The Core Difference
FHA loans are backed by the Federal Housing Administration — the government guarantees the lender against default, which allows lenders to offer more flexible qualification requirements. Conventional loans are not government-backed and are held to standards set by Fannie Mae and Freddie Mac.
| FHA Loan | Conventional Loan | |
|---|---|---|
| Minimum down payment | 3.5% (credit 580+) or 10% (580 below) | 3–20% (varies) |
| Minimum credit score | 580 for 3.5%; 500 for 10% | Typically 620+ |
| Mortgage insurance | Required for life of loan (if <10% down) | PMI only until 20% equity — then removed |
| Loan limits | Set by county (varies) | Conforming limit $806,500 (2025, most areas) |
| Property requirements | Strict — must meet FHA standards | More flexible |
| Best for | Lower credit, lower down payment | Higher credit, 20%+ down, long-term savings |
The MIP Problem with FHA
FHA loans require Mortgage Insurance Premium (MIP) in two forms:
- Upfront MIP: 1.75% of loan amount, added to your balance at closing
- Annual MIP: 0.55–1.05% of loan balance per year, divided across monthly payments
With conventional loans, PMI is automatically removed when you reach 20% equity and can be canceled earlier with a formal request. With FHA loans originated after June 2013 with less than 10% down, MIP stays for the life of the loan — you can only remove it by refinancing to a conventional loan once you have enough equity.
Who Should Choose FHA?
- Credit score below 660 (conventional rates get expensive; FHA rates are more consistent)
- Limited savings for a down payment and can't reach conventional minimums
- You plan to sell or refinance within 5–7 years anyway (before MIP becomes a major disadvantage)
Who Should Choose Conventional?
- Credit score 700+ (qualify for competitive rates)
- Can put 20% down (avoid PMI entirely)
- Plan to stay in the home long-term (want PMI eventually removed)
- Buying a fixer-upper or property that might not meet FHA standards
Ask KCCU
KCCU offers mortgage products including both FHA and conventional options. Getting pre-qualified through a credit union often means more personalized guidance and competitive rates compared to large banks. Talk to a KCCU mortgage specialist before making a decision — they can run the numbers on your specific situation.