Key takeaways
- FHA loans are insured by the federal government and are built to be more flexible on credit history and down payment. Conventional loans aren't government-insured and tend to reward stronger credit and more equity.
- Mortgage insurance is often the deciding difference. Conventional mortgage insurance can generally be removed once you've built enough equity; FHA mortgage insurance often lasts much longer and has an upfront premium too.
- FHA loans are for homes you'll live in, and the property itself has to meet FHA standards. Conventional loans can also finance second homes and rentals.
- The right answer depends on your credit, savings, the specific home and how long you expect to keep it. Compare both on a Loan Estimate rather than choosing by reputation.
The Short Version
A conventional loan is a mortgage that isn't insured or guaranteed by a government agency. Most follow guidelines set by Fannie Mae and Freddie Mac. An FHA loan is insured by the Federal Housing Administration, part of HUD, which protects the lender if a borrower stops paying. That protection is what allows FHA guidelines to be more flexible.
As a general pattern, FHA tends to fit buyers who are still building credit or savings, and conventional tends to fit buyers with stronger credit or more equity. That's only a starting point. Plenty of first-time buyers do better with a conventional loan, and some buyers with solid credit still come out ahead with FHA. The specific numbers depend on your file and on current program rules, so we run both when both are possible.
If you've served in the military, add a third option to the comparison. Colorado Springs is home to many eligible buyers, and a VA loan is often worth checking before either of these.
Conventional vs. FHA: Side by Side
Who backs it
- Conventional loan
- No government insurance; most follow Fannie Mae and Freddie Mac guidelines
- FHA loan
- Insured by the Federal Housing Administration (HUD)
Credit history
- Conventional loan
- Pricing and approval tend to favor stronger credit
- FHA loan
- More flexible guidelines for borrowers still building credit
Mortgage insurance
- Conventional loan
- Private mortgage insurance (PMI) if you have less equity; can generally be removed later
- FHA loan
- Upfront premium plus an annual premium paid monthly; often lasts much longer
Property type
- Conventional loan
- Primary homes, second homes and rental properties
- FHA loan
- Primary residences only, including 1–4 unit homes you live in
Property condition
- Conventional loan
- Standard appraisal focused on value; serious issues can still come up
- FHA loan
- FHA appraisal also checks health, safety and soundness standards
Condos
- Conventional loan
- The lender reviews the condo project
- FHA loan
- The project or unit must meet FHA approval rules
Loan limits
- Conventional loan
- Conforming limits set yearly by FHFA; above them is a jumbo loan
- FHA loan
- FHA limits set yearly by HUD, by county
If you sell later
- Conventional loan
- Generally can't be taken over by a buyer
- FHA loan
- Can often be assumed by a qualified buyer, with lender approval
Mortgage Insurance: Usually the Deciding Factor
Both loans can involve mortgage insurance, which protects the lender, not you. How it works is the biggest practical difference between them.
On a conventional loan, private mortgage insurance typically applies when you have less equity in the home. It's a monthly cost that varies with your credit and equity, and federal law gives you the right to ask for it to be removed once you reach certain equity levels, as long as you meet the conditions.
On an FHA loan, you pay an upfront premium, which can usually be financed into the loan, plus an annual premium collected monthly. Depending on your down payment and loan term, the annual premium can last for the life of the loan. Many FHA borrowers look at refinancing into a conventional loan later, once they have enough equity, to remove it. That's possible but not guaranteed, because it depends on rates, your equity and your credit at that time.
So a loan with the lower payment today isn't automatically the less expensive one over time. How long you expect to keep the home matters. If you expect to stay put for many years, look closely at how long each type of insurance would last.
The Home Itself Can Decide It
With FHA, the home has to qualify as well as the borrower. The appraiser looks at health, safety and soundness in addition to value. That's a useful safeguard, but on an older or worn home it can mean repairs have to be handled before closing. Conventional appraisals focus more on value, although a serious problem can still hold up that loan as well.
Colorado Springs examples: older homes in the Old North End, the Westside and Old Colorado City can raise questions about peeling paint, aging roofs or older systems. After a hail season, roof condition is worth checking on any home, since hail wear is common along the Front Range. In Falcon, Peyton and Black Forest, wells and septic systems add their own requirements, whichever loan you use.
Condos need extra attention. FHA has its own approval rules for condo projects, so a unit that works for a conventional loan may not work for FHA, and the reverse can also happen. Check this before you make an offer, and let us know the complex name early.
Competitive offers are a real consideration too. Some sellers and agents still prefer conventional offers, partly because of the FHA property standards. A strong pre-approval and a clean, well-prepared offer help with either loan. Your home inspection is separate from either appraisal, and we'd encourage it in every case.
Loan Limits and the Annual Update
Both programs have loan limits, and both are normally updated once a year, usually with an announcement late in the year for the following year. Conforming limits for conventional loans come from the Federal Housing Finance Agency (FHFA). FHA limits come from HUD and are set by county.
If you're shopping for a higher-priced home on the north side or near the Broadmoor, the limits may influence your choice. A loan above the conforming limit would be a jumbo loan, which has its own guidelines. We don't quote limits from memory because they change, so use the official sources below or ask us for the current figure for El Paso County.
Colorado Springs Costs That Affect Both Loans
Lenders look at your whole monthly housing cost, not just principal and interest, so local costs can change how much home either loan supports. Many newer neighborhoods on the east and north sides of town are in metropolitan districts, which add to the property tax bill. HOA dues count too. Homeowners insurance costs can vary with hail and wildfire exposure, particularly near the foothills and Black Forest.
Get real figures for a specific property when you can, and try a few scenarios in our payment calculator, entering your own numbers and your mortgage insurance estimate from a Loan Estimate. If you're also looking at down payment assistance, these are third-party programs that have their own rules about which loans they can be paired with. Countryside Lending does not originate down payment assistance loans, and our first-time buyer page explains where to learn more.
Which Fits You? Quick Self-Check
Check the statements that describe you. The first four tend to lean FHA and the last four tend to lean conventional. If you check some of each, that's normal, and it's a good reason to see both options on paper.
How to Compare the Two for Your Purchase
The cleanest comparison is two Loan Estimates for the same home and the same day: one conventional, one FHA. Look at more than the monthly payment. Compare the mortgage insurance lines, the cash to close and the 'In 5 Years' figures on page 3, then think about how long you expect to keep the home and whether you might refinance later.
Countryside Lending has helped Colorado borrowers since 2006. Our process is simple: a quick online application that takes about 5–10 minutes, a quick call to go over your loan options, and a pre-approval letter. On that call, we'll walk through conventional and FHA side by side and explain why one fits better for you. Your loan officer is Brendon O'Connor (NMLS #249969).