Wondering whether an FHA or a conventional loan is the smarter move for your Livonia home purchase? You are not alone. The right choice affects your monthly payment, cash due at closing, and how soon you can shed mortgage insurance. In this guide, you will learn the key differences, what they mean for common Livonia price ranges, how Michigan assistance can help, and what steps to take next. Let’s dive in.
FHA vs conventional basics
FHA loans are government insured and often easier to qualify for if your credit is limited or you have less cash available. You can put as little as 3.5% down with qualifying credit. FHA also adds an upfront and annual mortgage insurance premium.
Conventional loans are issued by private lenders and typically follow Fannie Mae or Freddie Mac rules when conforming. Some programs allow 3% down for eligible buyers, and most standard options start at 5% down. Mortgage insurance on conventional loans can be removed later as your equity grows.
In Livonia and Wayne County, the tradeoff is simple. FHA tends to be easier on upfront qualification, while conventional can be cheaper over time, especially once you reach 20% equity or can cancel private mortgage insurance.
Down payment and credit requirements
FHA requirements
- Minimum down payment is typically 3.5% if your credit score meets FHA minimums. Many lenders look for at least 580 for 3.5% down.
- Buyers with scores between 500 and 579 often need closer to 10% down.
- Lenders may add their own overlays, which means some Michigan lenders require scores higher than the FHA baseline.
Conventional requirements
- Eligible programs can allow as little as 3% down for first-time or income-qualified buyers. Many conventional loans begin at 5% down.
- You need 20% down to avoid mortgage insurance completely.
- Lower down payment conventional options usually require higher credit scores, commonly 620–640 or above.
Bottom line: If your credit is still building or your savings are tight, FHA can open the door. If your credit is stronger or you can put more down, conventional can deliver long-term savings.
Mortgage insurance costs: MIP vs PMI
FHA mortgage insurance
- FHA adds an upfront mortgage insurance premium that is commonly 1.75% of the loan amount. Most buyers roll this into the loan.
- FHA also includes an annual mortgage insurance premium that you pay monthly. If you put less than 10% down, this generally remains for the life of the loan. With 10% or more down, it may be required for about 11 years.
- You cannot cancel FHA mortgage insurance simply by reaching 80% loan-to-value. You usually need to refinance into a conventional loan to remove it, if eligible.
Conventional mortgage insurance
- Private mortgage insurance is usually a monthly fee that varies by credit score and down payment. Typical industry ranges run from about 0.3% to 1.5% of the loan balance per year.
- PMI can be cancelled. You can request removal at 80% loan-to-value based on the original value, and it is typically removed automatically at 78% with on-time payments and other conditions.
Key takeaway: FHA insurance tends to last longer, while conventional PMI offers a clear path to removal. If you expect to build equity quickly or stay long term, conventional can become cheaper.
Appraisals and property condition
FHA appraisals include minimum property standards focused on safety and habitability. If an appraiser calls out required repairs, the items must be addressed before closing or handled through an approved repair or escrow arrangement. This can be challenging on older or deferred-maintenance homes if the seller is unwilling to make repairs.
Conventional appraisals focus primarily on value and overall condition, with fewer prescriptive repair rules. Lenders can still require fixes for major safety or structural concerns, but there is often more flexibility.
If you are eyeing a fixer, talk to your lender and agent early so you know whether the property will likely meet the requirements of your loan type.
Seller concessions and closing flexibility
Both loan types allow the seller to contribute toward your closing costs within set limits, which can reduce your cash needed at closing.
- FHA commonly allows seller contributions up to 6% of the sales price.
- Conventional loans also allow concessions, with typical limits that scale by down payment. A common guide is 3% for under 10% down, 6% for 10% to 25% down, and 9% for more than 25% down.
Gift funds are permitted on both loan types with documentation. Your lender will explain what is acceptable and how to document it.
Loan limits and Wayne County context
FHA and conforming conventional loans have county-level limits that change annually. Wayne County has specific limits for each program. If your price exceeds the applicable limit, you may need a jumbo loan or different financing. Check current limits with your lender before you shop so you target properties that fit your plan.
Livonia price bands: how choices shift
Every buyer’s budget and credit profile is unique, but common Livonia price ranges can provide a useful frame:
- Starter and entry homes: often under about $250,000
- Mainstream and move-up: roughly $250,000 to $450,000
- Upper price points: above about $450,000
These ranges are illustrative for planning. As you evaluate listings, align your loan type with your price band and down payment so you know what your payment and insurance will look like.
Livonia buyer scenarios
These simple examples show how FHA and conventional can compare. Your actual payment will depend on your rate, PMI or MIP, taxes, homeowners insurance, and any HOA fees.
Scenario A: First-time buyer at $300,000
- FHA with 3.5% down: Down payment is $10,500. The upfront mortgage insurance premium, commonly 1.75%, can be rolled into the loan or paid at closing. Monthly MIP will apply. This can be a good path if your credit is limited or you need flexibility on qualifying.
- Conventional with 3% down: Down payment is $9,000 if you qualify for an eligible program. Monthly PMI applies. Because PMI can be removed as you build equity, the long-term insurance cost may be lower than FHA.
Tip: If you expect pay raises, bonuses, or plan to make extra principal payments, conventional can help you remove PMI sooner and reduce your monthly payment later.
Scenario B: Move-up buyer at $425,000
- Conventional with 20% down: No PMI. This is often the lowest long-term cost.
- Conventional with 10% down: PMI applies, but it can be cancelled when your loan-to-value improves. At this price point, conventional typically beats FHA on long-term cost because FHA insurance can last longer and be more expensive as prices rise.
- FHA at higher prices: Less common unless you need FHA for credit or qualification reasons.
How MSHDA can help Livonia buyers
Michigan State Housing Development Authority (MSHDA) programs can reduce your upfront cash needs and sometimes your rate. Key points to know:
- MSHDA offers down payment assistance that can pair with FHA or conventional loans, depending on the program.
- Programs have income and purchase price limits for Wayne County and may include other eligibility rules.
- MSHDA assistance can make a low-down-payment conventional option possible for buyers who might otherwise choose FHA.
Action step: Ask an MSHDA-approved lender about current assistance amounts, interest rates, and Wayne County limits. Eligibility details change, so get the most recent guidance before you make a decision.
Which loan fits your plan?
Choose FHA if you want easier upfront qualifying and your credit or savings are still in progress. The tradeoff is longer-lasting mortgage insurance.
Choose conventional if you have stronger credit or can put more money down. You get cancellable PMI, and you can avoid it entirely at 20% down.
If you are not sure, request side-by-side Loan Estimates based on the same purchase price and down payment. Comparing total monthly cost and total cash to close will make the decision clear.
Step-by-step next moves for Livonia buyers
- Check your credit: Review your scores and recent history so you know where you stand.
- Estimate your cash: Add up funds for your down payment and closing costs. Decide whether you will use gift funds or MSHDA assistance.
- Gather documents: Two years of W-2s or 1099s, recent pay stubs, two to three months of bank statements, government ID, and recent tax returns if self-employed.
- Talk to multiple lenders: Request Loan Estimates for both FHA and conventional options using your real numbers. Ask about lender overlays and seller concession limits.
- Compare the details: Look closely at interest rate, mortgage insurance type and amount, any FHA upfront MIP, and total cash to close.
- Model your payment: Use a mortgage calculator to see how different down payments change PMI or MIP and when conventional PMI could be removed.
- Ask about property fit: If you are considering an older home, have your lender explain the FHA appraisal process and potential repair requirements before you write an offer.
Ready to align your loan choice with the right home in Livonia or nearby suburbs? We are here to help you compare neighborhoods, set a winning search plan, and coordinate with your lender so your financing fits your goals. Reach out to REALTORS® Bob and Mike to start your plan today.
FAQs
What is the main difference between FHA and conventional loans for Livonia buyers?
- FHA is more flexible on qualifying with a small minimum down payment, but its mortgage insurance lasts longer. Conventional can be cheaper over time because PMI is cancellable.
How much do I need for a down payment in Wayne County?
- FHA typically allows 3.5% down with qualifying credit. Conventional can start at 3% for eligible programs, with most options at 5% down and 20% down to avoid PMI.
How does mortgage insurance work on FHA vs conventional?
- FHA adds an upfront premium and annual MIP that can last for the life of the loan with under 10% down, while conventional PMI varies by credit and can be cancelled at 80% loan-to-value.
Will an FHA appraisal make it harder to buy an older Livonia home?
- FHA appraisals include minimum property standards, so required safety or habitability repairs must be addressed before closing, which can add steps on older homes.
Can I use seller concessions and gift funds in Livonia?
- Yes, both loan types allow seller contributions within program limits and permit gift funds with documentation; your lender will outline the exact rules.
Can MSHDA down payment assistance pair with FHA or conventional loans?
- Yes, many MSHDA programs can pair with either loan type, subject to income, purchase price, and eligibility rules specific to Wayne County.
