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One of the most common questions Pennsylvania homebuyers ask Lena Polnet at Dynamic Funding Solutions: "Should I get an FHA loan or a conventional loan?" The honest answer is: it depends. Both programs help buyers purchase homes with modest down payments, but they serve different financial profiles. Here is a direct comparison of what matters most.
The Core Difference
FHA loans are insured by the Federal Housing Administration — a division of HUD. That government backing allows lenders to approve borrowers with lower credit scores and smaller down payments. Conventional loans are not government-backed; they conform to standards set by Fannie Mae and Freddie Mac and require stronger credit profiles.
Side-by-Side Comparison
Down Payment
- FHA: Minimum 3.5% with a credit score of 580+. Drops to 10% minimum if your score is 500–579.
- Conventional: Minimum 3% for first-time buyers on select programs (Fannie Mae HomeReady, Freddie Mac Home Possible); 5% is the standard minimum. Most buyers aiming to avoid PMI put down 20%.
Winner for low down payment: FHA, especially if your credit is below 620.
Credit Score Requirements
- FHA: The FHA itself allows scores as low as 500, but most lenders require 580+ for the 3.5% down option. Many Pennsylvania lenders will work with scores in the 580–619 range where conventional is unavailable.
- Conventional: Most lenders require a minimum of 620. Rates improve significantly at 700+, and the best pricing typically requires 740+.
Winner for lower credit: FHA.
Mortgage Insurance
This is where the two programs diverge most significantly for long-term cost.
- FHA MIP (Mortgage Insurance Premium): Comes in two parts — an upfront premium of 1.75% of the loan amount (financed into the loan) plus an annual premium ranging from 0.45% to 1.05% depending on loan term, LTV, and loan amount. If you put down less than 10%, FHA MIP stays for the life of the loan. Put down 10% or more and it falls off after 11 years.
- Conventional PMI: Required when down payment is under 20%. Rate varies by credit score and LTV — typically 0.5% to 1.5% annually. Crucially, conventional PMI automatically cancels when you reach 20% equity (based on original value) and must be removed by the lender at 22% equity. You can also request cancellation sooner with a new appraisal showing 20%+ equity.
Winner for long-term cost: Conventional — you can eliminate PMI. FHA MIP on a 3.5%-down loan stays forever unless you refinance.
2025 Loan Limits in Pennsylvania
Both FHA and conventional loans conform to FHFA loan limits for most PA counties. The 2025 conforming limit is $806,500 for one-unit properties in standard-cost counties. Pennsylvania does not have high-cost county designations above the national baseline — all PA counties, including Bucks, Montgomery, Delaware, Chester, and Philadelphia, use the standard limit.
FHA loan limits for PA counties in 2025 are similarly set at $806,500 for one-unit properties in the Philadelphia metro area counties. Check HUD’s website for the most current county-by-county figures.
Winner: Tie — same limits for most PA buyers.
Seller Concessions
Seller concessions (contributions toward your closing costs) are capped by each loan type based on LTV:
- FHA: Sellers can contribute up to 6% of the purchase price toward closing costs, regardless of LTV.
- Conventional: Up to 3% if LTV is above 90%; up to 6% if LTV is 75%–90%; up to 9% if LTV is under 75%.
Winner for closing cost help: FHA on high-LTV purchases (under 10% down), where conventional caps at 3%.
Property Condition Requirements
- FHA: Stricter. The FHA appraiser checks for Minimum Property Requirements (MPRs): no peeling paint (in pre-1978 homes, due to lead risk), all mechanical systems must be operational, no major safety hazards, roof must have remaining useful life. Sellers sometimes resist FHA offers due to repair requirements.
- Conventional: No MPR overlay beyond standard appraisal requirements. Property condition concerns are noted in the appraisal but don’t automatically require repairs before closing.
Winner for purchasing fixer-uppers or older homes: Conventional.
When FHA Makes More Sense
- Credit score between 580–619 (below conventional threshold)
- Limited savings — you want the lowest possible down payment with a lower credit score
- High seller concessions needed on a low-down-payment purchase
- Debt-to-income ratio is on the higher end (FHA allows up to 57% DTI in some cases)
When Conventional Makes More Sense
- Credit score 620+ (especially 700+, where rates price well)
- You plan to build equity and want PMI to eventually disappear
- Purchasing an older home or one that might not meet FHA property standards
- You want to avoid the FHA upfront MIP (1.75% of loan amount)
- Loan amount is below the point where FHA’s lifetime MIP erases the rate advantage
Not sure which fits your situation? Lena Polnet has helped Pennsylvania homebuyers compare FHA and conventional options for 28+ years. Call (215) 364-7171 or visit dynamicfunding.net for a no-pressure conversation about which program saves you the most.
Frequently Asked Questions
Can I switch from FHA to conventional after I build equity in Pennsylvania? Yes. Once you reach 20% equity, refinancing from an FHA loan to a conventional loan eliminates the FHA MIP. Many PA homeowners do this 3–5 years after purchase as home values rise. The savings on MIP often justify the refinance costs.
Is FHA harder to get approved for in a competitive Pennsylvania market? Some sellers prefer conventional offers because FHA property requirements can complicate repairs. In competitive markets like the Main Line or Montgomery County, a conventional offer with similar terms may be more attractive to sellers. Your agent can advise on presentation.
What credit score do I need for the best conventional loan rates in Pennsylvania? Conventional loan pricing tiers at several credit score levels. A 740+ score typically unlocks the best pricing. Between 620–739, you’ll qualify but may pay more in rate or points depending on your LTV. FHA rate differences by credit score are generally smaller.
Lena Polnet | NMLS #17225 | Dynamic Funding Solutions | NMLS #17144 | (215) 364-7171 | dynamicfunding.net. This content is for informational purposes only and does not constitute a commitment to lend. Loan approval is subject to credit and property approval. Programs, rates, and terms are subject to change without notice.