On a $350,000 home, an FHA buyer putting 3.5% down starts with a $337,750 base loan. Finance the 1.75% upfront mortgage insurance premium, use an illustrative 6.25% rate, and the principal-and-interest payment is about $2,116. Add roughly $155 in monthly FHA mortgage insurance and the total is about $2,271 before taxes and homeowners insurance. A conventional buyer putting 5% down borrows $332,500. At an illustrative 6.375% with $139 monthly private mortgage insurance, that payment is about $2,214. That is a $57 monthly conventional advantage, or $3,420 over five years. But the FHA buyer needed $5,250 down, while the conventional buyer needed $17,500. That $12,250 cash difference is why FHA vs conventional is never a one-line answer.
Duane Buziak, NMLS #1110647
Table of Contents
- FHA vs conventional at a glance
- Down payment, credit, and mortgage insurance
- Local price reality and loan limits
- When an FHA refinance makes sense
- Eight common questions
FHA vs conventional: start with the borrower, not the headline rate
I see buyers in Richmond, Midlothian, and Virginia Beach get stuck on one question: “Which loan has the lower rate?” It is a fair question, but it is not the deciding question. The better question is: which financing path gets you into the right home without creating a payment or cash-reserve problem later?
FHA loans are insured through the https://www.hud.gov/ program and are designed with more flexible credit and down-payment rules. Conventional loans follow guidelines set by mortgage investors and can be less expensive over time when a borrower has stronger credit, a larger down payment, or a clear path to removing PMI.
For rate context, I use the weekly 30-year fixed benchmark published through https://www.freddiemac.com/pmms and then price the actual file. Your quote can differ based on credit, loan amount, occupancy, points, debt-to-income ratio, and whether the property is a condo, investment property, or single-family home. A headline average is a market temperature check, not your approval.
The real differences: cash, credit, and mortgage insurance
FHA can allow 3.5% down with a 580 credit score. Scores from 500 to 579 may require 10% down, subject to underwriting and broker program availability. Conventional financing commonly starts around a 620 score, although the best conventional pricing generally appears as scores move into the 700s.
Mortgage insurance is where the long-game math matters. FHA generally charges an upfront mortgage insurance premium plus annual mortgage insurance paid monthly. On many FHA loans with less than 10% down, that monthly insurance lasts for the loan term unless you refinance. Conventional PMI can usually be canceled once the loan reaches the required equity threshold, assuming timely payments and applicable servicing rules.
A conventional loan may make more sense for a buyer with 5% to 20% down, solid credit, and a plan to keep the mortgage for several years. FHA can be the smarter move when a lower down payment preserves emergency savings, a recent credit event is still affecting conventional pricing, or the buyer needs more flexible debt-to-income treatment.
Do not confuse lower cash to close with lower long-term cost. They are different wins. A good broker shows both numbers before you commit.
Local prices, inventory, and the loan-limit conversation
In Henrico County, Redfin reported a median sale price of roughly $405,000 in mid-2025, a useful benchmark for buyers comparing homes in Glen Allen, Short Pump, and surrounding areas. See the county market data at https://www.redfin.com/county/3110/VA/Henrico-County/housing-market. At that price, a 3.5% FHA down payment is about $14,175, while 5% conventional is about $20,250.
Inventory remains uneven across the region. Well-priced homes in popular school zones and move-in-ready neighborhoods can still draw competition, while properties needing repairs may sit longer. In markets where sellers expect clean offers, the program that gives you a confident prequalification and manageable cash-to-close number can matter more than chasing an eighth of a point.
Loan limits also matter. For context, the 2025 baseline conventional conforming loan limit was $806,500 for a one-unit property, published by the https://www.fhfa.gov/data/conforming-loan-limit. FHA limits vary by county, so do not assume a national number applies to your address. Higher-priced areas, property type, and loan purpose can change the available options.
For primary-home purchases, reserve requirements are often lighter than they are for investment properties, but reserves still strengthen an application. A conventional investment purchase may require two to six months of payments in documented reserves, depending on the number of financed properties and the overall file. FHA purchase files are often more forgiving, but no program replaces documented income, assets, and a payment you can comfortably carry.
Refinancing from FHA to conventional: use a break-even, not a sales pitch
FHA is not a permanent label. Plenty of homeowners use FHA to buy, build equity, improve credit, and later refinance into conventional financing to eliminate FHA mortgage insurance. That can be a smart rate-and-term refinance, but only when the math supports it.
Here is a fully worked example. Assume your FHA refinance would reduce the total monthly payment by $185 after replacing FHA mortgage insurance with conventional financing. Closing costs are $5,400. The break-even calculation is $5,400 ÷ $185 = 29.2 months. If you expect to keep the new loan longer than about 29 months, the refinance may be worth serious consideration. If you plan to sell in 18 months, it may not be.
Ask about our no-out-of-pocket closing options if cash at closing is the obstacle. That does not mean costs disappear. It means the rate, loan balance, or credit structure may be adjusted to address them, and you should see the trade-off in writing.
| Refinance path | Primary purpose | Cash back at closing | Equity / LTV focus | Typical documentation |
|---|---|---|---|---|
| Rate-and-term refinance | Lower payment, rate, or term | Limited to permitted incidental cash | Varies by program and property | Income, assets, credit, appraisal when required |
| Conventional cash-out refinance | Access eligible equity | Cash proceeds permitted | Up to 90% LTV on eligible primary residences | Full underwriting, appraisal, income and assets |
| VA cash-out refinance | Access eligible equity or replace financing | Cash proceeds permitted | Up to 100% LTV when eligible | VA eligibility, full underwriting, appraisal |
| VA IRRRL | Streamline an existing VA loan | No cash-out beyond permitted minor amounts | Designed for an existing VA mortgage | Typically reduced documentation; rules still apply |
A VA IRRRL is for an existing VA loan, not an FHA loan, but it is worth separating because homeowners often hear “streamline” and assume every loan type works the same way. It does not. Your mortgage broker should show the correct lane, not force every borrower into one.
Protect your credit while you compare options
You do not need to guess where you stand. A soft credit pull mortgage review can help us estimate eligibility without a hard inquiry in many situations. That is useful if you are looking for no hard inquiry mortgage pre approval, a mortgage pre approval without hard pull, or simply want a no credit hit mortgage application before you are ready for formal underwriting.
A soft pull mortgage broker review is not a final approval, and the credit report used for a formal loan application may still be required later. But it can give you a cleaner starting point: likely score range, estimated payment, cash-to-close target, and the program that deserves a full application.
FHA vs conventional FAQ
Is FHA easier to qualify for than conventional?
Often, yes. FHA can be more flexible with credit history, lower scores, and down payment, though approval still depends on the full file.
Can I use FHA with a 620 credit score?
Yes, a 620 score can fit FHA guidelines. You should still compare conventional pricing because conventional may be competitive at that score.
Does conventional always have a lower payment?
No. Conventional can have lower PMI or no PMI with enough equity, but its interest rate may be higher for some credit profiles.
Can FHA mortgage insurance be removed?
For many FHA loans with less than 10% down, it remains for the loan term. Refinancing to conventional may remove it if equity and qualification support the move.
How much are FHA closing costs?
Closing costs commonly run about 2% to 5% of the purchase price before seller credits, prepaid taxes, and insurance. The actual amount depends on the property and location.
Can a seller help with FHA closing costs?
Seller concessions may be permitted within program limits. The contract, appraisal, and underwriting file must support the structure.
Should self-employed buyers choose FHA or conventional?
It depends on documented income, write-offs, credit, down payment, and debt. A broker should review tax returns before promising a program.
Can I get prequalified without hurting my credit?
A soft-pull review may be available before a full application. Ask specifically for a soft credit pull mortgage review and understand its limits.
For buyers and owners in Virginia, Florida, Tennessee, and Georgia, the fastest next step is not picking a program from a chart. It is running your actual payment, cash-to-close, and five-year plan side by side before you write an offer or refinance.
Legal disclaimer: This article is educational and not a commitment to lend or an approval. Rates, payments, mortgage insurance, loan limits, eligibility, and closing costs can change and depend on credit, income, assets, property, occupancy, appraisal, and program guidelines. Conventional cash-out refinances may allow up to 90% LTV on eligible primary residences; VA cash-out refinances may allow up to 100% LTV when eligible. Duane Buziak is licensed to originate mortgage loans only in Virginia, Florida, Tennessee, Georgia, and DC. Equal Housing Opportunity.
Duane Buziak | Mortgage Maestro | NMLS #1110647 | Coast2Coast Mortgage, LLC NMLS #376205 | Licensed in VA, FL, TN, GA & DC [Contact] | NoTouch Credit Pull available — no hard inquiry, no credit hit.