Conventional vs FHA Loans in Michigan: Which One Wins?
The FHA vs conventional loan question is one of the most common decisions Michigan home buyers face — and the right answer depends entirely on your credit score, down payment, and how long you plan to stay in the home. This guide breaks down both options so you can make an informed decision before you apply.
The fundamental difference
An FHA loan is backed by the Federal Housing Administration, which means the government guarantees the lender against default. That guarantee allows lenders to accept lower credit scores and smaller down payments. A conventional loan has no government backing — it meets standards set by Fannie Mae or Freddie Mac and is funded directly through private lenders.
The backing difference matters because it directly affects your mortgage insurance costs, interest rate, and the total amount you pay over the life of the loan.
Credit score requirements
FHA loans accept credit scores as low as 580 with a 3.5% down payment, or as low as 500 with a 10% down payment. This makes FHA the go-to option for buyers who are rebuilding credit or who haven’t had time to establish a strong credit history.
Conventional loans typically require a minimum credit score of 620, though the best rates are reserved for borrowers with scores of 740 or higher. If your score is between 620 and 680, you can get a conventional loan but your rate will be noticeably higher than a borrower with excellent credit.
Down payment comparison
FHA loans require a minimum down payment of 3.5% for borrowers with scores of 580 or higher. On a $300,000 home that’s $10,500 at closing before fees.
Conventional loans can go as low as 3% down through programs like Fannie Mae HomeReady or Freddie Mac Home Possible for qualifying borrowers. Standard conventional loans typically require 5% down. If you’re putting 20% or more down, conventional is almost always the better choice because you avoid mortgage insurance entirely.
Mortgage insurance — the biggest cost difference
This is where FHA and conventional diverge most significantly for Michigan buyers.
FHA loans require two forms of mortgage insurance. An upfront premium of 1.75% of the loan amount is charged at closing (or rolled into the loan). An annual premium between 0.45% and 1.05% is then added to your monthly payment. For most borrowers the annual premium is around 0.85% of the loan balance — on a $280,000 loan that’s roughly $198 per month. FHA mortgage insurance lasts for the life of the loan if you put less than 10% down — you can only remove it by refinancing into a conventional loan.
Conventional loans require private mortgage insurance (PMI) if you put less than 20% down, but PMI can be cancelled automatically once you reach 20% equity. PMI rates vary by credit score and down payment but are generally lower than FHA MIP for borrowers with good credit.
When FHA wins
Choose FHA when your credit score is below 680, when you have limited funds for a down payment, or when you’ve had past credit challenges like a bankruptcy or foreclosure. FHA has more flexible debt-to-income ratio guidelines as well, which helps buyers with higher existing debt loads.
When conventional wins
Choose conventional when your credit score is 680 or higher, when you can put 10% or more down, or when you want the ability to cancel mortgage insurance without refinancing. If you’re buying a higher-priced home in Oakland County or Wayne County, conventional loan limits are generally higher as well.
Michigan-specific considerations
In Southeast Michigan markets like Bloomfield Hills, Birmingham, and West Bloomfield where home prices frequently exceed $500,000, jumbo loan territory begins and neither standard FHA nor conventional applies at those price points. For purchases in that range, Trevor Aspiranti at Extreme Loans can walk you through jumbo loan options.
For buyers in more affordable markets like Plymouth, Saline, or Dexter, FHA paired with MSHDA down payment assistance can significantly reduce upfront costs.
How Trevor Aspiranti compares both options for you
As a mortgage broker at Extreme Loans in Southfield, MI, Trevor Aspiranti runs side-by-side comparisons of FHA and conventional options for every buyer — showing the actual monthly payment, mortgage insurance cost, and total 5-year cost of each scenario. There’s no guessing, and there’s no pressure to go in one direction.
Call Trevor at (586) 206-1390 or visit trevoraspiranti.com to schedule a no-obligation comparison for your specific situation.
