To help you decide whether an FHA loan or a conventional loan is better for your situation, here's more information about each loan, including their unique advantages for you as a homebuyer and what you need to qualify (which may vary by lender).

Conventional Loan Requirements

Minimum down payment: 3% to 20%

Minimum credit score: 620

Maximum Debt to Income Ratio: Less than 50

Todd Sheinin, mortgage lender and chief operating officer at Homespire Mortgage in Gaithersburg, Maryland, says conventional lenders look for borrowers who have good credit scores, solid assets and stable incomes. As a result, these loans have a higher barrier to entry than FHA-backed loans. So you better get your A-game ready!

Typically, you'll need a credit score of at least 620 and preferably a 20% down payment, although you can put down as little as 3% if you'd like (this is usually reserved for first-time homebuyers). Just know that with anything less than a 20% down payment, you'll have to pay private mortgage insurance, an additional monthly fee designed to mitigate the lender's risk that you might default on your loan. (PMI ranges from 0.58% to 1.86% of the home loan).

Most conventional loans also require a debt-to-income ratio of up to 50%, which compares what you owe (student loans, credit cards, auto loans, and hopefully home loans) to your income. So, for example, if your household take-home income is $5,000 per month, this means you should not spend more than $2,500 per month on mortgages and other debts.

Advantages of Conventional Loans

Conventional loans do not require mortgage insurance, as long as your down payment is at least 20%.

Conventional loans can cover a higher loan amount than FHA loans, which are limited to the county level.

Conventional loans, on average, are processed faster than FHA loans.

FHA Loan Requirements

Minimum down payment: 3.5%

Minimum credit score: 580

Maximum debt to income ratio: 43

FHA loans are great for first-time homebuyers or people who don't have good credit or much money. These loans were created by the Federal Housing Administration and are insured by this government agency, so lenders are guaranteed not to lose their money if a borrower defaults on their mortgage. In short, it allows lenders to accept riskier borrowers while also helping hopeful homebuyers in less desirable situations realize the dream of homeownership.

Tim Lucas, editor of MyMortgageInsider.com, says that to qualify for an FHA loan, you need at least a 3.5 percent down payment and a 580 credit score. Applicants with lower credit scores (such as a 500) may not be completely eliminated, but must make a larger down payment of at least 10 percent.

These loans also have a debt-to-income ratio requirement of less than 43%. So, for example, if your monthly income is $5,000, your mortgage and other debt payments should not exceed $2,150.

FHA loans may be a boon to homebuyers (especially first-time buyers) who might not otherwise qualify, but they do have some drawbacks. First, they are typically capped at $472,030 ($1,089,300 in some high-cost areas), which means you may have limited purchasing power. In addition, because the federal government insures these loans, you must pay an upfront mortgage insurance premium (currently, the cost is about 1.75%) and an annual mortgage insurance premium (usually 0.85% of the amount borrowed) that remain in place for the entire life of the loan (or until you can refinance the loan into a conventional mortgage).

Advantages of FHA Loans

FHA loans have a low down payment requirement (3.5%).

FHA loans have lower credit score requirements (as low as 580 for qualified borrowers).

FHA loans have a lower DTI requirement of 43% or less.

FHA vs. Conventional Loans: Which Should You Choose?

In general, if you can afford and qualify for a conventional loan, you should choose a conventional loan because it is less restrictive (and faster to obtain). However, if you are a less desirable homebuyer with an average credit score, down payment or income, then an FHA loan may be the best or only route open to you.

Talk to your lender about your situation or enter your numbers into an online home affordability calculator to get a general idea of whether an FHA or conventional loan is right for you.