Trying to decide between an FHA or a conventional loan for a home in Severance? You are not alone. In a fast-moving market with both new builds and resales, the right financing can make the difference between winning the home you want and missing out. In this guide, you’ll learn how FHA and conventional loans compare on down payment, mortgage insurance, credit, appraisals, and loan limits, plus see realistic, clearly labeled hypothetical scenarios using local price points. Let’s dive in.
Severance market snapshot
Severance is a growing Weld County town with a mix of new-construction subdivisions and resale single-family homes. Buyer competition is often strongest at entry-level price points, while new builds may offer incentives that affect closing costs and timing. Because pricing and inventory shift quickly, confirm current list and sold data through local MLS feeds or brokerage market reports before you write any offers.
FHA vs. conventional: key differences
Down payment and upfront costs
- FHA: Minimum down payment is 3.5% for credit scores 580 and above. For scores 500 to 579, FHA typically requires 10% down. FHA also includes an upfront mortgage insurance premium (UFMIP), commonly 1.75% of the base loan amount, which you can roll into the loan. Review current HUD guidance on mortgage insurance premiums.
- Conventional: Down payments can be as low as 3% for eligible first-time or income-qualified buyers using programs like Fannie Mae HomeReady or Freddie Mac Home Possible. Many conventional buyers put 5% to 20% down, and 20% down typically avoids private mortgage insurance.
Mortgage insurance: what it costs and how long it lasts
- FHA: You pay an upfront MIP and an annual MIP. For many loans with less than 10% down, annual MIP lasts for the life of the loan. If you put 10% or more down, MIP may fall off after 11 years. Always verify current HUD rules, since these have changed over time.
- Conventional: Private mortgage insurance (PMI) applies when your down payment is under 20%. PMI pricing varies by credit score, down payment, and loan features, and often ranges roughly from 0.3% to 1.5% of the loan amount annually. Under the Homeowners Protection Act, PMI can be removed when you reach 80% loan-to-value upon request and must be automatically terminated at 78%, assuming you are current. See the CFPB explainer on private mortgage insurance.
Credit score and debt-to-income (DTI)
- FHA: More flexible credit standards. FHA allows scores from 500 to 579 with 10% down and 580+ with 3.5% down. Lenders often set their own overlays, so some may require higher minimum scores. FHA can permit higher DTIs in some cases.
- Conventional: Conforming conventional loans typically require a minimum score around 620, with better pricing at higher scores. Maximum DTI often falls in the 43% to 50% range depending on overall profile and automated underwriting.
Appraisal and property condition
- FHA: The appraisal includes HUD’s minimum property standards and health and safety checks. Items like unsafe railings, peeling paint on older homes, or significant deferred maintenance may require repair before closing.
- Conventional: The appraisal focuses on market value and will note material condition issues, but repair requirements are generally fewer than FHA. For well-maintained homes, both loan types are usually straightforward.
Loan limits and program caps
- FHA: FHA loan limits vary by county and property type. Check the current HUD FHA county loan limits for Weld County before you shop homes near the ceiling.
- Conventional: Conforming loan limits also change annually. If your loan amount exceeds the conforming limit, it is considered jumbo and may have different rules. Review the FHFA conforming loan limits for your price range.
Closing costs and concessions
- FHA: Seller concessions are typically capped around 6% for most transactions. Sellers cannot pay your down payment directly, but they can help with eligible closing costs within program limits.
- Conventional: Seller concession caps depend on your down payment and program type. Your lender can outline how much help is allowed.
Real-world examples for Severance buyers
Below are hypothetical illustrations using common Severance price points. These are not rate quotes. Assumptions for all examples: 30-year fixed rate at 6.5%, payment factors approximate principal and interest only, and property taxes, homeowner’s insurance, HOA dues, and mortgage insurance (unless noted) are not included. FHA UFMIP assumed at 1.75% of the base loan amount and financed. Actual lender pricing, PMI/MIP, taxes, and fees vary.
Scenario A: Lower-priced resale (hypothetical $450,000)
- FHA at 3.5% down: Down payment = $15,750. Base loan = $434,250. If you finance UFMIP at 1.75% (~$7,599), the starting loan balance is about $441,849. Estimated principal and interest at 6.5% is roughly $2,792 per month. You would also have monthly FHA MIP for many years, and possibly the life of the loan if you put less than 10% down.
- Conventional at 5% down: Down payment = $22,500. Loan = $427,500. Estimated principal and interest at 6.5% is about $2,702 per month. If we illustrate PMI at 0.8% annually for example purposes, PMI is about $285 per month until you reach 80% loan-to-value or refinance. Actual PMI depends on credit, down payment, and lender.
- Takeaway: FHA has a slightly lower upfront down payment, but the financed UFMIP increases the loan amount, and MIP can last longer. Conventional may have a similar or lower total monthly cost if PMI is modest and removable.
Scenario B: Mid to upper range (hypothetical $650,000)
- Check limits first: Confirm whether the price and loan amount fit within the HUD FHA county loan limits for Weld County. If the loan would exceed the limit, FHA is not an option for this price.
- Conventional at 20% down: Down payment = $130,000. Loan = $520,000. Estimated principal and interest at 6.5% is about $3,286 per month. No PMI at 20% down.
- Conventional at 10% down: Down payment = $65,000. Loan = $585,000. Estimated principal and interest at 6.5% is about $3,697 per month. If we illustrate PMI at 0.8% annually, that adds about $390 per month until PMI can be removed. Actual PMI will vary.
- Takeaway: At higher price points, many buyers lean conventional to avoid FHA MIP rules or because FHA loan limits restrict eligibility.
Scenario C: New construction considerations
- Builder incentives: New communities in Severance sometimes offer credits toward closing costs or rate buydowns. These can reduce cash to close or help your monthly payment, subject to program limits on seller contributions. Sellers and builders cannot pay your down payment directly.
- Timing and appraisal: New-build appraisals may occur when the home is near completion. If you are choosing FHA, ensure the property will meet HUD’s standards and that the builder can complete any items noted before closing.
- Program fit: If you qualify for 3% down via HomeReady or Home Possible and the new-build price is within conforming limits, conventional financing plus a builder credit can be very competitive. If your score is improving, FHA might be a practical bridge until you refinance.
How to choose the right path
- You want the lowest down payment and have a modest credit score: FHA may be a fit if you accept the cost and duration of MIP.
- You plan to build equity fast or can put 5% to 20% down: Conventional often wins on long-term cost because PMI can be cancelled.
- The home needs repairs: Conventional may offer more flexibility on minor condition issues; FHA can require repairs to close.
- You are near loan limits: Check both FHA and conforming limits early to avoid surprises. If your price falls above the FHA limit, conventional or jumbo will be necessary.
Local next steps for Severance buyers
Questions to ask a lender
- What minimum credit score and DTI do you require today for FHA and conventional approvals?
- What is the current FHA UFMIP and annual MIP for my scenario, and how long will MIP last?
- If I go conventional, what is my estimated PMI rate and the timeline or options to remove it?
- How do seller concessions and builder credits work for my loan type?
- What appraisal or property condition issues could delay closing under FHA or conventional?
Choosing the right loan sets the tone for a smooth purchase in Severance. If you want a local team that understands neighborhood-level pricing, builder incentives, and how to position your offer for success, let’s talk. Reach out to Bison Real Estate Group to align your financing strategy with the right property and neighborhood.
FAQs
Can I use FHA in Severance with a credit score below 620?
- Yes. FHA allows scores down to 580 with 3.5% down and 500 to 579 with 10% down, though many lenders set higher minimums. Ask local lenders about their overlays.
Which costs more over time, FHA or conventional?
- It depends on your down payment, loan size, credit, and how long you keep the loan. FHA’s MIP can last longer, while conventional PMI can be cancelled at 80% LTV or sooner if you refinance.
Do FHA appraisals require more repairs than conventional?
- Often. FHA appraisals include health and safety checks. Items flagged may need repair before closing, while conventional loans are generally more flexible on minor issues.
Can a seller or builder pay my down payment in Severance?
- No. Sellers and builders cannot pay your down payment directly. They can contribute toward closing costs within program limits, which can reduce your cash to close.
How do I know if my price point fits FHA or conventional limits in Weld County?
