FHA vs. Conventional Loans: Which Is Right for You?

One of the most common questions we hear from Illinois homebuyers is: should I get an FHA loan or a conventional loan? Both are solid options, but the right choice depends on your financial situation. Here's how they compare.

Down Payment Requirements

FHA loans require a minimum of 3.5% down with a credit score of 580 or higher. If your score is between 500-579, you'll need 10% down.

Conventional loans can go as low as 3% down for first-time buyers, though 5-20% is more common. There are also special programs for first-time home buyers that allow as little as 1% down. The more you put down, the better your rate and the sooner you can drop mortgage insurance.

Not sure how your down payment affects your monthly cost? Try our mortgage calculator to run the numbers.

Credit Score Requirements

This is where the two loan types diverge significantly:

• FHA: Minimum 580 for 3.5% down (500 with 10% down)
• Conventional: Minimum 640 credit score

If your credit score is below 680, expect slightly higher rates on conventional loans. If your score is 680 or above, you'll have access to the best conventional rates and terms. Below 640, FHA is likely your best path.

Mortgage Insurance

FHA loans require both an upfront mortgage insurance premium (1.75% of the loan amount) and annual mortgage insurance that lasts the life of the loan in most cases.

Conventional loans require Private Mortgage Insurance (PMI) only when you put down less than 20%. The key advantage: PMI drops automatically once your equity reaches 22%. You can also apply to your lender for PMI removal once you reach 20% equity — potentially saving you months of extra payments.

Over the life of the loan, this difference can add up to thousands of dollars in favor of conventional — if you qualify.

Property Requirements

FHA loans have stricter property standards. The home must meet HUD's minimum property requirements, which means some fixer-uppers or older homes may not qualify without repairs.

Conventional loans are more flexible on property condition, making them a better fit if you're eyeing a home that needs some work.

Which Should You Choose?

Choose FHA if:

• Your credit score is below 680
• You have a lower income and need to qualify for a larger loan amount
• You have limited savings for a down payment
• You're a first-time buyer who needs flexible qualifying

Choose Conventional if:

• Your credit score is 680 or above
• You can put 5% or more down
• You want to avoid upfront mortgage insurance and have PMI removed sooner

Still Not Sure?

The best way to decide is to get quotes for both. We'll run the numbers side by side and show you which option saves you the most money over time. Get pre-approved and we'll compare both options for your specific situation, or contact us to talk it through.

Check out our full list of loan programs to see all available options.