STL Home Buyer Journey
George Kindler
13 Years Of Real Estate Experience At Your Fingertips
The conventional vs. FHA decision is not just about which loan you qualify for. In St. Louis's older housing market, it affects which homes you can buy, how sellers view your offer, and what your total cost of ownership looks like over 30 years. Here is the full picture.
FHA loans are insured by the Federal Housing Administration. That government backing allows lenders to offer more flexible qualification standards -- lower credit scores, higher debt-to-income ratios -- in exchange for mortgage insurance premiums that protect the lender if you default.
Conventional loans are not government-backed. They follow guidelines set by Fannie Mae and Freddie Mac. They have stricter credit requirements but offer more flexibility on the property side and more favorable long-term mortgage insurance terms for buyers who qualify.
Here is what national FHA vs. conventional comparisons do not account for: St. Louis has one of the highest concentrations of pre-1960 housing in the country. FHA appraisals follow stricter property standards than conventional appraisals -- appraisers must assess the home's safety, security, and overall condition in addition to determining market value.
What that means in practice: a 1940s brick bungalow in Benton Park with peeling paint on the exterior, a 20-year-old electrical panel, or a basement that has had water issues may not pass FHA appraisal -- even if a conventional appraisal would proceed without flagging those items. If an FHA appraisal fails on condition, the deal can fall through, and the seller is required to disclose the flagged problems to future buyers.
This is where the conventional vs. FHA decision often gets decided for buyers who qualify for both.
FHA mortgage insurance: You pay an upfront premium of 1.75% of the loan amount at closing (which can be rolled into the loan) plus an annual premium of approximately 0.55% of the loan amount paid monthly. If you put less than 10% down, this premium lasts for the entire life of the loan -- it cannot be cancelled. On a $250,000 loan, that is approximately $115 per month in mortgage insurance for 30 years.
Conventional PMI: Private mortgage insurance on a conventional loan is cancelled automatically once you reach 20% equity based on your original purchase price. The monthly cost varies based on your credit score -- buyers with higher scores pay less. For a buyer with a 740 credit score on a $250,000 loan with 5% down, PMI runs roughly $65 to $80 per month and drops off once equity reaches 20%.
| Factor | FHA | Conventional |
|---|---|---|
| Minimum credit score | 580 (3.5% down) / 500 (10% down) | 620 typical minimum |
| Minimum down payment | 3.5% | 3% (qualifying first-time buyers) / 5% standard |
| Upfront mortgage insurance | 1.75% of loan amount | None |
| Monthly mortgage insurance | ~0.55%/yr -- life of loan if <10% down | Cancelable at 20% equity |
| Property condition requirements | Stricter -- safety and habitability assessed | More flexible |
| Seller preference in competitive situations | Sometimes disadvantaged on older homes | Generally preferred |
FHA is the right call when your credit score is below 620, your debt-to-income ratio is on the higher end, or your down payment is limited and you do not qualify for conventional programs at 3% down. It is also the right call if you are targeting newer construction or well-maintained homes where FHA appraisal risk is lower.
For buyers who are eligible for VA financing -- which includes many St. Louis buyers given the region's strong military presence -- VA almost always beats both. Zero down payment, no mortgage insurance, competitive rates. If you have served or are serving, start there.
Conventional is typically the better long-term choice for buyers with 620+ credit who can manage 5% down, especially in the St. Louis older housing market where FHA appraisal risk is a real factor. The mortgage insurance cancellation at 20% equity saves significant money over time compared to FHA's lifetime premium structure for low-down-payment loans.
How your credit score affects your loan options, rate, and monthly payment in St. Louis. What Credit Score Do You Need to Buy a Home 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 → →What credit score do I need for conventional vs. FHA in St. Louis?
FHA requires a minimum of 580 for 3.5% down (or 500 with 10% down). Conventional typically requires 620 minimum, with 700+ giving you access to the best rates and lowest PMI costs.
Is FHA or conventional better for older homes in St. Louis?
Conventional is generally more favorable for older St. Louis homes. FHA appraisals assess safety and habitability in addition to value -- older homes with deferred maintenance are more likely to flag FHA appraisal conditions. Sellers on older homes often prefer conventional offers for this reason.
Can I cancel mortgage insurance on an FHA loan?
No -- if you put less than 10% down on an FHA loan, mortgage insurance premium lasts the entire life of the loan. The only way to eliminate it is to refinance into a conventional loan after reaching 20% equity. Conventional PMI is automatically cancelled at 20% equity.
Does loan type affect my offer in a competitive St. Louis situation?
It can. Sellers on older homes with condition concerns sometimes prefer conventional offers because FHA appraisal risk is lower. In a multiple-offer situation at the same price, this can be a deciding factor. Your agent should know when this matters and how to address it in your offer presentation.
Ready to talk through your financing situation before you commit to anything? I work with buyers at every stage -- including before pre-approval. No pressure, no agenda.