FHA or conventional: which fits your file
An FHA loan is insured by the Federal Housing Administration, part of HUD, and FHA's waiting periods after a bankruptcy or a foreclosure are shorter than Fannie Mae's. A conforming conventional loan is written to Fannie Mae and Freddie Mac guidelines with no government insurance behind it, and on a one-unit home you live in, federal law lets borrower-paid mortgage insurance end, on conditions. California Mortgage Solutions, an independent mortgage broker in San Luis Obispo, arranges both.
Side by side
| The rule | FHA | Conventional |
|---|---|---|
| Who stands behind it | The Federal Housing Administration, part of HUD, insures the loan. An FHA-approved lender makes it. | No government agency. A conforming conventional loan is written to Fannie Mae and Freddie Mac guidelines. |
| Credit score | A decision score of 580 or above for FHA's standard terms. From 500 to 579 the loan can still be insured, on more limited terms. Below 500, FHA does not insure it. A borrower with no credit score can still be eligible, underwritten by hand from other credit records. | No federal minimum. Fannie Mae sets none for a file run through its automated underwriting, and at least 620, with exceptions, for one underwritten by hand. Lenders can set their own. San Luis Obispo County is a high-cost area, and Fannie Mae calls a loan subject to a high-cost area's limit a high-balance loan: to be sold to Fannie Mae, a high-balance purchase loan has to go through its automated underwriting. |
| Mortgage insurance | An up-front premium and an annual premium. How long the annual premium lasts depends on how much equity the loan starts with, and on some loans it lasts for the life of the loan. | Private mortgage insurance while the loan is large against the home's value. On a one-unit home you live in, the Homeowners Protection Act, subject to its conditions and exceptions, gives you the right to ask for borrower-paid mortgage insurance to be canceled once the loan is paid down far enough against the home's original value, and requires it to end automatically at a later point on the loan's amortization schedule. |
| Occupancy | The home you live in as your principal residence. HUD approves a second home only in narrow hardship cases, never a vacation home. An investment property is not eligible, except in cases HUD lists, such as buying a home HUD itself owns and is selling, outside the 203(k) program. | Fannie Mae's guidelines allow a primary residence or an investment property of one to four units, or a one-unit second home. |
| Loan size | Up to the county's FHA limit, the largest base loan FHA will insure: $1,000,500 for one unit in 2026, and higher for two to four units. A financed up-front premium sits on top of the limit. | Up to the county's conforming limit: $1,000,500 for one unit in 2026, and higher for two to four units. Above it, the loan is a jumbo loan. |
| The property | It has to meet HUD's minimum property requirements, that every home FHA insures be safe, sound and secure. The lender orders the appraisal from an appraiser on FHA's roster. FHA's 203(k) option finances a house that needs work together with the repairs. | No HUD property requirements. The appraisal follows the Fannie Mae or Freddie Mac guidelines the loan is written to. |
| After a Chapter 7 bankruptcy | Two years from the discharge. A lender can accept twelve months or more when the bankruptcy came from circumstances beyond your control and you have managed your finances responsibly since. | Fannie Mae's standard is four years from the discharge or dismissal, or two years with documented extenuating circumstances. |
| After a foreclosure | Three years from the date the property left your name, with exceptions HUD lists, among them documented circumstances beyond your control once you have reestablished good credit. | Fannie Mae's standard is seven years from the date the foreclosure was completed, or three years with documented extenuating circumstances and added limits on the new loan. |
| If you sell | Every FHA-insured mortgage is assumable. A buyer who will live in the home and is approved in the lender's underwriting can take it over. | Whether a buyer can take over the loan depends on the loan's own documents. |
Where each one fits
FHA can fit when
- Your credit history is short or recently repaired. FHA publishes the score tiers it will insure.
- A bankruptcy or a foreclosure is recent enough that the conventional waiting period has not run.
- The house needs work, and FHA's 203(k) option can finance the repairs with the purchase.
Conventional can fit when
- Your credit and documented income are solid, and you want mortgage insurance you can ask to cancel as the loan is paid down.
- The home is a second home, which HUD approves only in narrow hardship cases, or an investment property, which it allows only in cases it lists.
What the two have in common
- Both are mortgages made by private lenders, underwritten against your income, your debts and your credit.
- Both can finance one to four units, each up to a loan limit that rises with the number of units.
- Lenders can add their own rules on top of FHA's and on top of Fannie Mae's and Freddie Mac's, so one lender's no is not always the program's no.
Questions
Is FHA or conventional easier to qualify for?
It depends on the file. FHA publishes its score tiers: standard terms from a decision score of 580, and insurable from 500. Fannie Mae sets no minimum score for a conventional file run through its automated underwriting and at least 620, with exceptions, for one underwritten by hand, and lenders can add minimums of their own to either. FHA's waiting periods after a bankruptcy or a foreclosure are shorter. Easier to qualify for is not the same as costing less, so the two are worth pricing against your own file.
Which one lets mortgage insurance come off?
Both can, in different ways. On a one-unit home you live in, the Homeowners Protection Act, subject to its conditions and exceptions, gives you the right to ask for borrower-paid mortgage insurance to be canceled once the loan is paid down far enough against the home's original value, and requires it to end automatically at a later point on the loan's amortization schedule. An FHA loan's annual premium lasts for a period set by how much equity the loan starts with, and on some FHA loans for the life of the loan.
Can I use an FHA loan for an investment property or a vacation home?
Not as a rule. FHA insures a loan on the home you live in as your primary residence, which can be one unit of a two- to four-unit property. HUD approves a second home only in narrow hardship cases and never a vacation home, and an investment property is eligible only in cases HUD lists, such as buying a home HUD itself owns and is selling. A conforming conventional loan can finance a primary residence or an investment property of one to four units, or a one-unit second home.
How long after a bankruptcy can I get each loan?
For FHA, two years from a Chapter 7 discharge, though a lender can accept twelve months or more when the bankruptcy came from circumstances beyond your control and you have managed your finances responsibly since. For a conventional loan, Fannie Mae's standard is four years from a Chapter 7 discharge or dismissal, or two years with documented extenuating circumstances. A Chapter 13 bankruptcy has separate rules under both.
Sources
The publications behind the rules above. Where a row says each lender decides for itself, no publication sets that rule. The figures for the county come from the county's loan limit page, with their own sources.
- HUD Handbook 4000.1, FHA Single Family Housing Policy Handbook, last revised August 12, 2026, read October 13, 2026.
- Fannie Mae Selling Guide, B3-5.3-07, Significant Derogatory Credit Events: Waiting Periods and Re-establishing Credit, read October 13, 2026.
- Fannie Mae Selling Guide, B3-5.1-01, General Requirements for Credit Scores, read October 13, 2026.
- Fannie Mae Selling Guide, B2-1.1-01, Occupancy Types, read October 14, 2026.
- Fannie Mae Servicing Guide, D1-4.1-01, Determining Whether a Transfer of Ownership Is Permitted, read October 13, 2026.
- Homeowners Protection Act of 1998, 12 U.S.C. 4901 and 4902, read October 13, 2026.
- HUD FHA mortgage limits and FHFA conforming loan limits, San Luis Obispo County, read October 13, 2026.
Keep reading:Every loan, comparedThe county's loan limits
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