Loan types
FHA vs. Conventional Loans
Down payment, credit score, mortgage insurance and property rules compared, so you can pick the loan that fits your file.
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Most buyers in Metro Detroit end up choosing between two paths: a conventional loan backed by Fannie Mae or Freddie Mac, or an FHA loan insured by the Federal Housing Administration. Both are real options. The right one depends on your credit, your cash, and the house you want to buy.
Side by side
| Feature | FHA | Conventional |
|---|---|---|
| Minimum down payment | 3.5% with a qualifying score | As low as 3% for some first-time buyers; 5% and up more common |
| Credit score | Often 580+ for 3.5% down; lower with larger down payments | Typically 620+; better pricing at 740+ |
| Mortgage insurance | Upfront premium plus annual premium, usually for the life of the loan | Required under 20% down, removable at 20% equity |
| Loan limits | Set by county; lower than conforming in most areas | Conforming limits set annually; higher-cost areas have higher limits |
| Property standards | Minimum property standards apply | Fewer condition requirements |
| Seller concessions | Capped, often 6% | Capped, typically 3% to 9% depending on down payment |
| Best for | Lower scores, smaller down payments, limited savings | Stronger credit, stable income, plans to keep the loan long term |
How FHA works
FHA does not lend money. It insures the loan so a lender can take on more risk. That insurance is why FHA can say yes to a 580 score and 3.5% down.
You pay for it twice: an upfront premium financed into the loan, and an annual premium paid monthly. For most borrowers who put down less than 10%, the annual premium stays for the life of the loan. That is the main long-term cost, and it is why some FHA borrowers refinance into conventional once their equity and credit improve.
FHA appraisals include minimum property standards: safe stairs, working heat, no active leaks, sound roof. On older Detroit housing stock, that can turn a small repair into a negotiation. It is not a dealbreaker, but budget for it.
How conventional works
Conventional loans are not government-insured. They follow Fannie Mae and Freddie Mac guidelines, which means the lender carries more of the risk and prices accordingly.
The trade-offs are straightforward:
- Better pricing for strong credit and larger down payments.
- Mortgage insurance that can be removed at 20% equity.
- Higher loan limits.
- Fewer property condition requirements.
- Stricter debt-to-income expectations in many cases.
Conventional also opens the door to first-time buyer programs with as little as 3% down, though the monthly insurance cost at that level can be significant.
Which one should you pick
FHA tends to fit if: your score is below 640, your savings are thin, or you need seller concessions to cover closing costs.
Conventional tends to fit if: your score is 700+, you can put 5% to 20% down, and you plan to stay in the home long enough to benefit from removable mortgage insurance.
Run both. Ask two lenders to quote both programs on the same day, with the same down payment, and compare the full Loan Estimate, not just the rate. The cheaper option is often not the one with the lower headline rate.
Michigan specifics worth knowing
- MSHDA loans can be paired with FHA or conventional financing and may include down payment assistance. Ask a lender who works with MSHDA regularly.
- Property taxes in Wayne, Oakland and Macomb counties vary widely by municipality. A payment quote that ignores taxes is not a payment quote.
- Insurance in parts of Detroit can run higher than suburban quotes. Get an insurance estimate before you fall in love with a house.
- Older housing stock makes the appraisal conversation more important. An FHA appraisal is not a home inspection; budget for both.
Next steps
- Estimate your monthly cost with the payment calculator.
- See whether your budget works with the affordability calculator.
- Compare current illustrative rates on the rates page.
- Buying in the city or the suburbs? Start at the Detroit Metro hub.
Frequently asked questions
Can I remove mortgage insurance from an FHA loan?
Usually only by refinancing into a conventional loan, or by selling. Upfront mortgage insurance premiums are generally not refundable. Conventional mortgage insurance can often be removed once you reach 20% equity, depending on the loan and lender.
Is FHA easier to qualify for?
Often, yes. FHA allows lower credit scores and higher debt-to-income ratios than many conventional programs, and the minimum down payment is 3.5%. The trade-off is mortgage insurance for the life of most FHA loans.
Do FHA loans have property condition requirements?
Yes. FHA appraisals include minimum property standards for safety and soundness, which can matter on older housing stock. Conventional loans generally have fewer condition requirements, though the appraisal still has to support the price.
Educational content, not advice. This article is general information about buying a home and getting a mortgage. It is not financial, legal or tax advice, and it is not an offer to lend. Rates and program terms are illustrative; confirm current terms with a licensed professional.
Written by Sarah Vance, an AI-generated editorial contributor. RatesGrid publishes AI-generated educational material edited for accuracy and clarity. See oureditorial disclosure.
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