Choosing the right mortgage can feel like a big decision. You want to make sure you pick the one that fits your situation best. Let’s break down two popular options: FHA loans and conventional loans, so you can feel confident about your choice in 2025.
Down Payment: How Much Money Do You Need Upfront?
When you’re buying a house, the down payment is the money you pay upfront. For an FHA loan, you generally need to put down at least 3.5% of the home’s price. This can be a great way to buy your first home because it doesn’t require a huge amount of savings to get started.
Conventional loans might seem like they need a 20% down payment, but that’s not always true anymore. You can often get a conventional loan with as little as 3% down. There are even some options where you might only need to put 1% down, so it’s worth looking into what’s available.
Credit Scores: What Number Do You Need to Qualify?
Your credit score is like a report card for how well you’ve handled borrowing money in the past. For an FHA loan, you can often get approved with a credit score of 580 or even lower in some cases. However, keep in mind that a lower credit score might mean a higher interest rate.
For conventional loans, you’ll generally need a credit score of at least 620. Just like with FHA loans, your credit score can affect the interest rate you get. Conventional loans tend to be more closely tied to your credit history.
Debt-to-Income Ratios: How Much of Your Income Goes to Debt?
Debt-to-income ratio, or DTI, is a way lenders see how much of your monthly income goes towards paying off debts, like credit cards or car loans. FHA loans are often more flexible with DTI, sometimes allowing ratios as high as 57%. This is because FHA understands that first-time homebuyers might have more of their money going towards buying a home than other debts.
Conventional loans usually prefer a DTI of 43% or lower. While some approvals might go up to 49%, it can get a bit tricky, so it’s important to make sure your lender is really looking out for you if your DTI is on the higher side.
Pros and Cons: What Are the Upsides and Downsides?
| Feature | FHA Loan | Conventional Loan |
| Minimum Down Payment | 3.5% (can be 10% with lower credit) | 3% (sometimes as low as 1%) |
| Minimum Credit Score | 580 (can be lower with higher down payment) | 620 |
| DTI Ratio | Higher tolerance, up to 57% | Generally 43% or lower |
| Mortgage Insurance | Permanent for the life of the loan | Can be removed without refinancing in some cases |
One of the main things to know about FHA loans is that they come with mortgage insurance. This insurance helps protect the lender if you can’t pay back the loan. For most FHA loans, this insurance stays for the entire time you have the loan.
With a conventional loan, if you put down less than 20%, you’ll likely have to pay private mortgage insurance, or PMI. The good news is that once you’ve paid off enough of your loan, you might be able to stop paying PMI without having to refinance. Also, with conventional loans, your credit score can affect how much you pay for this insurance.
Property Plans: What Kind of Home Are You Buying?
FHA loans are generally meant for people who are buying a home to live in as their main residence.
If you’re looking to buy a second home or a property to rent out as an investment, you’ll typically need a conventional loan.
However, there’s a cool thing about FHA loans: if you’re buying a property with two to four units and you plan to live in one unit and rent out the others (this is called house hacking), you can often do it with a lower down payment, like 3.5%. You usually can’t do that with a conventional loan.
Tip to Save Money on Your Mortgage
Thinking about saving some money on your mortgage and improving your cash flow? Here’s a tip: if you have credit card debt or a car loan, consider paying those down.
Paying off these kinds of debts can do a few things for you. First, it can help raise your credit score, which could mean a lower interest rate on a conventional loan. Second, it can improve your debt-to-income ratio, making it easier to qualify for a better mortgage and potentially even more home. This can ultimately lead to more money in your pocket each month.
Remember, when buying a house, how much money you have coming in and going out (your cash flow) can be really important. By taking steps to improve your credit and lower your other debts, you could reduce the overall cost of your mortgage over time.
Final Thoughts
Choosing between an FHA loan and a conventional loan depends on your individual circumstances. Consider your down payment savings, credit score, and the type of property you want to buy. By understanding the differences, you can make the right mortgage choice for your homeownership journey in 2025.
Want to learn more? Watch the video that inspired this blog post:
5 Tips for Lower Interest Rates
If you’re ready to take the next step toward homeownership or real estate investment, Mortgage Maestro Group is here to assist you. Whether you’re purchasing your first home or exploring short-term rental opportunities, our team offers personalized mortgage solutions tailored to your goals. Get started by applying online or scheduling a free consultation today.
