FHA vs Conventional in Lancaster (2025) | Lancaster PA Real Estate
Quick answer
It depends on your credit score, down payment, and price point.
If your credit is 580–679 or you’re putting 3–5% down, FHA often delivers a lower initial payment, but you’ll pay upfront and annual mortgage insurance for longer.
If your credit is 680+ and you can do 5%+ down, conventional usually wins over the life of the loan thanks to cancelable PMI and no upfront insurance.
Buying above the FHA cap? Conventional may be your only choice in Lancaster.
Disclaimer: Mortgage guidelines and pricing change. Verify all numbers with your lender. FHA/Conventional eligibility is subject to automated underwriting (DU/LPA) and lender overlays.
2025 loan limits in Lancaster County (one-unit homes)
Conventional (conforming) limit: $806,500. (singlefamily.fanniemae.com, FHFA.gov)
FHA limit: $524,225 (FHA “floor” county). (hud.gov, fha.com)
Why this matters: If your target price would push your loan amount over $524,225, FHA may no longer fit, while conventional can still go up to $806,500 in Lancaster County.
FHA vs. Conventional: side-by-side (no table)
Minimum credit score
FHA: 580 for 3.5% down; 500–579 requires 10% down. (fha.com)
Conventional: Typically 620+ per Fannie Mae eligibility. (selling-guide.fanniemae.com)
Down payment
FHA: 3.5% minimum (owner-occupied).
Conventional: 3–5% minimum for many first-time buyer programs (lender/DU approval dependent).
Mortgage insurance
FHA:
Upfront MIP: 1.75% (usually financed into the loan).
Annual MIP: commonly ~0.55% of the loan amount (varies by term/LTV). (Paddio, hud.gov)
Cancellation: for loans since 6/3/2013, MIP lasts the life of the loan unless you put ≥10% down, in which case it drops after 11 years, or you refinance to conventional. (Paddio)
Conventional:
PMI required if <20% down, priced by credit/LTV, and can be removed at 80% LTV upon request (and automatically at 78% if you’re current). (Consumer Financial Protection Bureau)
Seller help (seller-paid closing costs)
FHA: up to 6% of the price (toward buyer’s closing costs/prepaids). (fha.com)
Conventional (primary residence): 3% with <10% down, 6% with 10–25% down, 9% with ≥25% down (limits apply to “interested party contributions”). (selling-guide.fanniemae.com)
Appraisal & property condition
FHA appraisals include stricter health/safety checks (peeling paint, handrails, GFCIs, roof life, etc.).
Conventional standards are typically less stringent, which can make offers feel “easier” to sellers on homes needing minor repairs. (See FHA Handbook for policy basis.) (hud.gov)
Price/loan fit in Lancaster
At or below $524,225 (loan amount): Both FHA and conventional are options.
$524,226–$806,500 (loan amount): Conventional only (for standard FHA). (hud.gov, singlefamily.fanniemae.com)
Which loan type tends to win by buyer profile?
Profile A: 620–679 credit, 3–5% down, buying under ~$500k
Often FHA wins on monthly payment because FHA rates can be more forgiving at mid-range scores and PMI on conventional gets pricier in this band.
Trade-off: upfront MIP + longer-lasting annual MIP. Plan a refi to conventional once credit and equity improve. (Paddio)
Profile B: 680–739 credit, 5–10% down
Usually conventional—similar or better rate than FHA, PMI can drop at 80% LTV (or with new appraisal) and no upfront MIP. (Consumer Financial Protection Bureau)
Profile C: 740+ credit, 5–20% down
Conventional almost always more cost-effective long-term due to cancelable PMI and no upfront fee.
Profile D: Multi-unit (2–4 units) as your primary
FHA can allow small-down-payment entry into 2–4 units (owner-occupied), but condition and, for 3–4 units, income tests can apply. Conventional also finances multi-units with stronger credit/reserves. (Check with your lender for unit-specific rules.)
Lancaster-specific 2025 examples (ballpark)
The figures below isolate insurance differences—not interest rates—which change daily by lender. Always get actual quotes.
Scenario 1: $350,000 purchase, 3.5% down (FHA)
Base loan: $350,000 – 3.5% = $337,750
Upfront MIP 1.75% (financed): adds ≈ $5,911 to loan
Annual MIP ~0.55% → roughly $155/month initially (declines as balance drops). (Paddio)
Scenario 2: $350,000 purchase, 5% down (Conventional)
Loan: $332,500
PMI varies by score/LTV; many Lancaster buyers see ~$70–$220/month at this LTV range—and it can be removed once you hit 80% LTV. (Consumer Financial Protection Bureau)
Takeaway: At mid-range credit, FHA might edge out on monthly payment at first—but conventional’s PMI goes away, while FHA’s MIP typically doesn’t unless you put 10% down or refinance.
Common questions I get in Lancaster
Will FHA make my offer less competitive?
Sometimes. FHA’s condition standards can spook sellers on homes needing small repairs. For move-in-ready homes, it’s rarely an issue—strong terms and communication matter more. (hud.gov)
Can the seller cover my closing costs?
Yes—up to 6% (FHA) and 3–9% (conventional) depending on down payment. We’ll right-size your request to keep your offer attractive. (fha.com, selling-guide.fanniemae.com)
What if I outgrow FHA’s loan limit?
Once you’re above $524,225 (loan amount), standard FHA doesn’t fit in Lancaster. Conventional is available up to $806,500 for one-unit homes. (hud.gov, singlefamily.fanniemae.com)
How do I get rid of mortgage insurance?
Conventional PMI: request removal at 80% LTV or it auto-terminates at 78% (if current). (Consumer Financial Protection Bureau)
FHA MIP: lasts for the life of the loan unless you put ≥10% down (then 11 years) or refinance to conventional. (Paddio)
So… which is better for you in 2025?
Choose FHA if you need flexible credit, are buying well under $524,225, and want a lower entry payment—even with the trade-off of long-term MIP.
Choose conventional if your credit is 680+, you’re buying between $350k–$800k, or you want the ability to drop PMI and avoid upfront mortgage insurance.
Either way, the smartest first step is a side-by-side quote from a great local lender and a plan to optimize your offer for Lancaster sellers.
Keep learning (Lancaster buyer resources)
Down payment deep-dive: How Much Do You Need for a Down Payment to Buy a Home in Lancaster, PA?
https://albertlinsdell.com/post/how-much-down-payment-do-i-need-for-a-home-in-lancaster-pa (albertlinsdell.com)PA grants & assistance: Pennsylvania Homebuyer Grant & Assistance Programs | Lancaster, PA 2025
https://albertlinsdell.com/blog/category/Buying-Process (category hub with the program post) (albertlinsdell.com)VA loan guide (for eligible buyers): VA Loan Benefits in Lancaster County, PA
https://albertlinsdell.com/post/VA-loans-lancaster (albertlinsdell.com)Inspection tips: What to Look Out For in a Home Inspection in Lancaster, PA
https://albertlinsdell.com/post/what-to-look-out-for-in-a-home-inspection-in-lancaster-pa (albertlinsdell.com)Full buying roadmap: How to Buy a Home in Lancaster
https://albertlinsdell.com/post/how-to-buy-a-home-in-lancaster (albertlinsdell.com)
Ready to compare your numbers?
I’ll run side-by-side FHA vs. conventional quotes with my preferred local lenders and map the best path for your situation.
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Sources for 2025 rules & limits
Fannie Mae 2025 county limits (Lancaster, PA: $806,500 one-unit). (singlefamily.fanniemae.com)
FHFA 2025 conforming limit announcement (baseline). (FHFA.gov, AP News)
HUD Mortgagee Letter 2024-21 (FHA 2025 floor & limits). (hud.gov)
FHA county page (Lancaster FHA limit $524,225). (fha.com)
FHA MIP amounts & typical 0.55% annual in 2025. (Paddio)
FHA MIP cancellation rules (11 years with 10% down; otherwise life of loan). (Paddio)
PMI cancellation at 80%/78% (Homeowners Protection Act/CFPB). (Consumer Financial Protection Bureau)
P.S. If you’d like, I can also repurpose this into an Instagram carousel or a short YouTube explainer focused on “FHA vs Conventional in Lancaster—Who Wins at Your Score?”
