PMI vs MIP Key Differences Between Conventional and FHA Mortgages
Discover the key differences between PMI and MIP in conventional and FHA mortgages. Make informed decisions about your home financing.
6 Min
Thinking about buying your first home but feeling overwhelmed by all the misinformation about FHA loans? You’re not alone. FHA loans, backed by the Federal Housing Administration, remain one of the most popular options for first-time buyers in 2025 due to their low down payments and flexible credit requirements. However, FHA loans are just one of several loan options available to first-time buyers, each with its own features and eligibility criteria. But despite their increasing use, myths surrounding them can keep many would-be homeowners sidelined.
This blog breaks down the most common myths about FHA loans and offers the truth to help you make an informed decision. Whether you’ve heard rumors about high costs or restrictive requirements, we’ve got the facts to set the record straight.
If you’re exploring your options for buying a home, you’ve probably heard about FHA loans. These are government-backed loans insured by the Federal Housing Administration (FHA), a branch of the U.S. Department of Housing and Urban Development. FHA loans are designed to make homeownership more accessible, especially for those with lower credit scores or limited savings.
One of the standout features of an FHA loan is the low down payment requirement—just 3.5% of the purchase price if your credit score is 580 or higher. Even if your credit score falls between 500 and 579, you can still apply for an FHA loan, though you’ll need to put down at least 10%. This flexibility in credit score requirements makes FHA loans a popular choice for buyers who might not qualify for other loan types.
FHA loans aren’t just for first-time buyers—anyone who meets the eligibility criteria can apply for an FHA, regardless of whether you’ve owned a home before. If you’re looking for a mortgage option that welcomes lower credit scores and smaller down payments, FHA loans are worth considering.
FHA loans work a bit differently from conventional loans because they’re backed by the federal government. When you get an FHA loan, the Federal Housing Administration provides mortgage insurance to your lender. This insurance protects the lender if you default on your loan, making lenders more willing to approve borrowers with lower credit scores or smaller down payments.
As the borrower, you’ll pay for this protection through two types of mortgage insurance premiums: an upfront mortgage insurance premium (UFMIP) and an annual mortgage insurance premium (MIP). The UFMIP is typically 1.75% of your total loan amount and is usually paid at closing, though it can sometimes be rolled into your loan. The annual MIP is paid monthly and varies based on your loan-to-value ratio and the length of your loan.
To qualify for an FHA loan, you’ll need to meet certain requirements, including a minimum credit score, a manageable debt-to-income ratio, and a down payment. You must also plan to use the home as your primary residence. By meeting these FHA loan requirements, you can take advantage of a mortgage option that’s designed to help more people achieve homeownership.
FHA loans aren’t one-size-fits-all—there are several types to suit different needs. The most common is the Standard FHA Loan, which helps buyers purchase a home with a low down payment and flexible credit requirements. But FHA loans go beyond just buying a home.
If you’re interested in renovating a property, the FHA 203(k) Loan lets you finance both the purchase and the cost of repairs or upgrades with a single loan. This is a great option for buyers looking to turn a fixer-upper into their dream home.
Already have an FHA loan? The FHA Streamline Refinance is designed for existing FHA borrowers who want to lower their monthly payments or switch to a more stable fixed-rate loan with minimal paperwork. And if you’ve built up home equity, the FHA Cash-Out Refinance allows you to access that equity for other financial needs.
No matter your situation, FHA loans offer flexible solutions for buying, improving, or refinancing your home.
In 2025, FHA loans continue to stand out as a top choice for first-time homebuyers. Their low down payment requirements and flexible credit score guidelines make them accessible to a wide range of buyers, even those who may not qualify for conventional loans. FHA loans also offer competitive interest rates and flexible repayment options, helping you keep your monthly payments affordable.
It’s important, however, to look closely at all the details. FHA loans require mortgage insurance premiums, both upfront and annually, and you’ll need to budget for closing costs as well. By understanding the full picture—including the benefits and the costs—you can decide if an FHA loan is the right fit for your homebuying journey.
There is a wide range of FHA loan products available, each designed to meet different buyer needs, from standard purchase loans to specialized options.
However, myths and misconceptions can discourage some buyers, preventing them from exploring this accessible and practical option. Below, we bust the top ten FHA loan myths so you can move forward with confidence.
The Truth: One of the biggest benefits of FHA loans is that they allow you to buy a home with as little as 3.5% down, assuming you have a credit score of 580 or higher. This 3.5% is the minimum down payment required for most FHA loans. This feature makes FHA loans a dream for first-time buyers who might not have 20% saved.
Remember, when planning your home purchase, you should also budget for closing costs in addition to your down payment.
Find out how much home you can afford with just 3.5% down.
Rate Leaf Mortgage Prequalification
The Truth: FHA loans are popular with first-time buyers because of their flexibility, but they aren’t restricted to first-timers. You can use an FHA loan multiple times, as long as you meet the qualifications and don’t have more than one FHA loan simultaneously, according to FHA guidelines that outline these eligibility requirements.
The Truth: Good news! FHA loans are designed for those without perfect credit. You can qualify for an FHA loan with:
Conventional loans, on the other hand, typically require a higher credit score for eligibility and better loan terms.
Think your credit score might not make the cut? It’s worth checking with a lender, as different institutions have different criteria!
Think your credit’s too low? Let’s double-check together.
Rate Leaf Mortgage Prequalification
The Truth: This is a common misconception. FHA loans don’t have income caps. In fact, FHA loans do not have income limits, unlike some other loan programs. However, lenders will review your monthly income to ensure you can afford the loan. They’re designed to offer credit flexibility and low down-payment options, making them accessible for a range of incomes. FHA loans are perfect for those who need options, whether you’re buying a small starter house or a larger family home.
The Truth: The FHA allows 100% of your down payment to come from gift funds. A family member, employer, or even a philanthropic organization can help cover your down payment costs.
Learn more about combining Florida down payment assistance options with FHA in our guide.
It’s a common fear: “Aren’t FHA loans always getting denied?” The truth is, most FHA loans are approved when borrowers meet the basic requirements. While FHA loans do have specific guidelines for credit score, down payment, and income, they’re designed to help more people qualify, not fewer.
To boost your chances of approval, focus on maintaining a solid credit score, saving for your down payment, and keeping your debt manageable. Working with an experienced FHA lender can also make a big difference—they’ll help you navigate the process, avoid common mistakes, and ensure your application is complete. With the right preparation, you can confidently apply for an FHA loan and move one step closer to owning your home.
The Truth: Many FHA loan denials are the result of avoidable issues like missing documents or an unprepared application. With the right lender and proper guidance, FHA loans are very achievable. It's important to work with an FHA-approved lender, as only FHA-approved lenders are authorized to process and approve FHA loans. FHA lenders can help guide you through the process and improve your chances of approval.
Check out our blog to learn why FHA loans get denied and how to avoid common pitfalls.
The Truth: Did you know FHA loans can be used to purchase 2–4 unit properties, allowing you to buy properties with up to four units? The only requirement is that one of the units must be owner-occupied. FHA loans are intended for owner-occupied homes and cannot be used to purchase an investment property or investment properties. This is a popular strategy for buyers looking to cover their mortgage by leasing out extra units, also known as “house hacking.”
Want to see if you qualify for an FHA loan on a multi-unit property?
Rate Leaf Mortgage Prequalification
The Truth: FHA loans offer some of the easiest refinance options on the market. With FHA Streamline Refinancing, borrowers can lower their interest rates or monthly payments with minimal paperwork. There’s even a cash-out refinancing option for those looking to tap into their home’s equity. FHA cash-out refinancing allows you to access your home equity without replacing your existing mortgage, and can also be used to consolidate existing debt.
If you’ve built up equity and are happy with your credit score, refinancing into a conventional loan can also help you remove FHA mortgage insurance.
The Truth: While FHA loans sometimes carry higher upfront fees for mortgage insurance, they can still be cheaper than a conventional home loan in specific scenarios. For instance, if you have a low credit score or limited funds for a down payment, FHA might save you more money in the long run, especially if the interest rate is lower, which can reduce your monthly payment.
When comparing FHA and conventional home loans, your monthly mortgage payment and overall mortgage payments can differ significantly. FHA loans require mortgage insurance premiums, while conventional loans may require private mortgage insurance if your down payment is less than 20%. The interest rate you qualify for will also impact your monthly payment and total loan cost.
Not sure if FHA or Conventional is better for you? Let’s compare.
Misinformation can hold qualified buyers back from making one of the most important investments of their lives. FHA loans are a type of mortgage loan and home loan, and there are various loan types and mortgage loans available for first-time buyers, each with unique features and eligibility criteria. FHA loans are designed to offer greater access to homeownership for first-time buyers, those with low-to-average credit, and anyone seeking flexibility in financing.
FHA home loans and FHA financing are available through lenders who offer FHA loans, including platforms like Rocket Mortgage. Understanding the homebuying process, including the FHA appraisal conducted by an FHA-approved appraiser, is important for a smooth experience. During the application process, buyers will need to pay mortgage insurance and provide documentation such as bank statements and information about proposed monthly mortgage payments. Closing cost assistance may also be available to help with upfront expenses, making home loans more accessible.
Thinking of buying your first home? Don’t wait on the sidelines because of outdated myths. Reach out to us today to prequalify and learn how an FHA loan could be the key to unlocking your dream home.
.webp)
