FHA vs Conventional Loans in Florida: Choosing the Right Program for Your Situation

Choosing between FHA and conventional loans in Florida significantly impacts your monthly payment, total costs, and qualification path. Understanding key differences helps you select the program that best fits your financial situation and long-term goals.

FHA Loans: Overview

What FHA Loans Are: FHA (Federal Housing Administration) insured loans are backed by the federal government, meaning the government guarantees the lender against losses if you default.

Who FHA Loans Serve:

• First-time homebuyers
• Borrowers with lower credit scores (down to 580)
• Buyers with limited down payment savings
• Borrowers recovering from past credit issues

Conventional Loans: Overview

What Conventional Loans Are: Conventional loans are NOT government-backed. The lender holds all risk and must sell loans to Fannie Mae or Freddie Mac to recover capital.

Who Conventional Loans Serve:

• Borrowers with stronger credit (640+)
• Buyers with larger down payments (5%+)
• Borrowers seeking lower total costs long-term

Key Differences: Credit Score Requirements

FHA Loans:

• Minimum 580 middle credit score (3.5% down)
• Minimum 640 middle credit score (10% down)
• Some lenders offer programs as low as 500 with compensating factors

Conventional Loans:

• Minimum 620 middle credit score
• 640+ recommended for best rates
• Some lenders require 660+ for specific programs

What This Means: If your middle credit score is 600, FHA is likely your only option. If it’s 640+, conventional usually offers better terms.

Down Payment Comparison

FHA Loans:

• 3.5% down payment (minimum)
• 10% down payment (for better mortgage insurance terms)
• Down payment can be gifted (no earned income required)

Conventional Loans:

• 3% down payment (with mortgage insurance)
• 5% down payment (reduced mortgage insurance)
• 10-20% down payment (minimal or no insurance)
• Stricter gift rules (may require documentation of family relationship)

Example: $300,000 Home

• FHA (3.5% down): $10,500 down payment
• Conventional (3% down): $9,000 down payment
• Conventional (5% down): $15,000 down payment

Mortgage Insurance Costs

FHA Mortgage Insurance:

• Upfront insurance premium: 1.75% of loan amount (rolled into loan)
• Annual insurance: 0.5-0.8% depending on down payment
• CANNOT be removed (stays for life of loan unless you refinance to conventional)

Conventional Mortgage Insurance (PMI):

• NO upfront insurance
• Annual insurance: 0.5-1% depending on down payment and credit score
• CAN be removed once you reach 20% equity (through appreciation or extra payments)

Example: $300,000 Loan at 3.5% Down

FHA Costs:

• Upfront insurance: $5,250 (rolled into loan)
• New loan: $305,250
• Annual insurance (0.55%): ~$1,679/year
• Total first-year insurance: ~$6,929

Conventional Costs:

• Upfront insurance: $0
• Loan: $291,000
• Annual insurance (0.7%): ~$2,037/year
• Total first-year insurance: ~$2,037

Note: FHA has higher upfront costs, but this changes based on down payment percentage and borrower profile.

Property Requirements and Appraisal Standards

FHA Appraisals:

• Stricter property condition requirements
• Minimum livability standards must be met
• Some repairs may be required before closing
• Can delay closing if property doesn’t meet standards

Conventional Appraisals:

• Fewer property condition restrictions
• Focus on market value, not condition
• Fewer repair requirements
• Generally faster appraisal process

Real Impact: FHA borrowers in properties needing cosmetic work may face delays or repair requirements. Conventional offers more flexibility.

Debt-to-Income Ratio Limits

FHA Loans:

• Front-end DTI: 31% (mortgage payment only)
• Back-end DTI: 43% (all debts including mortgage)
• Compensating factors may allow up to 50%

Conventional Loans:

• Front-end DTI: 28% (mortgage payment only)
• Back-end DTI: 43% (all debts)
• Compensating factors may allow up to 50%

What This Means: FHA is slightly more flexible on housing costs relative to income. If your mortgage payment is high compared to income, FHA might approve when conventional declines.

Long-Term Cost Comparison

30-Year Scenario: $300,000 Home, 6% Rate

FHA (3.5% Down):

• Down payment: $10,500
• Loan amount: $305,250 (includes insurance)
• Monthly payment: ~$1,831 (including insurance)
• Total paid over 30 years: ~$658,000

Conventional (3% Down, PMI):

• Down payment: $9,000
• Loan amount: $291,000
• Monthly payment: ~$1,746 initially, drops when PMI removed at 20% equity
• Total paid (PMI removed at 20%): ~$615,000

Conventional (5% Down):

• Down payment: $15,000
• Loan amount: $285,000
• Monthly payment: ~$1,710 with PMI, drops after 20% equity
• Total paid: ~$595,000

Winner: Conventional with 5% or more down saves money long-term because mortgage insurance can be removed.

When to Choose FHA

✓ Middle credit score below 640 ✓ Limited down payment savings ✓ Past credit problems (late payments, collections, foreclosure) ✓ Need to borrow down payment from family ✓ Want to minimize upfront out-of-pocket costs ✓ First-time buyer with lower income

When to Choose Conventional

✓ Middle credit score 640+ ✓ Can save 5% or more down payment ✓ Want to remove mortgage insurance later ✓ Concerned about long-term costs ✓ Property needs minimal repairs ✓ Want faster closing timeline

Refinancing Considerations

FHA to Conventional Refinance:

• After building 20% equity, many borrowers refinance from FHA to conventional
• Removes permanent mortgage insurance
• Can save $100-300/month depending on loan amount
• Requires refinancing costs and new underwriting

How to Choose: Questions for Your Loan Officer

1. What’s my maximum loan amount with FHA vs Conventional?
2. How much will mortgage insurance cost with each program?
3. When can I remove mortgage insurance if I choose conventional?
4. What’s the rate difference between programs?
5. How long are typical timelines for each program?
6. If my credit improves in 2 years, could I refinance to remove insurance?

Getting Ready to Apply

Calculate your middle credit score first at Middle Credit Score®—it determines which programs you qualify for and what rates you’ll receive.

Then connect with Florida loan officers who can review both FHA and conventional options specific to your financial profile and help you choose the program that fits your goals.