Conventional vs. FHA Mortgages: Pros & Cons at Current Rates (August 2025)

With mortgage rates sitting at 6.63% for conventional loans and 6.22% for FHA loans, understanding the pros and cons of each option is crucial for homebuyers.

Conventional Mortgages (6.63%)

Pros

• Greater Flexibility: Can be used for primary, secondary, or investment properties.

• Higher Loan Limits: Often allow you to borrow more, especially in higher-cost areas.

• PMI Can Be Removed: Private mortgage insurance (PMI) can be canceled once equity reaches 20%.

• Usually Lower Fees: Closing costs and fees are generally lower than FHA loans.

• Variety of Terms: Multiple loan term options and fixed or adjustable rates.

Cons

• Stricter Credit Requirements: Typically requires a minimum credit score of 620.

• Larger Down Payment: Generally 5–20% required, though some programs allow as low as 3%.

• Higher Rate for Lower Credit: May have higher rates if your credit score is below 700, sometimes making FHA a better deal for marginal credit borrowers.

• More Stringent Approval: DTI ratios and financial vetting can be tougher.

FHA Mortgages (6.22%)

Pros

• Lower Credit Score Requirement: Allows scores as low as 580 with 3.5% down, or even 500 with 10% down.

• Low Down Payment: Minimum 3.5% down, making it accessible for buyers with less upfront cash.

• Easier Approval: More lenient debt-to-income ratios and documentation requirements.

• Lower Interest Rate at Lower Credit: Often has slightly lower rates than conventional for similar borrower profiles.

Cons

• Mandatory Mortgage Insurance: Upfront and monthly mortgage insurance premiums (MIP) are required, usually for the life of the loan unless putting 10% or more down.

• Lower Loan Limits: Maximum loan amounts are usually more restrictive than conventional loans.

• Primary Residence Only: FHA loans are generally for your main home—not investment or vacation properties.

• Stricter Property Appraisals: The home must meet FHA’s health and safety standards, potentially limiting choices for fixer-uppers.

• Long-Term Cost: Due to ongoing MIP, overall lifetime cost may be higher, despite a lower rate.

Rate & Payment Comparison

Key Takeaways

• Choose Conventional if you have a higher credit score, a larger down payment, or want flexibility (such as buying a second home or investment property). You’ll save in the long run once you cancel PMI, especially if you're borrowing above FHA limits.

• Choose FHA if your credit is lower or you have less cash for a down payment. Even though the rate is lower, watch out for lifelong MIP, which can raise the total cost.

Note on Running Effective One-on-Ones

While not directly mortgage-related, conducting effective one-on-ones (as in the provided resource) means actively listening, providing tailored guidance, and walking buyers through options—skills essential for mortgage advisors guiding buyers through these complex decisions.

Bottom Line:
With rates at 6.63% (conventional) and 6.22% (FHA), borrowers should weigh upfront savings and approval ease (FHA) vs. long-term flexibility and cost (conventional). Analyze your own finances, goals, credit and property needs to make the best choice