What is the Difference Between FHA and Conventional Mortgages?

Homebuyers in Arizona’s East Valley are exploring mortgage options to enter thriving markets like Mesa and Chandler. Two popular choices—FHA and conventional mortgages—offer distinct paths to homeownership, each with unique benefits and requirements. With median home prices around $450,000, understanding these differences is key to navigating Arizona’s competitive real estate landscape.

FHA mortgages, insured by the Federal Housing Administration, are designed for first-time buyers and those with lower credit profiles. They require a minimum 3.5% down payment—$12,250 on a $350,000 home—and accept credit scores as low as 580. This accessibility makes them a go-to for newcomers in areas like San Tan Valley. However, FHA loans come with mortgage insurance premiums (MIP) that last the loan’s duration, adding $100-$200 monthly. They also impose stricter property condition standards, ensuring homes meet safety and livability criteria.

Conventional mortgages, offered by private lenders without government backing, cater to buyers with stronger financial standings. They typically demand 5-20% down—$17,500-$70,000 on a $350,000 home—and a minimum 620 credit score. Private mortgage insurance (PMI) applies if the down payment is below 20% but can be dropped once equity reaches 20%, offering long-term savings. Conventional loans provide more flexibility for higher-priced homes in competitive markets like Gilbert, with fewer property restrictions.

The core distinctions lie in eligibility and costs. FHA loans are more forgiving on credit and down payments, ideal for those building financial stability, but their ongoing MIP can add up. Conventional loans suit buyers with solid credit and larger down payments, potentially lowering overall expenses by eliminating PMI over time. In 2025, Arizona’s 30-year fixed mortgage rates hover around 6.5% for both, though FHA includes an upfront MIP (e.g., $1,225 on a $350,000 loan), increasing initial costs.

The Anderson Team with Real Broker guides East Valley buyers through these options, connecting them with lenders to find the best fit for their budget and goals in Mesa, Chandler, or beyond.