FHA 30-Year Fixed Loan Requirements Compared With Conventional

The Quick Read: An FHA 30-year fixed loan lets you buy a primary residence with as little as 3.5% down at a decision score of 580 or higher. A conventional loan can also go to 3% down, but it asks more of your credit and gives you more room to cancel mortgage insurance later. FHA tends to fit thinner credit or higher debt ratios. Conventional tends to fit stronger credit. Both are subject to lender guidelines and full file review, and nothing here is a commitment to lend.

What Is an FHA 30-Year Fixed Loan?

It is a home loan insured by the Federal Housing Administration, with a 30-year term and an interest rate that never changes. Each word in the name matters.

“FHA” means the government insures the loan. It does not lend the money. A private lender makes the loan, and the insurance protects that lender if you default. That protection is why the lender can accept a smaller down payment and a thinner credit file.

“30-year” means a long repayment schedule. That keeps the monthly cost lower than a shorter term would, though you pay interest for longer.

“Fixed” means the principal-and-interest portion of your payment stays level. Taxes, homeowners insurance and mortgage insurance can still move.

Lendmire is a mortgage broker. It arranges FHA loan programs through wholesale lenders and does not lend the money itself. Across the wholesale programs it places files with, the requirements below are the ones that decide most outcomes.

FHA vs. Conventional at a Glance

Read the table as a starting point. Each row has exceptions, and the sections below cover the ones that matter.

What Are the FHA Credit Score and Down Payment Requirements?

At a decision score of 580 or higher, FHA allows financing up to 96.5% of the home’s value. That means a 3.5% minimum investment, measured against the lesser of the price or the appraised value.

HUD also has a lower tier for scores of 500 to 579, with a 10% minimum investment. That is a HUD rule. The wholesale programs Lendmire places FHA loans with start at 580, so the lower tier is not available through that network. Many lenders set their own floors above HUD’s minimum. Those extra limits are called overlays.

The “decision score” is the credit score the lender uses to make the call. It is not always the highest score on your report. With two borrowers, lenders generally look at the lower of the two decision scores.

The money for your down payment can come from several places. A non-occupant co-borrower, such as a parent, is allowed on these programs. Seller or interested-party contributions can cover up to 6% of the price.

How Does Conventional Compare on Down Payment?

Its leverage depends on what you are buying and how you will use it. Fannie Mae’s Eligibility Matrix allows up to 97% LTV on a fixed-rate purchase of a one-unit principal residence. LTV, or loan-to-value, is the loan balance as a percentage of the home’s value. Two- to four-unit purchases are allowed at 95%. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.

So “conventional requires 20% down” is a myth. Twenty percent down is what lets you skip mortgage insurance, not what lets you qualify. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.

Credit is where conventional gets pickier. Minimum scores vary by LTV and by how the file is underwritten. The matrix shows the tiers. In plain terms, the less you put down, the more your credit score matters.

Fannie Mae also runs HomeReady, a 3%-down program for income-eligible buyers. It covers owner-occupied one-unit homes and requires homeownership education.

How Are FHA Debt Ratios Set?

A debt-to-income ratio, or DTI, compares your monthly debts to your monthly income. FHA looks at two versions. The housing ratio counts only your housing costs. The total ratio adds car loans, student loans, credit cards and other debts.

The base pair is 31/43: housing at 31% of income, total debt at 43%. That applies with no compensating factors. With documented compensating factors, ratios can reach 40/50 at the top tier. Compensating factors are strengths in your file, such as cash reserves or a stable job history.

Most files are not judged on a fixed ratio alone. The lender runs the file through an automated underwriting system, and that finding governs most approvals. Two borrowers with the same DTI can get different answers because credit, reserves and income stability differ.

How Does Mortgage Insurance Work on Each Loan?

This is the biggest practical difference between the two loans, so it deserves care.

FHA charges two premiums. The upfront premium is 1.75% of the base loan amount, and most borrowers finance it into the loan. That raises the balance you owe. The annual premium is spread across your monthly payments. It runs between 0.15% and 0.75% of the balance, depending on term, loan amount and LTV. These are program mechanics, not prices.

Duration depends on your starting LTV. On a 30-year loan above 90% LTV, the annual premium lasts for the full term. At or below 90% LTV, it ends after 11 years. Because the schedule follows your original LTV, home appreciation does not shorten it. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.

Conventional loans use private mortgage insurance, or PMI. The CFPB explains that PMI is generally cheaper than FHA insurance for borrowers with good credit. Most PMI is paid monthly, with little or no charge at closing.

PMI can also end. Under the Homeowners Protection Act, you can ask in writing to cancel at 80% of the original value, and the CFPB notes the servicer must end it automatically when the scheduled balance reaches 78%. You must be current on payments, and the servicer may ask for proof the value has not dropped. Those cancellation rights cover private insurance, not FHA’s annual premium.

Here is the catch. Getting rid of FHA premiums on a long-term loan usually means refinancing. Whether that works depends on your equity, the market and your qualifying picture at that time.

Which Properties and Occupancy Types Does Each Allow?

FHA is for a principal residence only. You must live there. The home can be one to four units, and a non-occupant co-borrower is allowed.

Conventional also allows second homes and investment properties, but with lower maximum LTVs. If you are buying a second home or a rental, occupancy decides your leverage. For a home you will live in, FHA and conventional are both on the table.

The home itself faces a stricter test under FHA. The appraisal does two jobs: it sets value, and it checks HUD’s minimum property requirements. Safety, soundness and security problems generally must be fixed or escrowed before closing. A conventional appraisal focuses mainly on value and marketability. A home with peeling paint over a bad roof can sail through one and stall in the other.

Condos add another layer. The building must be eligible for the loan type, and FHA and conventional use different project-approval paths.

How Do Loan Limits Compare?

FHA loan limits are set by county, and they change every year. HUD publishes them, and its maximum mortgage limits page shows that they vary between a national floor and a national ceiling. Check your county before you shop. Your loan must fall under the limit that applies where the home sits.

Conventional loans have their own conforming limits. Above those, you move into jumbo territory, which is a separate product with its own rules.

What Does the Underwriting Process Look Like, Step by Step?

Here is how a purchase file moves through an FHA review.

1. Credit review. The lender pulls your credit and identifies the decision score.

2. Income and employment documentation. The lender verifies your job history and income. HUD’s handbook defines written, electronic and reverification methods.

3. Appraisal. The appraiser sets value and checks property standards.

4. Conditions. The lender lists what it still needs, including repairs if the appraisal flagged any.

5. Limit and LTV check. The loan must sit under the county limit and within the leverage allowed for your score.

6. Closing. The upfront premium is added to the loan, and the annual premium is collected monthly.

Five things decide the outcome: your score, your DTI against the automated finding, how stable your income looks, the home’s condition, and the lender’s overlays.

Where the General Rules Break

Rules are tidy. Real files are not. These are the edge cases that come up most.

Past credit events. HUD sets waiting periods: two years from a Chapter 7 discharge and three years from a foreclosure. Those are HUD’s rules, not a promise from any lender. Conventional guidelines tend to wait longer after a foreclosure.

Two- to four-unit homes. FHA allows them if you live in one unit. Rental income from the other units can help you qualify, and three- and four-unit properties must meet a self-sufficiency test. Confirm the details with your lender.

Rehab. FHA has renovation loans, including a limited version for smaller repairs. Draw rules change from time to time, so ask for the current version.

Collections and disputes. Some lenders require certain collections to be paid before closing. Others count a portion of the balance against your income. It depends on the lender.

Lender overlays. HUD’s minimums are a floor. A lender can ask for more, and HUD’s rules do not override that. That is one reason two lenders can give different answers on the same file. It is also why a broker that works with several wholesale lenders can be useful.

What Else Differs After Closing?

Your later options differ too. If you hold an FHA loan, you can refinance it three ways, all subject to lender guidelines.

• FHA Streamline. This refinances an existing FHA loan with no appraisal, a limited credit review and a net tangible benefit. The premium continues.
• FHA rate-and-term. With an appraisal, this reaches 97.75% LTV on a principal residence you occupied for the previous twelve months.
• FHA cash-out. This reaches 80% LTV on a home you owned and occupied for 12 months before the case number. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.

Another route is moving into a conventional loan once you have enough equity and credit strength. That is the usual way to end FHA premiums early.

Which Loan Fits Which Borrower?

Think of it as a decision, not a ranking.

This is a toss-up for many middle-of-the-road borrowers, and the answer often flips as credit and down payment change. Stronger credit tends to make conventional cheaper over time. Weaker credit tends to make FHA the only workable path, or the easier one.

Picture two buyers with the same price target. One has a 640 score and 3.5% saved. The other has a 760 score and 10% saved. The first buyer may find FHA the smoother route. The second buyer may find that PMI costs less and ends sooner. Same house, different loans.

For a reality check on scale, HUD reports that FHA insured 876,502 single-family forward mortgages in a recent fiscal year, and 538,642 went to first-time buyers. Those numbers are in HUD’s FHA INFO reporting. FHA is a mainstream tool, not a last resort.

Key Terms Defined

FHA loan: A mortgage insured by the Federal Housing Administration and made by a private lender.

Decision credit score: The score the lender uses to place you in a credit tier.

LTV (loan-to-value): The loan balance as a percentage of the home’s value or price.

DTI (debt-to-income ratio): Your monthly debts divided by your monthly income.

Overlay: A rule a lender adds on top of the program’s minimum.

PMI (private mortgage insurance): Insurance on a conventional loan with a small down payment. It can be canceled.

Compensating factor: A documented strength in your file that offsets a weaker one.

Next Step

If you are buying a home and want to see whether an FHA loan fits your file, Lendmire can help you compare the options and what each one asks of the file.

For your own numbers, request a scenario review with Lendmire.

About Lendmire

Lendmire is a mortgage brokerage (NMLS# 2371349) licensed for consumer mortgage lending in 16 states, arranging FHA, VA, conventional and jumbo purchase and refinance loans through a wholesale lending network. Eligibility is determined by the lender on each file. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. Fannie Mae Eligibility Matrix

2. CFPB: What Is Mortgage Insurance and How Does It Work

3. CFPB: When Can I Remove Private Mortgage Insurance PMI from My Loan

4. HUD FHA Lenders, Maximum Mortgage Limits

5. HUD FHA INFO Messages