FHA loans offer 3.5% down & lower credit requirements. Conventional loans suit better credit. Here’s how to choose for your Raleigh home.
If you’re shopping for a mortgage in Raleigh, you’ve probably heard the terms FHA and Conventional thrown around. Here’s the straightforward answer: FHA loans let you put down as little as 3.5% and accept credit scores around 580, while Conventional mortgages typically need 620+ credit and larger down payments. Which one’s right for you depends on your specific situation, and that’s exactly what we’re breaking down today.
What’s the Real Difference Between FHA and Conventional Mortgages?
Let’s start with the basics. Both FHA and Conventional loans get you into a home in Raleigh, but they work differently on the inside.
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FHA loans are backed by the Federal Housing Administration. That government backing means lenders are willing to take on riskier borrowers. You can have a lower credit score, less cash saved up, and still qualify. The tradeoff? You pay mortgage insurance premiums (MIP).
Conventional loans aren’t backed by the government. They’re the “standard” mortgage that traditional lenders offer. You’ll need stronger financials to qualify, but if you’ve got them, you might pay less overall in insurance costs.
When you’re exploring your options with Certified Home Loans, they’ll help you compare the actual numbers side by side, not just the marketing hype.
Down Payment: The Biggest Obvious Difference
This is usually the first thing people notice. FHA loans let you buy with as little as 3.5% down. Conventional loans traditionally want 20% down, though you can get approved with as little as 5% or 10% (with private mortgage insurance, or PMI).
On a $300,000 home in Raleigh, that’s the difference between putting down $10,500 (FHA) versus $60,000 (Conventional with 20% down). That’s huge if you’re saving up your first down payment.
But here’s the catch: a lower down payment doesn’t always mean lower total cost. You need to factor in mortgage insurance, interest rates, and how long you plan to stay in the home.
Credit Score Requirements: Who Qualifies?
FHA loans are genuinely more forgiving on credit. The minimum is typically 580 to 620, depending on the lender. Some borrowers with scores even lower than 580 have gotten approved with manual underwriting.
Conventional loans want 620 at minimum, but you’ll get better interest rates if your score is 740 or higher. Below 740, FHA often wins on pricing.
According to the Consumer Financial Protection Bureau, your credit score is one of the biggest factors lenders use to decide your interest rate. If your score is in the 600s or early 700s, running the numbers on both FHA and Conventional with Certified Home Loans makes real sense.
Mortgage Insurance: The Hidden Cost Everyone Misses
This is where a lot of borrowers get surprised. Both loan types can require insurance, but they work differently.
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FHA mortgages include an Upfront Mortgage Insurance Premium (UFMIP) and a monthly Mortgage Insurance Premium (MIP). The upfront fee is usually 1.75% of your loan amount, and the monthly insurance stays on your loan for the life of the mortgage if you put down less than 10%. If you put down 10% or more, it drops off after 11 years.
Conventional loans use Private Mortgage Insurance (PMI) if you put down less than 20%. This is typically cheaper than FHA insurance on a monthly basis, and it drops off once you hit 20% equity in your home (or after 11 years if you refinance).
Here’s the real talk: if you’re putting down less than 10% and have a credit score below 720, FHA insurance might actually cost you less than Conventional PMI. But if you’re putting down 15-20% with decent credit, Conventional PMI could be the cheaper route.
Closing Costs and Cash Needed Upfront
FHA loans generally come with lower closing costs. Sellers can contribute up to 6% of the home’s purchase price toward your closing costs with FHA, while Conventional sellers are typically limited to 3%.
This matters in Raleigh’s market. If you’re competing for a $350,000 home, an FHA buyer might have the seller cover more of the upfront costs, making it easier to close with less cash out of pocket.
The total cash you need for FHA is lower, but the monthly payment might be higher due to mortgage insurance. Conventional flips that around: more cash upfront, but potentially lower monthly payments.
Interest Rates: Who Gets the Better Deal?
Interest rates depend on market conditions and your personal financial profile. But here’s a general truth: if your credit score is below 720, FHA lenders often offer better rates. If your credit is 740 or higher, Conventional lenders usually win.
A quarter-point difference in interest rate sounds small until you multiply it over 30 years. On a $250,000 loan, that’s hundreds of dollars per month.
The team at Certified Home Loans will run a complete comparison showing you the total cost of borrowing, not just the rate. That’s the number that actually matters.
FHA vs. Conventional: Which Does Certified Home Loans Recommend?
It’s not about which is “better.” It’s about which fits your situation.
Choose FHA if:
- Your credit score is below 720
- You have less than 10% saved for a down payment
- You want to minimize upfront cash
- You plan to stay in the home long enough to build equity
Choose Conventional if:
- Your credit score is 740 or higher
- You can put down 15% or more
- You want to avoid paying mortgage insurance long-term
- You plan to refinance or sell within 7-10 years
The real move is to get a complete loan comparison from Certified Home Loans that shows the actual total cost (down payment, closing costs, monthly payment, and insurance) for both options. That’s how you make a decision you won’t regret.
How to Compare Your Actual Numbers
Don’t just look at the down payment or interest rate in isolation. Create a spreadsheet with:
- Down payment required
- Estimated closing costs
- Monthly principal and interest
- Monthly insurance cost
- Total monthly payment (including property taxes and insurance)
- When insurance drops off (if applicable)
- Total cost over 5, 10, and 30 years
This gives you the real picture. A loan that costs more upfront might save you thousands over 15 years if your monthly payment is significantly lower.
Your lender should be able to provide a detailed Loan Estimate for both options, so you’re comparing apples to apples. If they can’t or won’t, that’s a red flag.
Local Raleigh Considerations
The Raleigh and Wake County real estate market is competitive. FHA loans are popular here, which means you’re not alone if you’re going that route. However, some sellers prefer Conventional offers because they close faster and have fewer contingencies.
If you’re in a bidding war, having pre-approval for both FHA and Conventional gives you flexibility to make a stronger offer. Certified Home Loans knows the local market and can advise you on what’s realistic in your price range and neighborhood.
FHA loan limits in Wake County are updated annually. Make sure your lender is using current 2026 limits to confirm you qualify for the home you want to buy.
People Also Ask
Can you switch from FHA to Conventional later?
Yes, you can refinance from FHA to Conventional after you’ve built enough equity. Most lenders want you to have at least 5-10% equity before they’ll consider a Conventional refi. This can make sense if your credit score improves significantly or if interest rates drop.
Do all lenders offer both FHA and Conventional loans?
Not necessarily. Some lenders specialize in FHA, while others focus on Conventional. Banks typically offer both, but credit unions and mortgage brokers might have preferences. Certified Home Loans offers both FHA and Conventional, so you’re comparing the same lender’s pricing and terms.
Is FHA mortgage insurance permanent?
Not always. If you put down 10% or more on an FHA loan, the mortgage insurance drops off after 11 years. If you put down less than 10%, it stays for the life of the loan. This is a major factor in your long-term cost comparison.
What’s the minimum credit score for Conventional loans in Raleigh?
Most Conventional lenders require a minimum score of 620, but you’ll get better rates at 740 and above. Scores between 620 and 740 might qualify, but you could pay higher interest rates and might need a larger down payment.
