 at 7:54 am -

    Hi Colin,
    In the Contract that I signed to purchase a house in Mississippi, it states that I have to go with a Conventional Loan, but I am wondering if I should try to change it to include FHA options. Also, I am trying to figure out if it is better to go with a 15 year loan or a 30 year loan if I am only going to stay in the house for about 5 years. I have a 20% down payment saved up for a 170,000 house and hope not to have a monthly housing expense over my current rental payment of $975. Can you tell me which loan you would suggest That I use and why? (credit score is over 780). Thanks, Allie

  124. Colin Robertson June 26, 2016 at 12:56 pm -


    Not sure why they didn’t include FHA, maybe oversight, maybe they think it doesn’t qualify? Or just don’t want to deal with it. Might want to ask first to make sure you can use one. As far as loan type, 15-year is generally for someone who wishes to pay down mortgage faster (monthly payment will be a lot higher), and 30-year is more affordable, put you pay a lot more interest. People staying in the home a short period sometimes opt for a cheaper ARM, such as 5/1 ARM that is fixed for first five years. There is risk of it going up after five years so if plans change it could bite you. Good luck!

  125. Sara July 9, 2016 at 5:16 pm -

    Put our home on the market. 5 days later, we have an offer/
    Our agent came over, handed us the contract and thats when the red flag went up, for me/
    I saw a deposit of 1000.00…
    I knew right there this was not a serious/able buyer.
    As I scanned the paperwork. I now see, this person wants help with the closing costs as well..
    My husband was thrilled that we got an offer so quick and took pen to paper////
    Well 3 weeks pass, we see no deposit check from our realtor, we hear nothing about inspection dates.
    I phoned our realtor and are told that they will be using CHFA and they have up to 45-60 days , in some cases to get a loan….Whatttttttttttttttt… What’s does that have to do with inspections?
    We always purchased our homes with conventional loans, with a great deal of monies down/more than the 20%.
    Originally we were told closing in 4 weeks, not true..
    We went out searching for a 3 months lease on an apartment, as it was our intention to be moving to Fla, after the sale.
    We get a phone call today, that it would be yet another 3-4 weeks on top of the already 60 day period, which would leave us paying a 2700.00 a mo. rent ( short term leases here in Ct, always charge more) plus we would still be paying our mortgage .. I had enough, told the realtor we rescinded the contract with this person and I am getting to the point, where she will be going too…. She refused to show our home to others, telling them it was under contract, which isn’t right at all… Also refused to release it to Zillow.. So, we are now back to square one….I just want people to know, its a pain working with these government loans. I will never ink another contract if I see that… I understand its good for first time buyers, if they don’t have the funds. I also feel that if that don’t have the monies, then maybe they should save up, until they have that 20%.. In the long run, its better for the buyer, they just aren’t told that…

  126. Brenda July 15, 2016 at 9:52 pm -

    Hi Colin,

    We are looking to put in an offer in on a house for 265,000 in Michigan with 50,000$ down which would bring the mortgage to 215,000, taxes are 5,000 a year and insurance is 1,000 a year with interest rate of 3.6%. My calucalations are coming more around 1650 ish. The lender said with our average credit and higher debt to income ratio that we would be better of going FHA. He said the monthly mortgage payments would be a little over 1,800$ per month. I can’t get the math to add up when using mortgage calculator even making sure to add insurance and PMI. Am I missing something here?

  127. Colin Robertson July 18, 2016 at 11:31 am -


    Either you’re underestimating the monthly MIP, or they’re overestimating the property taxes and insurance, or it’s something else. With a large down payment, conventional could be priced much better so tread cautiously…also determine if a certain LTV tier (80% for example) gets you to a lower rate. A loan amount of $215k on $265k is actually ~81% LTV, which would come with higher pricing adjustments than a loan at 80% LTV and below. It would also require PMI if over 80%. So pricing at $212k could be much lower.

  128. Vicky September 27, 2016 at 6:05 am -

    We are going with a conventional loan in Michigan. We have low 800,s credit. We are putting $85,000. down on a $150,000. loan.(financing $65,000) We have given everything asked for to the loan officer, and underwriter. Appraisal came back above asking price. They will not approve our loan until we fill in the pool on the property to be purchased. Is this legal/ethical, and how in the world do they expect us to do something to a property we do not legally own.

  129. Colin Robertson September 28, 2016 at 2:20 pm -


    FHA has swimming pool requirements that you can find here on page 16: http://portal.hud.gov/hudportal/documents/huddoc?id=SFH_POLI_APPR_PROP.pdf

  130. Aneka October 4, 2016 at 11:14 pm -

    My credit score is 640 and my income I 64k yearly. I am a single mother paying 1500 rent. I can’t afford a big down payment but can afford a mortgage. I do not qualify for assistance. I want a 200k home and have 7k saved up. Do I qualify for a conventional loan?

  131. Colin Robertson October 5, 2016 at 8:05 am -


    You might qualify…depends on the rest of your financial profile, such as other credit obligations that eat into your monthly income and also whatever else is on your credit report that has pushed it that low. May want to speak with some brokers and/or lenders to get pre-approved.

  132. John October 14, 2016 at 2:48 am -

    I’m buying a home in Texas for 240,000. My credit score is 720 and I have the 20% down. My goal was to go conventional so I could cut the PMI and pay my own escrow. Now I’m not sure if. I may want to go FHA so I won’t have to pay all that money upfront ($53,000). Is paying your own escrow better vs letting the lender do it? Which would be a better choice in my case FHA or conventional?

  133. Colin Robertson October 14, 2016 at 6:35 am -


    As you mentioned, you can avoid PMI with a 20% down payment and the conventional route, which is a plus in that you won’t have to pay costly MI. With FHA, you have to pay MI upfront AND monthly for the life of the loan (in most common scenarios). But if you don’t want to part with all that cash (or tie it up in your home) you may have to bite the bullet and pay MI, whether upfront or via a higher interest rate if you go conventional. There are many different ways to pay MI with a conventional loan that a loan officer or broker can explain. As far as escrows go, many lenders charge a fee if you want to pay taxes/insurance yourself, so it often doesn’t make sense unless it’s free and/or you have grand plans with that money for the bulk of the year when it’s in your own account.

  134. Beatrice October 25, 2016 at 3:43 pm -

    Hi colin

    can i go from my FHA loan to conventional loan?
    if yes what are the requirements

  135. Colin Robertson October 25, 2016 at 7:51 pm -


    Yes, as long as you qualify for a conventional loan. There are various requirements, such as a max LTV, minimum credit score (generally 620), and so on. You may want to consult with a bank/broker to see if you qualify and if it makes sense to refinance into a conventional loan. Good luck!

  136. David December 30, 2016 at 7:37 pm -

    I refinanced my loan in 2014. I originally purchased my home in 2003. I am under the 80/20 LTV requirement. I never inquired about getting my PMI removed after five years being that I didn’t know I was able to do that until recently.
    Will I be able to remove my pmi since my original fha loan was from 2003. Or am I stuck paying the PMI because of the refinance. My mortgage company is not giving me any answers. Where can I find out more information about my situation. Thanks in advance for any help in this matter…

  137. Colin Robertson January 3, 2017 at 9:45 am -


    The LTV based on the original sales price will need to be 78% for MIP to fall off. You can ask your loan servicer when this projected date will occur. Alternatively, if your property is valued where the outstanding loan will be 80% or less, you can also refinance out of the FHA and drop the MIP immediately, though you’ll want to make sure interest rates are favorable and refinancing is a good option for you.

  138. Bello Nero January 11, 2017 at 11:49 am -


    I am considering refinancing my mortgage for our residential home. The lender offering 3.99/% FHA with $3700 due at signing after all lender rebates or 4.50% Conventional all closing cost in for 30 year fixed. This reduces my current payment by about $400. LTV is a little under 80%. The payment is all in including MIP. What do you suggest?

  139. Colin Robertson January 12, 2017 at 11:20 am -


    You need to determine when the monthly savings outweigh the upfront costs…so if you stay in the loan long enough to cover the upfront costs, you’ll begin saving money each month.

  140. Kurtis January 28, 2017 at 6:39 pm -


    Does it make a difference which mortgage broker a person goes with? Don’t they all look on the market and pull the best loan based on your credit score? I have always gone with friends but don’t know if I am getting the best rates.

    2nd question. I want to do a cash out refi. Home is worth $500,000. Want a loan for $260,000. Credit Score is around 680. Equfax is 692. Would it be better for me to do convention loan or a FHA loan?

    Thank you.

  141. Colin Robertson January 30, 2017 at 4:42 pm -


    It depends where the broker places your loan. Their compensation (and rates/fees) can vary significantly from lender to lender, meaning it matters where the loan winds up.

    FHA is generally geared toward those with less to put down or lower credit scores, and FHA can be a negative because mortgage insurance is required even if the LTV is very low (like yours appears to be at just over 50%).

  142. Shane Kelley February 8, 2017 at 9:08 pm -

    Hi Colin,

    Great site and thank you for your many posts responding to so many people!

    I’m going in with less than 20% down (5% max) on a condo that costs 350k. Lender is offering 20% closing cost help. However I saw a disclaimer that states seller closing help on a conventional is capped at 3% – is that a Federally set limit?

    I’m being offered FHA and conventional options, we are not likely to be able to make more than the minimum for at least two years.

    Any thoughts on options and is there a site where I can plug in numbers and generate cost comparisons? I also reached out to my loan officer as suggested here.

    All the Best and again thank you

  143. Colin Robertson February 9, 2017 at 9:20 am -


    It sounds like they’re offering to pay a fifth (20%) of your closing costs. The 3% figure is based on the sales price, which would likely be way more than a fifth of the closing costs. These seller concessions are capped by Fannie, Freddie, the FHA, and so on. There might be a tool to compare costs out there but I’m not aware of it.

  144. Shane Kelley February 9, 2017 at 8:50 pm -

    Colin my apologies they are offering 20k not 20%. But I guess it would be capped if I go conventional. I did find a cool site to compare loan costs.

    Sorry about my typo and thank you for the response!

  145. Christine May 29, 2017 at 6:32 pm -

    One of the pros listed for FHA is that closing costs and down payment can be from a gift. Are there limitations on gift money use through a conventional loan?

  146. Colin Robertson May 30, 2017 at 2:56 pm -


    Fannie and Freddie used to have a rule where you needed a 5% minimum borrower contribution if the LTV was above 80%. The requirement was removed in late 2015. However, there are still situations where a minimum contribution is necessary, for example, if it’s a multi-unit property.

  147. Richard June 1, 2017 at 5:47 am -

    Hi Colin,

    Can I have a conventional loan with 15% down payment and then in say 6 months use savings to buy an investment property, and if so what down payment would I need as a minimum for the rental property ?


  148. Colin Robertson June 3, 2017 at 10:41 am -


    Generally, you need at least 15% down, but 20% will avoid PMI and likely provide a lower interest rate.

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