Two of the most popular mortgage options — but which one is right for you? This guide breaks down the key differences so you can make a confident decision.
FHA loans are backed by the Federal Housing Administration and designed to make homeownership accessible to buyers with lower credit scores or smaller down payments. They offer more lenient qualification requirements but come with mandatory mortgage insurance for the life of the loan.
Conventional loans are not government-backed and follow guidelines set by Fannie Mae and Freddie Mac. They typically require higher credit scores and larger down payments, but offer more flexibility in property types, no upfront mortgage insurance fees, and the ability to remove private mortgage insurance (PMI) once you reach 20% equity.
Neither loan type is universally "better" — the right choice depends on your credit score, down payment, property type, and long-term financial goals. Let's break it down.
How FHA and conventional loans stack up across key factors
| Feature | FHA Loan | Conventional Loan |
|---|---|---|
| Minimum Down Payment | 3.5% | 3% (with PMI) |
| Minimum Credit Score | 580 (3.5% down) or 500 (10% down) | 620 |
| Mortgage Insurance | Required for life of loan (MIP) | Required under 20% down (PMI), removable |
| Upfront Insurance Fee | 1.75% of loan amount | None |
| Loan Limits (2024) | $498,257 (standard area) | $766,550 (conforming) |
| Property Types | 1-4 unit, primary residence only | Primary, second home, investment |
| Max Debt-to-Income | Up to 57% with compensating factors | Typically up to 50% |
| Seller Concessions | Up to 6% of sale price | 3-9% depending on down payment |
| Gift Funds for Down Payment | 100% allowed | 100% allowed for primary residence |
| Appraisal Requirements | Stricter — must meet HUD standards | Standard appraisal |
Use this quick decision guide to narrow down your best option
FHA is likely your only option among these two. FHA loans accept credit scores as low as 580 with 3.5% down, or even 500 with 10% down. Conventional loans require a minimum of 620.
Both options are available. Compare the total cost including mortgage insurance. FHA may be cheaper upfront, but the lifetime MIP can cost more over time. Run the numbers for both scenarios — or better yet, let me run them for you.
Conventional is almost always the better deal. With excellent credit, you'll get the best conventional rates, lower PMI premiums, and the ability to drop PMI at 20% equity. The FHA's upfront MIP and lifetime insurance make it significantly more expensive for high-credit borrowers.
Go conventional. With 20% down on a conventional loan, you avoid PMI entirely — saving you hundreds per month. FHA loans still require mortgage insurance regardless of your down payment amount.
Common questions about FHA vs conventional loans
Yes — this is actually one of the most common reasons people refinance. Once you've built up at least 20% equity and your credit score has improved, you can refinance your FHA loan into a conventional loan to eliminate the mortgage insurance premium (MIP). Since FHA loans require MIP for the life of the loan regardless of how much equity you have, refinancing to conventional is often the best way to lower your monthly payment over time.
Private mortgage insurance (PMI) on a conventional loan automatically cancels once your loan balance reaches 78% of the home's original value. You can also request removal at 80% by contacting your servicer. In some cases, if your home has appreciated significantly, you can get a new appraisal to prove you have 20% equity and have PMI removed early. With FHA loans, the mortgage insurance premium (MIP) stays for the life of the loan if you put less than 10% down.
No — this is a common misconception. FHA loans are available to any buyer who will use the home as their primary residence, whether it's their first home or their fifth. The program was created to make homeownership accessible, and repeat buyers use FHA loans all the time. However, you can only have one FHA loan at a time in most circumstances.
It depends on your situation. FHA loans often have lower upfront costs and more lenient qualification requirements, but the lifetime mortgage insurance premium adds up significantly. A conventional loan with 20% down has no mortgage insurance at all, saving tens of thousands over the life of the loan. For borrowers who put less than 20% down, the break-even point depends on your credit score, how quickly you plan to remove PMI, and whether you'll refinance later.
FHA loans often have slightly lower base interest rates because the loan is insured by the federal government, reducing risk for lenders. However, when you factor in the upfront MIP (1.75% of the loan) and ongoing monthly MIP (0.55% annually for most borrowers), the effective cost of an FHA loan is often higher than a conventional loan for borrowers with good credit. If your credit score is above 740, a conventional loan will almost always be the better deal.
I'll run the numbers on both FHA and conventional for your specific situation and show you exactly which option saves you the most money. No obligation, no pressure.