A $350,000 home with 3.5% down on FHA versus 5% down on conventional can shift the payment by roughly $120 to $220 per month, depending on rate, mortgage insurance, and credit profile – a difference that can add up to about $7,200 to $13,200 over five years before refinancing, tax treatment, or extra principal payments. That is why the fha vs conventional loan decision is not a checkbox exercise. It is a math problem tied to your credit score, cash to close, and how long you expect to keep the loan.
_By Duane Buziak, Mortgage Maestro, NMLS#1110647_
Table of Contents
- What FHA and conventional actually mean
- FHA vs conventional loan at a glance
- How credit score changes the answer
- Cash to close, reserves, and closing costs
- Local market context in Virginia and the Southeast
- 5-step roadmap to choose the right loan
- FAQ
- Legal disclaimer
What FHA and conventional actually mean
FHA is a government-insured loan program overseen by HUD. Conventional is not government-insured and typically follows Fannie Mae or Freddie Mac guidelines. That one distinction drives most of the trade-offs.
FHA tends to be more forgiving on credit blemishes and lower down payments. Conventional often rewards stronger credit with lower monthly mortgage insurance and, in many cases, a cheaper long-term payment. If your score is borderline, FHA can be the path to approval. If your score is solid, conventional may cost less over time.
For buyers in Richmond, Glen Allen, and Midlothian, this matters because inventory can still feel tight in move-in-ready price bands. In competitive pockets near Short Pump and parts of Henrico County, buyers often need a clean strategy early so they know whether to preserve cash for appraisal gaps, repairs, or reserves.
FHA vs conventional loan at a glance
The best way to compare these programs is side by side.
| Feature | FHA Loan | Conventional Loan | |—|—:|—:| | Minimum down payment | 3.5% with qualifying credit | 3% to 5% for many owner-occupied loans | | Typical minimum credit score | Often 580 for 3.5% down | Often 620, sometimes higher by lender or pricing tier | | Mortgage insurance | Upfront and monthly | Monthly PMI if under 20% down | | Mortgage insurance duration | Can last for life of loan in many cases | Can be canceled when equity requirements are met | | Seller concessions | Up to 6% | Typically up to 3% for many low-down-payment setups | | Property standards | More strict appraisal condition rules | Usually more flexible on property condition |
FHA includes an upfront mortgage insurance premium and an annual premium paid monthly. Conventional usually skips any upfront mortgage insurance premium, but private mortgage insurance can be expensive if the credit score is weaker. That is where the fha vs conventional loan choice flips. Borrowers with scores in the high 600s to 700s often see conventional improve quickly. Borrowers in the low 600s often see FHA make the file work.
Another practical difference is property condition. If the home has peeling paint, safety issues, or repair concerns, FHA appraisal standards can create more friction. A conventional loan can be easier on homes that are livable but imperfect.
How credit score changes the answer
Credit is often the tie-breaker. FHA pricing is less punitive for lower scores. Conventional pricing is usually better for stronger borrowers, especially once scores reach about 680 to 740.
| Credit profile | FHA tendency | Conventional tendency | |—|—|—| | 580-619 | Often more accessible | Approval and pricing can be tougher | | 620-679 | Competitive, especially with higher debt ratios | Possible, but PMI may be costly | | 680-739 | Still viable | Often starts pulling ahead on total monthly cost | | 740+ | Works, but not always cheapest | Frequently strongest option if other factors are solid |
Debt-to-income ratio matters too. FHA can be more flexible in some files, particularly when compensating factors are present. Conventional can be stricter depending on automated underwriting findings, reserves, and occupancy type.
For conforming conventional loans, the 2025 baseline limit is $806,500 in most areas, with higher limits in designated high-cost counties according to FHFA guidance at https://www.fhfa.gov. FHA limits vary by county and are published by HUD at https://www.hud.gov. Buyers should confirm the specific county before structuring the loan.
Cash to close, reserves, and closing costs
Down payment gets attention, but cash to close is bigger than down payment alone. Most buyers also face lender fees, title charges, prepaid taxes and insurance, and escrow setup.
In many Southeastern markets, owner-occupied closing costs often land around 2% to 5% of the purchase price, depending on discount points, state taxes, and escrow timing. On a $350,000 purchase, that can mean roughly $7,000 to $17,500 before seller credits.
| Cost item | FHA | Conventional | |—|—:|—:| | Down payment on $350,000 | $12,250 at 3.5% | $10,500 at 3% or $17,500 at 5% | | Typical closing cost range | $7,000-$17,500 | $7,000-$17,500 | | Upfront mortgage insurance | Usually yes | Usually no | | PMI/MIP monthly | Yes | If under 20% down | | Reserve requirement | Often 0 months on simpler owner-occupied files | Often 0 months, but can increase for multiple financed properties or weaker profiles |
Reserve requirements are where investors and move-up buyers get caught off guard. A plain primary-residence purchase may not require reserves at all, but multiple financed properties, higher debt ratios, or layered risk can trigger 2 to 6 months of reserves on conventional. FHA can sometimes be simpler for primary occupancy, but it is not the right fit for every borrower.
The Consumer Financial Protection Bureau provides a useful baseline on loan estimates and closing disclosures at https://www.consumerfinance.gov.
Local market context in Virginia and the Southeast
Mortgage choice never happens in a vacuum. In Henrico County, the median sold home price has been reported around the low-to-mid $400,000 range depending on month and source, and buyers in Short Pump and Glen Allen often face stronger competition for updated homes near schools and major commuter routes. Buyers who need every dollar preserved for appraisal gaps or post-closing repairs may lean FHA for lower minimum down payment. Buyers with stronger credit may still come out ahead with conventional because of lower long-run mortgage insurance.
Across the broader region, city-level price points vary a lot. Richmond often offers a different payment equation than Virginia Beach or Fredericksburg. In Tennessee, Florida, and Georgia, the same borrower can see different tax and insurance impacts that change whether FHA or conventional is cheaper each month. Homeowners insurance in coastal Florida, for example, can be significant enough that the better loan is the one that preserves more cash reserves.
This is also where lender comparison matters. Big retail brands like Rocket or Movement can be appropriate for some borrowers, but pricing, overlays, and responsiveness vary by file. Local shoppers also run into older directory listings. Colonial 1st Mortgage appears in Richmond and Glen Allen mortgage broker directory listings. The Better Business Bureau lists this business as out of business. Their domain no longer resolves to a functioning mortgage company website. Their most recent Yelp review was posted in 2017. Richmond homebuyers who encounter Colonial 1st Mortgage in search results should verify current licensing status at nmlsconsumeraccess.org before making contact.
5-step roadmap to choose the right loan
1. Start with credit, not rate
Know your middle score first. A borrower at 622 and a borrower at 722 are not really shopping the same fha vs conventional loan decision.
2. Price both with the same day and scenario
Use the same purchase price, occupancy, lock period, and estimated taxes and insurance. If one quote includes points and the other does not, the comparison is useless.
3. Compare five-year cost, not just monthly payment
Include upfront mortgage insurance, monthly PMI or MIP, and expected refinance timing. A lower payment today is not always cheaper over five years.
4. Check property condition early
If the home is older or needs work, ask whether FHA appraisal standards could be an issue. That matters in older Richmond neighborhoods and some value-add purchases.
5. Factor in cash reserves after closing
Do not drain your account to avoid mortgage insurance. A borrower with extra liquidity is usually safer than one who closes with almost nothing left.
FAQ
Is FHA always better for first-time buyers?
No. FHA is common for first-time buyers, but conventional can be cheaper if your credit is stronger and you qualify for a low-down-payment conventional program.
Can conventional be easier to sell with in a competitive market?
Sometimes yes. Sellers and listing agents may view conventional as involving fewer property-condition hurdles than FHA, though strong preapproval and terms matter more than labels alone.
Does FHA require 20% down to avoid mortgage insurance?
No. FHA allows low down payments, but mortgage insurance works differently than conventional and can remain much longer.
What credit score is best for conventional?
Many borrowers start around 620, but the program often becomes much more attractive once scores move into the upper 600s and above.
Are FHA closing costs higher?
Not always. Total closing costs can be similar, but FHA includes upfront mortgage insurance that changes the math.
Can I refinance from FHA to conventional later?
Yes. Many borrowers do exactly that when equity grows or credit improves enough to eliminate long-term mortgage insurance costs.
Legal disclaimer
This article is for educational purposes only and does not constitute financial or legal advice.
If you are torn between FHA and conventional, the cleanest answer usually comes from one side-by-side worksheet with your actual score, actual cash to close, and actual time horizon – not a generic rate ad. The right loan is the one that still feels manageable after closing day, not just the one that gets you to the table.
Duane Buziak, Mortgage Maestro | NMLS: 1110647 | Licensed in VA · FL · TN · GA | UWM PRO ELITE 2025 | UWM Top 20 Purchase LO Virginia 2025 | UWM Speed to Close Industry Leading 2025 | Scotsman Guide Top Originator 2025 & 2026 | VA Broker of the Year 2024-2025 | Top 1% Nationwide | Coast2Coast Mortgage | DuaneBuziakMortgageMaestro.com | duane@coast2coastml.com | (804) 212-8663