Conventional vs. FHA Loan in St. Louis: Appraisal Requirements & Which to Choose

How conventional and FHA loans compare for St. Louis buyers -- down payment, credit score, mortgage insurance, appraisal requirements, and why loan type affects your offer on older St. Louis housing stock.

The difference between an FHA and conventional loan is not just down payment size or credit score minimums. In St. Louis, where 68% of the housing stock was built before 1980, the loan type you choose affects whether your appraisal focuses only on market value or also assesses property condition and safety hazards.

Before choosing FHA or conventional, get pre-approved to understand your real options. How to Get Pre-Approved for a Mortgage in St. Louis → →

This is the single most important distinction most national mortgage comparison articles miss -- and it is the reason sellers on older St. Louis homes sometimes prefer conventional offers over FHA offers at the same price.

FHA vs. Conventional Loan: The Basics

Factor	FHA Loan	Conventional Loan
Minimum Credit Score	580 (500 with 10% down)	620 (700+ for best rates)
Minimum Down Payment	3.5%	5% standard (3% options available)
Mortgage Insurance	Life of loan (under 10% down)	Cancels at 20% equity
Upfront Mortgage Insurance	1.75% of loan amount	None
Monthly Mortgage Insurance	0.55% - 0.85% annually	0.25% - 2.25% (credit-based)
Debt-to-Income Ratio Max	Up to 57%	Up to 50%
Appraisal Focus	Value + Condition + Safety	Value + Comparables
Property Condition Standards	Must meet HUD minimums	Flexible

FHA Appraisal vs. Conventional Appraisal: What's Different

This is the section most conventional-vs-FHA articles skip -- and it is the most important distinction for St. Louis buyers looking at older homes.

Both FHA and conventional appraisals determine market value. The difference is what else the appraiser must assess.

What FHA Appraisers Must Flag

FHA appraisers follow HUD's Minimum Property Standards. If any of the following are found, they must be noted in the appraisal report and typically must be corrected before the loan can close:

• Peeling paint on exterior or interior (especially on homes built before 1978 due to lead paint risk)
• Missing or loose handrails on stairs or elevated walkways
• Exposed electrical wiring or non-functioning electrical systems
• Non-functioning HVAC systems or major mechanical deficiencies
• Roof damage with less than 2 years of remaining life
• Water intrusion or active leaks
• Foundation cracks indicating structural movement
• Negative grading causing water to flow toward the foundation
• Trip hazards on walkways, stairs, or porches
• Cracked or broken windows
• Evidence of wood-destroying insects (termites)

What Conventional Appraisers Focus On

Conventional appraisals focus on market value. The appraiser's job is to confirm the home is worth what the buyer is paying based on recent comparable sales in the area.

Conventional appraisers do observe the home's condition and note obvious issues in the report, but these observations rarely stop the loan from closing. The appraiser might note "deferred maintenance" or "functional obsolescence," but the lender typically does not require repairs unless the issue directly affects the property's structural integrity or marketability to a catastrophic degree.

This makes conventional loans significantly more flexible for older homes with cosmetic issues, deferred maintenance, or systems nearing the end of their useful life.

Why This Matters in St. Louis

Common FHA Appraisal Red Flags in St. Louis Homes

Based on 13 years of transactions in the St. Louis market, these are the most common FHA appraisal issues that delay or kill deals:

Exposed electrical wiring or missing junction box covers are common in older St. Louis homes, especially in unfinished basements. FHA appraisals flag exposed wiring as a safety hazard and require it to be properly enclosed before closing. Cost: $300 to $1,500 depending on extent.

Peeling exterior paint on homes built before 1978 triggers FHA lead paint protocols. All peeling paint must be scraped, primed, and repainted by a lead-certified contractor. This can add $3,000 to $8,000 to the seller's cost -- or kill the deal if the seller refuses to address it.

What to expect during a St. Louis home inspection and what happens with the results. What Happens at a Home Inspection in St. Louis → →

Negative grading (ground sloping toward the foundation instead of away) is common on older St. Louis lots. FHA appraisers flag this as a drainage issue. Fixing it requires regrading, which can cost $2,000 to $6,000 depending on the severity.

Full breakdown of repair costs St. Louis buyers encounter during inspections and appraisals. St. Louis Home Repair Cost Guide → →

How Sellers React to FHA vs. Conventional Offers

Sellers on older homes with known condition issues often prefer conventional offers because the appraisal is less likely to require repairs before closing.

In a multiple-offer situation where one buyer is FHA at $240,000 and another is conventional at $240,000, the conventional buyer has a significant advantage -- even though the price is identical. The seller knows the FHA appraisal carries repair risk that the conventional appraisal does not.

This does not mean FHA buyers cannot compete. It means your agent needs to acknowledge the appraisal risk in your offer and potentially offer a higher price, faster timeline, or stronger earnest money to compensate for that risk.

Conventional vs. FHA: Which One Should You Use?

Use FHA If:

• Your credit score is between 580 and 680
• You have 3.5% to 5% saved for down payment
• You are buying a newer home (built after 2000) or a home in move-in ready condition
• The home has no obvious deferred maintenance or cosmetic issues
• You need more flexible debt-to-income approval (up to 57%)

Use Conventional If:

• Your credit score is 620 or higher (700+ for best rates and lowest PMI)
• You have 5% or more saved for down payment
• You are buying an older home (built before 1980) or a home with any condition concerns
• You want mortgage insurance to cancel automatically at 20% equity
• You want to strengthen your offer in a competitive situation

FHA Mortgage Insurance vs. Conventional PMI

FHA mortgage insurance has two components:

• Upfront mortgage insurance premium: 1.75% of the loan amount (typically rolled into the loan)
• Annual mortgage insurance premium: 0.55% to 0.85% of the loan amount, divided into monthly payments

On a $250,000 FHA loan with 3.5% down, you pay $4,281 upfront (rolled into the loan) plus $135 to $210 per month in mortgage insurance. This monthly payment lasts for the entire life of the loan.

See how mortgage insurance affects your true monthly cost across 79 St. Louis zip codes. St. Louis Affordability by Zip Code → →

Conventional private mortgage insurance (PMI) is based on your credit score, down payment amount, and loan-to-value ratio. Rates range from 0.25% to 2.25% annually, with most borrowers paying 0.5% to 1.0%.

On a $250,000 conventional loan with 5% down, PMI might cost $100 to $200 per month. The key difference: PMI automatically cancels when you reach 20% equity based on your original purchase price. For most buyers, this happens in 7 to 10 years through a combination of appreciation and principal paydown.

Mortgage Insurance Factor	FHA	Conventional
Upfront Premium	1.75% of loan amount	None
Monthly Premium	0.55% - 0.85% annually	0.25% - 2.25% annually (credit-based)
When It Cancels	Never (under 10% down)	Automatically at 20% equity
Typical Duration	Life of loan (30 years)	7-10 years

Credit Score Impact

Your credit score matters more with conventional loans than FHA loans.

FHA mortgage insurance rates are relatively fixed regardless of credit score -- a 580 score and a 720 score pay nearly the same MIP rate. Conventional PMI rates are heavily influenced by credit score. A 760 credit score might pay 0.3% PMI while a 640 score pays 1.5% PMI on the same loan.

This means:

• If your credit score is below 680: FHA may offer better overall pricing despite the upfront premium
• If your credit score is 700+: Conventional will almost always cost less over time due to lower PMI and cancellation at 20% equity

How your credit score affects your loan options, interest rate, and monthly payment in St. Louis. What Credit Score Do You Need to Buy a Home in St. Louis? → →

Down Payment and First-Time Buyer Programs

FHA's 3.5% down payment is often cited as the main advantage. However, conventional loans now offer 3% down payment options through Fannie Mae HomeReady, Freddie Mac Home Possible, and Conventional 97 programs.

The difference: conventional 3% down programs have income limits and require mortgage insurance until 20% equity, but they still offer PMI cancellation -- which FHA does not.

St. Louis first-time buyers also have access to MHDC (Missouri Housing Development Commission) programs that work with both FHA and conventional loans and can provide down payment assistance of up to $15,000.

Beyond down payment and mortgage insurance, understand all the costs due at closing. Buyer Closing Costs in St. Louis → → Down payment assistance programs that work with both FHA and conventional loans in St. Louis. First-Time Buyer Programs in St. Louis → → Real down payment requirements by loan type and what you need beyond the down payment. How Much Down Payment Do You Need in St. Louis? → →

See the Full Picture

This is one piece of the St. Louis home buying process. See how it all fits together:

📚 Complete St. Louis Buyer Guide →