Quick Comparison Overview

Feature	FHA Loan	Conventional Loan
Min Down Payment	3.5%	3%
Min Credit Score	580 (3.5% down)	620 typical
Mortgage Insurance	Required for life of loan	Removable at 20% equity
Debt-to-Income	Up to 50%	Up to 45% typical
Loan Limits	$498k–$1.09M (varies by county)	$806k–$1.2M
Best For	Lower credit, smaller savings	Better credit, long-term

---

What Is an FHA Loan?

An FHA loan is insured by the Federal Housing Administration. The FHA doesn't lend money directly — instead, you apply through FHA-approved lenders, and the FHA insures the loan against default.

FHA Requirements:

• Credit score minimum: 580 for 3.5% down (500–579 requires 10% down)
• Down payment: 3.5% minimum (can come from savings, gifts, or assistance)
• Debt-to-income: Up to 43% (sometimes approved up to 50% with compensating factors)
• Property must meet FHA appraisal standards

FHA Mortgage Insurance:

• Upfront MIP: 1.75% of loan amount (usually rolled into loan)
• Annual MIP: 0.55% to 0.90% annually — cannot be removed unless you refinance (if less than 10% down)

FHA Loan Limits in Southern California:

• San Bernardino County: $498,257
• Riverside County: $644,000
• Orange County: $1,089,300

---

What Is a Conventional Loan?

Conventional loans are not government-backed. They follow guidelines set by Fannie Mae and Freddie Mac.

Conventional Requirements:

• Credit score minimum: 620 (680+ for better rates, 740+ for best rates)
• Down payment: 3% minimum for first-time buyers, 5% standard
• Debt-to-income: Typically 43% maximum

Private Mortgage Insurance (PMI):

• Required when down payment is less than 20%
• Cost: 0.3% to 1.5% of loan annually
• Can be removed automatically at 78% LTV — no lifetime requirement

Conventional Loan Limits:

• Standard: $806,500
• High-cost areas (Southern California qualifies): $1,209,750

---

Mortgage Insurance Costs: The Key Difference

This is where the differences become most significant.

Example: $400,000 Loan, 5% Down

	FHA	Conventional
Upfront cost	$7,000 (UFMIP)	$0
Monthly MI	$283	$250
Removable?	No (must refinance)	Yes (~8 years)
Total MI over 30 years	$101,880	$24,000
Savings with Conventional		$77,880

---

Which Loan Is Right for You?

Choose FHA If:

✅ Credit score is 580–680
✅ Debt-to-income ratio is 43–50%
✅ You have 3.5% saved
✅ Recent credit issues
✅ Planning to refinance in 2–5 years

Choose Conventional If:

✅ Credit score is 700+
✅ You have 5–10% down
✅ Planning to stay 7+ years
✅ Buying a condo
✅ Property might have condition issues
✅ Want competitive offers in multiple-bid situations

---

Decision Matrix

1. Credit score 580–680? → FHA likely better
2. Credit score 720+? → Conventional probably better
3. Staying less than 5 years? → FHA acceptable
4. Staying 10+ years? → Conventional significantly better
5. DTI above 43%? → FHA more likely
6. Only have 3.5%? → FHA
7. Have 20%+? → Conventional (no PMI)

---

Can You Switch Loan Types?

Yes. Many buyers start with FHA and refinance to conventional later once they have 20% equity and improved credit. This eliminates the lifetime FHA mortgage insurance requirement.

---

Work with an Experienced Agent

Both FHA and conventional loans help millions achieve homeownership. The "best" choice depends on your credit score, down payment amount, debt-to-income ratio, timeline in the home, and long-term plans.

Contact Jose Cordova Homes for guidance — call (909) 715-3800 or reach out online.

This article is for informational purposes only and does not constitute financial advice. Last Updated: February 2026.

Jose Cordova serves buyers across Orange County, Riverside County, and San Bernardino County. Se habla español.