FHA vs Conventional Loans In Durham

Choosing between an FHA and a conventional loan can feel like alphabet soup when all you want is the right home in Durham. You may be wondering which one fits your credit, your cash on hand, and the homes you love in neighborhoods across Durham County. The good news is that once you understand a few key differences, the choice becomes much clearer. In this guide, you will learn how each loan type works, where each tends to shine in Durham’s market, and how to compare real offers with confidence. Let’s dive in.

FHA vs conventional: quick overview

What each loan is

• FHA loans are insured by HUD, which sets program rules lenders must follow. The insurance helps lenders approve buyers who need flexible credit or down payment options.
• Conventional loans are offered by private lenders and follow Fannie Mae or Freddie Mac guidelines if they are conforming. Non-conforming loans include jumbos for higher price points.

Who each loan fits

• FHA can be a strong fit if you have a smaller down payment, a lower credit score, or need more flexible underwriting. Mortgage insurance is required.
• Conventional often works well if you have higher credit and plan to put more down, or if you want mortgage insurance you can cancel as you build equity.

Credit and down payment in Durham

Minimum down payment rules

• FHA generally allows 3.5% down if your credit score is 580 or higher. If your score is between 500 and 579, lenders typically look for about 10% down. Confirm current HUD guidance with your lender.
• Conventional loans may allow as little as 3% down for certain first-time buyer programs. Many buyers choose 5% to 20% down depending on goals and savings. Putting 20% down removes private mortgage insurance.

Credit score expectations

• FHA is commonly used by borrowers with scores in the 580 to mid-600s range and sometimes below, subject to lender overlays.
• Conventional conforming loans typically require scores around 620 or higher, with the best pricing often reserved for 740 and above. Lenders can set higher minimums.

DTI and reserves

• Both FHA and conventional look at your debt-to-income ratio and cash reserves. FHA may allow a higher DTI with compensating factors. Automated underwriting findings and lender overlays matter in final approval.

Mortgage insurance: MIP vs PMI

FHA mortgage insurance explained

• FHA loans include an upfront mortgage insurance premium that is commonly financed into the loan. A longstanding figure is 1.75% of the base loan amount, though you should verify the current rate.
• FHA also charges an annual mortgage insurance premium paid monthly. The amount depends on term, loan size, and down payment. For many FHA loans originated with more than 90% loan-to-value, MIP lasts for the life of the loan. Other cases may have an 11-year duration. Confirm current HUD policy with your lender.

Conventional PMI and cancellation

• Conventional loans with less than 20% down require private mortgage insurance or a lender-paid alternative. The cost varies by credit score, down payment, and loan size.
• PMI can usually be canceled once you reach 20% equity if you meet the servicer’s requirements. By law, it terminates automatically at 78% loan-to-value on the original amortization schedule for conforming loans. This cancellable feature is a key advantage for many buyers.

How to compare total cost

• Compare APR, not just the interest rate. APR rolls in mortgage insurance and any financed FHA upfront MIP so you can see the total annualized cost. A slightly lower rate with higher insurance can still cost more overall.

Appraisals and property condition in Durham

FHA appraisal standards

• FHA appraisals look at market value and basic safety and habitability. Certain items must be repaired before closing or escrowed for completion. This can be a factor if a property is older or listed as as-is.

Conventional appraisal flexibility

• Conventional appraisals focus mainly on value. Lenders can still ask for repairs for safety or structural issues, but standards are generally less prescriptive than FHA.

Strategy for older homes and as-is listings

• Durham has many established neighborhoods with older housing stock. If a home shows visible repair needs, conventional financing may be simpler. If FHA is your best fit, discuss repair negotiations early and plan your inspection and appraisal timeline with your agent and lender.

Loan limits and local price tiers

• Both FHA and conforming conventional loans have county-specific limits that change yearly. Durham County follows federal limits set by HUD for FHA and by the FHFA for conforming loans. Check current limits with your lender when you apply.
• Think in tiers as you explore Durham:
  • Entry tier: Lower-priced single-family homes, condos, and townhomes where small down payment options like FHA or 3% down conventional can help you get started.
  • Move-up tier: Mid-priced homes where buyers often bring 5% to 20% down, making conventional with cancellable PMI attractive.
  • Upper tier: Homes above the conforming or FHA county limits where jumbo or portfolio options are common. FHA will not apply above its county limit.

Seller concessions and closing costs

• FHA allows sellers to contribute toward your closing costs and prepaid items, generally up to 6% of the sales price. Verify current HUD rules.
• Conventional loans allow seller concessions that vary by your down payment. A common cap is about 3% for down payments under 10%, with higher caps at larger down payments. Always confirm Fannie or Freddie guidelines with your lender.
• In competitive Durham neighborhoods, large seller concessions may be harder to win. Align your offer strategy with your financing so you are realistic about what a seller is likely to accept.

Interest rates and pricing differences

• Market pricing shifts daily. Conventional loans often reward higher credit with better rates and lower PMI. FHA rates can be competitive, but the combined effect of upfront and annual MIP matters.
• Use a side-by-side quote that shows interest rate, APR, monthly payment, and total cash to close for each option. Ask your lender to illustrate how your payment changes when PMI drops off on a conventional loan.

Common Durham buyer scenarios

• First-time buyer with limited savings and a score around 600: FHA often helps you qualify with 3.5% down if you meet lender requirements. Be mindful of property conditions and MIP duration.
• Buyer with 5% to 10% down and a 700+ score: Conventional can offer lower PMI and a clear path to remove it once you build equity.
• Buyer with 20% down or more: Conventional usually wins due to no ongoing mortgage insurance and simpler terms.
• Buying an older or as-is property: Conventional can reduce repair hurdles. If you plan to renovate, ask about FHA 203(k) or conventional renovation programs and their timelines.
• Purchase price above FHA or conforming limits: Jumbo or portfolio conventional financing is typical. FHA will not apply above its county limit.

Steps to choose your best loan

Get preapproved, not just prequalified

• Request full preapprovals for both FHA and conventional if you are uncertain which is better.
• Compare at least two to three lenders and ask for APR-based quotes including mortgage insurance and cash-to-close estimates.
• Confirm current Durham County FHA and conforming loan limits, seller concession caps, and lender overlays.

Bring the right documents

• Recent pay stubs and W-2s or 1099s
• Last two years of tax returns, if applicable
• Bank statements and asset statements
• Government-issued ID
• A gift letter if funds are a gift
• A list of debts and prior addresses

Evaluate a specific property

• Ask your lender how the home’s age and condition might affect FHA appraisal requirements.
• Map each loan option to the list price. Review down payment, mortgage insurance, monthly payment, and cash to close.
• In a multiple-offer situation, discuss whether seller concessions are realistic and whether conventional terms could make your offer more competitive.

Work with a local guide

A good financing plan should match your home goals, your budget, and the realities of Durham’s neighborhoods. You deserve clear answers, clean comparisons, and a strategy that helps you win the right home without surprises. If you want help lining up the best path, our team brings deep local experience, strong lender relationships, and a steady hand from search to close.

Have questions about your next move in Durham or across the Triangle? Connect with the neighborhood-focused team at DuBois Property Group to get a tailored game plan and lender introductions. Schedule a consultation and feel confident from preapproval through keys in hand.

FAQs

What is the main difference between FHA and conventional loans in Durham?

• FHA is insured by HUD and often fits buyers with smaller down payments or lower credit, while conventional follows Fannie or Freddie rules and works well for higher credit and larger down payments.

How much down payment do I need for FHA vs conventional?

• FHA generally allows 3.5% down with a 580+ score and about 10% with lower scores, while conventional can start near 3% for eligible buyers and removes PMI at 20% down.

How long will I pay mortgage insurance on FHA and conventional loans?

• Conventional PMI can be canceled at 20% equity and ends automatically at 78% LTV, while FHA MIP duration depends on the original LTV and may last for the life of the loan when LTV starts above 90%.

Can I use an FHA loan to buy a condo in Durham?

• Possibly, but the condo project must meet FHA requirements or be on the FHA-approved list, so ask your lender to confirm eligibility.

Which loan gives a lower monthly payment for the same price?

• It depends on your credit, down payment, and mortgage insurance costs, so compare APR-based quotes for both FHA and conventional to see the true total cost.

What if the home needs repairs or is sold as-is?

• FHA may require certain repairs before closing, while conventional can be more flexible, so talk with your lender and agent about appraisal timing and repair negotiations.

Can the seller pay my closing costs in Durham?

• FHA allows seller contributions generally up to 6% of the price, while conventional limits vary by down payment and program, so confirm the current caps with your lender.

What if my price is above FHA or conforming limits in Durham County?

• You will likely need a jumbo or portfolio conventional loan, since FHA cannot be used above its county limit and conforming loans cap at the FHFA limit.