FHA vs. Conventional Loans

Two of the most popular loan programs, and the right choice depends entirely on your credit score, down payment, and goals. Here's the full comparison.

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Conventional
minimum down

3.5%

FHA minimum
down payment

580

FHA min. credit
vs. 620 Conventional

Side-by-Side

Full Program Comparison

Every major factor that affects your decision, in one table.

Feature	FHA Loan	Conventional Loan
Minimum Down Payment	3.5% (580+ credit) / 10% (500-579 credit)	3% (with qualifying programs)
Minimum Credit Score	500 (with 10% down) / 580 (with 3.5% down)	620 (most lenders)
Mortgage Insurance	Required for life of loan (if <10% down)	PMI required until 80% LTV, then removed
Upfront Insurance Cost	1.75% UFMIP (rolled into loan)	None
Annual Insurance Cost	0.55%-1.05% of loan amount / year	0.2%-2% depending on LTV and credit
DTI (Debt-to-Income)	Up to 57% with compensating factors	Typically 43-50% max
2026 Loan Limit (Most U.S. Counties)*	$541,287	$832,750
Property Types	Primary residence only	Primary, second home, investment
Gift Funds for Down Payment	Allowed (100% of down payment)	Allowed (varies by lender)
Appraisal Standards	Stricter FHA appraisal requirements	Standard appraisal
Best For	Lower credit, limited savings, first-time buyers	Stronger credit, 20%+ down, investment property

Who Should Choose Which

Matching the Right Loan to Your Situation

FHA May Be Right If...

FHA Loan is the Better Fit

Your credit score is between 580-639
You have a higher debt-to-income ratio (above 45%)
You're a first-time buyer with limited savings
You've had a past bankruptcy or foreclosure (shorter wait periods)
Your income is irregular or you're recently employed
You need maximum leniency in underwriting

Conventional May Be Right If...

Conventional Loan is the Better Fit

Your credit score is 680 or higher
You can put 20% down (eliminate PMI entirely)
You want to buy an investment property or second home
You want to avoid lifetime mortgage insurance
You're buying above FHA county loan limits
You want the most flexibility in property type

The Big Differentiator

Mortgage Insurance: The Key Cost Difference

This is often the deciding factor. Here is how it actually plays out over time on a $450,000 purchase.

FHA Loan Example: $450,000 Purchase, 3.5% Down

Loan Amount$434,250

Upfront MIP (1.75%)$7,599 (rolled in)

Annual MIP (~0.55%)~$199/mo

MIP RemovalNever (if <10% down)

10-Year MIP Cost~$23,880

Total Extra Cost (MIP)$31,479+

Conventional Example: $450,000 Purchase, 5% Down

Loan Amount$427,500

Upfront PMI$0

Annual PMI (~0.8%)~$285/mo

PMI RemovalAt 80% LTV (~yr 6-7)

Total PMI Cost~$20,520 (then $0)

Total Extra Cost (PMI)$20,520

*Illustrative example. Actual rates vary by lender, credit score, and market conditions. Contact us for your personalized comparison.

Which Costs Less? It Depends on Your Timeline

FHA's lower rate can offset higher MIP in the short term, especially for buyers with lower credit. But if you plan to own the home for more than 5-7 years, Conventional typically wins on total cost because PMI eventually disappears. Let us run the real numbers for your specific scenario.

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Credit Score Impact

How Your Credit Score Affects the Decision

Credit Score Range	FHA Option	Conventional Option	Recommendation
500-579	FHA with 10% down	Not eligible	FHA only path
580-619	FHA with 3.5% down	Very limited / higher rate	FHA is stronger
620-659	FHA, more flexible DTI	Conventional available, higher PMI	Compare both
660-699	FHA competitive	Conventional, similar cost	Run the numbers
700-739	FHA still works	Conventional often better	Lean Conventional
740+	FHA works but usually costs more	Conventional, best rates and lowest PMI	Conventional recommended

Common Questions

FHA vs. Conventional FAQ

Can I switch from FHA to Conventional later?

Yes. Many buyers start with an FHA loan to get into the home, then refinance to a Conventional loan once they've built enough equity (typically 20%) or improved their credit score. This can eliminate MIP and lower your payment. It requires qualifying at that time and paying closing costs again, so we'll run the math to see when it makes sense.

Does FHA always have a higher interest rate?

Not necessarily. FHA rates are sometimes very competitive, especially for borrowers with lower credit scores, who would face higher Conventional rates. The key comparison isn't just the rate; it's the total monthly payment including mortgage insurance. That's why it's critical to compare both programs on a total-cost basis, not just rate.

Can I put more than the minimum down on an FHA loan?

Absolutely. You can put 10%, 15%, or 20% down on an FHA loan. If you put 10% or more down, the MIP drops off after 11 years instead of lasting the life of the loan. However, at those down payment levels, a Conventional loan is often the better financial choice overall.

Are FHA loans only for first-time buyers?

No. This is a common myth. FHA loans are available to any qualifying borrower, not just first-time buyers. The main restriction is that FHA loans must be used for a primary residence. If you've owned a home before but currently don't own one, you can still use an FHA loan.