FHA vs Conventional Loans in Utah: Which Is Right for You?

Compare FHA and conventional on down payment, mortgage insurance, credit overlays, and loan limits. The cheaper file over five to seven years is not always the one with the lower note rate. This page is education, not a recommendation for your file.

The Basics: FHA vs Conventional

An FHA loan is insured by the Federal Housing Administration and underwritten by approved lenders. Files often land here when score, down payment, or DTI is tighter than conventional overlays. A conventional loan is not government-backed; conforming files follow Fannie Mae or Freddie Mac guides, and jumbo files follow private-investor overlays above the FHFA county limit.

Down Payment Requirements

• FHA: 3.5% minimum with a 580+ credit score; 10% minimum with a 500–579 credit score. HUD allows 580+ for 3.5% down and 500–579 with 10% down. Many lenders set higher overlays. A 500 score is not a promise that a file will be originated.
• Conventional: Some first-time and low-down conventional products start around 3% down for eligible borrowers. Below 20% typically triggers private mortgage insurance (PMI).

Illustration on a $450,000 purchase: 3.5% FHA down is $15,750; 5% conventional down is $22,500. Dollar figures on education pages are worked examples for illustration. They are not your payment, cash to close, or an offer of credit. FHA’s lower cash-to-close can look cheaper on day one; MIP vs PMI over a few years is what you should compare next.

Credit Score Requirements

• FHA: HUD allows 580+ for 3.5% down and 500–579 with 10% down. Many lenders set higher overlays. A 500 score is not a promise that a file will be originated.
• Conventional: 620 (overlays often higher). Higher scores often improve pricing, but there is no single “best rate” score.

If your score is below typical conventional overlays, FHA is often the remaining agency path. Between the low 600s and high 600s, run both Loan Estimates. A higher score does not automatically make conventional cheaper once MIP vs PMI and term are included.

A 640 FICO in Utah: compare both, promise neither

A 640 middle score is a common “am I even in the conversation?” question. HUD policy can allow FHA at 580+ with 3.5% down, but lender overlays often sit higher. Conventional agency guides often talk about 620, and many Utah overlays sit above that. A 640 file is frequently an FHA-first comparison, not an automatic conventional denial and not an FHA approval.

• Ask about FHA when conventional overlays look tight on score or down payment, you need HUD’s more flexible DTI policy with compensating factors, or gift funds need to cover the full down payment.
• Still price conventional if reserves, occupancy, and the property (especially condos) fit, or if you care about PMI that can come off with equity. Compare 5–7 year total housing cost including MIP vs PMI.
• Do not treat 640 as a magic number. Pricing, AUS findings, and overlays move. The product that “wins” is the Loan Estimate you can actually close, not a blog table.

Mortgage Insurance: The Critical Difference

This is where most buyers make a costly mistake by focusing only on the interest rate.

FHA Mortgage Insurance Premium (MIP):

• Upfront MIP: 1.75% of the base loan amount (often financed)
• Annual MIP: Annual MIP is a range that depends on term, loan amount, and LTV. It is not a single published percent for every file.
• Key difference: FHA MIP is typically charged for the life of the loan if you put down less than 10%. You generally cannot drop it by building equity; a refinance into conventional is the usual exit.

Conventional PMI:

• Premium depends on credit score and LTV; it is not a single published percent.
• Conventional PMI can usually be removed once the loan reaches the investor’s equity threshold (commonly 20% based on original value, or by a new appraisal under the program rules). Under the Homeowners Protection Act, automatic cancellation is tied to 78% of original value, not a marketing “purchase price” shortcut.

We do not publish a monthly MIP or PMI dollar figure here. Compare the insurance line on two Loan Estimates over a 5–7 year horizon instead of assuming FHA is always more expensive, or conventional always cheaper. How each product actually leaves the loan: MIP vs PMI exit. Condos have a separate HUD project test: FHA condo roster.

Loan Limits in Utah

Both programs cap loan size, and both change every year:

• Conventional conforming: FHFA publishes conforming loan limits each year by county. Utah counties differ (for example Salt Lake vs Summit). Look up the current-year FHFA table for the property county. Do not treat a number on a marketing page as the limit that will apply to your file.
• FHA: FHA county loan limits are published annually by HUD and differ from FHFA conforming limits. Look up the current HUD table for the property county. Do not treat a number on a marketing page as the limit that will apply to your file.

If the purchase is above the current conforming limit for that county, you are in jumbo territory, where neither FHA nor standard conventional applies. Jumbo overlays (down payment, score, reserves) are set by the investor, not by a number on this page.

Property Condition Requirements

FHA has stricter property condition standards. The home must meet HUD minimum property requirements, issues like peeling paint, broken windows, missing handrails, or roof concerns can trigger required repairs before closing. Sellers in competitive Utah markets sometimes reject FHA offers for this reason.

Conventional loans have more flexible property standards, making them easier to use on fixer-uppers or homes with deferred maintenance.

Seller Acceptance in a Competitive Market

In hot Utah markets like Draper, Lehi, and Salt Lake City, sellers sometimes prefer conventional offers, especially if the property has condition issues that could delay an FHA appraisal. If you are competing in multiple-offer situations, a conventional offer may have a practical advantage even if FHA would cost you less.

Which Should You Compare First?

• Ask about FHA when: conventional overlays look tight on score or down payment, or you need HUD’s more flexible DTI policy with compensating factors. HUD allows higher backend DTI than many conventional files when compensating factors exist. A published maximum is not a promise that a high-DTI file will close.
• Ask about conventional when: you can document a stronger credit profile, more down payment, or you care about PMI that can come off with equity. Compare total housing cost, not slogans.
• Run both scenarios: Get Loan Estimates for both FHA and conventional and compare the total monthly payment including insurance over a 5–7 year horizon. That comparison is not a credit decision.

Ondo RE offers both FHA and conventional loan programs for Utah home buyers. Use our mortgage calculator to compare total monthly payments side by side, or schedule a consultation with our lending team about your file. That is not a personalized recommendation generated by this page.