FHA and conventional loans are the two most common ways people buy a home in Arizona, and they can look similar on the surface. The differences show up in the details: how much you put down, what mortgage insurance costs and how long it lasts, how flexible the credit guidelines are, and what happens when you eventually sell.
The Short Version
A conventional loan is not backed by a government agency. It follows guidelines set largely by Fannie Mae and Freddie Mac. An FHA loan is insured by the Federal Housing Administration, which lets lenders offer more flexible qualifying in exchange for a mortgage insurance premium.
In general, FHA tends to fit buyers who need credit flexibility or want a low down payment. Conventional tends to fit buyers with stronger credit and some savings, because mortgage insurance can cost less and typically goes away. But there is a lot of overlap, and the right choice depends on your specific numbers.
Side-by-Side Comparison
Guidelines change and vary by lender, so treat this as a general overview rather than a rate sheet.
| Feature | FHA loan | Conventional loan |
|---|---|---|
| Minimum down payment | As low as 3.5% for eligible borrowers | As low as 3% on some programs for eligible buyers; more on others |
| Mortgage insurance | Upfront premium plus annual premium; on many loans with small down payments it can last for the life of the loan | Private mortgage insurance with less than 20% down; can typically be cancelled once you reach enough equity |
| Credit flexibility | Generally more forgiving of lower scores and past credit events | Generally rewards stronger credit with better pricing |
| Debt-to-income | Often allows somewhat higher ratios with compensating factors | Varies with credit, reserves and underwriting findings |
| Property standards | FHA appraisal includes minimum health and safety standards | Standard appraisal; generally fewer condition requirements |
| Occupancy | Primary residence only | Primary, second home or investment property |
| Assumability | Generally assumable with servicer approval and buyer qualification | Generally not assumable (due-on-sale clause) |
Down Payment: Closer Than You Might Think
Many buyers assume FHA is the only low-down-payment option. It is a strong one, with down payments as low as 3.5% for eligible borrowers. But some conventional programs allow as little as 3% down for eligible buyers, particularly first-time buyers or those within certain income limits.
So the down payment alone rarely decides it. What usually tips the scale is how your credit score and down payment interact with mortgage insurance pricing. If you are buying for the first time, our first-time home buyer page covers how these programs fit together.
Mortgage Insurance: The Biggest Long-Term Difference
How FHA mortgage insurance works
FHA loans carry an upfront mortgage insurance premium, which is usually financed into the loan, plus an annual premium paid monthly. On many FHA loans with smaller down payments, that annual premium can stay for the life of the loan. Borrowers who want to drop it often refinance into a conventional loan once they have built equity.
How conventional PMI works
Conventional loans with less than 20% down usually require private mortgage insurance. PMI pricing is heavily tied to credit score and down payment, so a borrower with strong credit may pay noticeably less than one with a lower score. The key advantage is that PMI can typically be cancelled once you reach enough equity, and it ends automatically at a certain point under federal rules.
Because premiums and pricing change over time, the only way to know which is cheaper for you is to price both scenarios side by side with your actual credit and down payment.
Credit Flexibility and Qualifying
FHA was designed to expand access to homeownership, and its guidelines generally reflect that. Buyers with lower credit scores, limited credit history or a past credit event may find FHA more accessible. FHA can also be more flexible on debt-to-income ratios when there are compensating factors.
Conventional loans generally reward strong credit. Above a certain score range, conventional pricing and PMI can become very competitive. Minimum score requirements vary by program and lender, so I would rather look at your actual credit report than quote a cutoff.
For a closer look at how lenders read your scores and how they affect pricing, see what credit score you need for a mortgage.
Property Standards and the Appraisal
Both loans require an appraisal, but FHA appraisals also check that the home meets minimum property standards for safety, security and soundness. Issues like peeling paint on older homes, missing handrails, or roof and electrical concerns may need to be addressed before closing.
For most move-in-ready homes in Greater Phoenix, this is not a problem. For older homes or fixer-uppers, conventional financing can sometimes be smoother. It is something to factor in when you are writing an offer.
Assumability: A Resale Advantage Worth Noting
This is the difference most buyers never hear about. FHA loans are generally assumable, meaning a future buyer may be able to take over your loan, including its rate and remaining term, with servicer approval and if they qualify. Most conventional loans are not assumable because they contain a due-on-sale clause.
Why does that matter? If you lock in a rate today and rates are higher when you sell, an assumable FHA loan can be a real selling point. A buyer may be able to get a lower payment by assuming your loan than by taking out a new one. It does not guarantee a sale, and not every buyer will qualify, but it can widen your pool of interested buyers.
Assumptions are my specialty, so I see this play out regularly. If you want to understand the buyer side, read FHA loan assumption requirements or the overview of what an assumable mortgage is.
Key takeaway: FHA often wins on flexibility and future assumability, while conventional often wins on long-term mortgage insurance costs for buyers with strong credit. Compare both with your real numbers before you decide.
How to Choose Between FHA and Conventional
A practical way to decide:
- Pull your credit and gather your down payment figure. These two numbers drive most of the comparison.
- Price both loans side by side. Look at the full monthly payment and the cash to close, not just the rate.
- Think about your timeline. If you expect to stay a long time, how long mortgage insurance lasts matters more.
- Consider the property. Older homes or those needing repairs may be better suited to conventional.
- Factor in resale. If future assumability appeals to you, FHA has an edge.
I run this comparison for nearly every buyer I work with, because the answer genuinely changes from person to person. You can learn more about FHA loans in Arizona and conventional loans in Arizona, or get pre-qualified and I will price both options for you.
