Last updated: May 17, 2026
🏦 FHA vs Conventional Loan: Which Should You Choose?
📊 Side-by-Side Comparison
| Aspect | FHA Loan | Conventional Loan |
|---|---|---|
| Minimum Credit Score | ~580 (3.5% down) or 500 (10% down). | Typically 620+. |
| Minimum Down Payment | 3.5%. | As low as 3% (often 5%). |
| Mortgage Insurance | MIP — usually for the life of the loan. | PMI — cancellable at 20% equity. |
| Upfront Insurance Fee | 1.75% upfront MIP added to loan. | None. |
| Loan Limits | Lower, county-based FHA limits. | Higher conforming limits. |
| Best For | Lower credit or minimal down payment. | Good credit, ability to reach 20% equity. |
| Bottom Line | Easier to qualify; costlier long term. | Cheaper long term for stronger borrowers. |
What is FHA Loan?
An FHA loan is government-insured (by the Federal Housing Administration) and designed to help buyers with lower credit or smaller down payments qualify. You can put as little as 3.5% down with a credit score around 580, and FHA is more forgiving of past credit issues. This makes homeownership accessible to first-time and credit-rebuilding buyers who wouldn't qualify for conventional financing.
The cost is mortgage insurance premium (MIP): a 1.75% upfront fee added to the loan plus an annual premium that, in most cases, lasts the entire life of the loan unless you refinance out of FHA. FHA also has lower, county-based loan limits and stricter property condition requirements. It's the right tool when qualifying is the obstacle — but it's more expensive over time than conventional for borrowers who could qualify for both.
What is Conventional Loan?
A conventional loan isn't government-insured and follows guidelines set by Fannie Mae and Freddie Mac. It generally requires a credit score of 620 or higher and rewards stronger borrowers with better terms. Down payments can be as low as 3% for qualified first-time buyers, though 5%+ is common. There's no upfront mortgage-insurance fee.
The key advantage is private mortgage insurance (PMI): if you put down less than 20%, you pay PMI — but it's cancellable once you reach 20% equity, after which your payment drops. For buyers with good credit who can reach 20% equity (now or over time), conventional loans are usually cheaper overall than FHA. They also offer higher loan limits and fewer property restrictions.
→ Try our Mortgage Affordability Calculator
🔑 Key Differences
- Credit: FHA allows ~580 (even 500); conventional usually needs 620+.
- Down payment: FHA 3.5%; conventional as low as 3% but often 5%+.
- Mortgage insurance: FHA MIP usually for life; conventional PMI cancels at 20% equity.
- Upfront fee: FHA adds 1.75% upfront MIP; conventional has none.
- Loan limits: FHA limits are lower and county-based.
- Long-term cost: Conventional is cheaper for borrowers who can qualify and reach 20% equity.
- Decision driver: Your credit score and down payment determine which you qualify for and which costs less.
When to Use FHA Loan
- Your credit score is below 620.
- You can only put down 3.5% and need easier qualifying.
- You've had past credit issues (bankruptcy, late payments).
- You plan to refinance to conventional once your credit/equity improves.
When to Use Conventional Loan
- Your credit score is 620 or higher.
- You can put down 5%+ or reach 20% equity reasonably soon.
- You want to cancel mortgage insurance and lower your payment later.
- You want higher loan limits or fewer property restrictions.
⚖️ Pros and Cons
✅ FHA Loan — Pros
- Low 580 credit threshold
- Just 3.5% down
- Forgiving of past credit issues
- Government-backed stability
❌ Cons
- MIP usually for the life of the loan
- 1.75% upfront fee
- Lower loan limits
- Stricter property condition rules
✅ Conventional Loan — Pros
- PMI cancellable at 20% equity
- No upfront insurance fee
- Higher loan limits
- Cheaper long term for good credit
❌ Cons
- Needs 620+ credit
- Less forgiving underwriting
- PMI still applies under 20% down
- Harder to qualify
💡 Real-World Examples
Example 1: 600 Credit Score, 3.5% Down
With a 600 score, conventional may be out of reach. FHA allows 3.5% down — for a $300,000 home that's $10,500 down plus a $5,040 upfront MIP rolled into the loan. FHA is the path to qualifying here.
Example 2: 720 Credit Score, 10% Down
With strong credit and 10% down on a $300,000 home, conventional PMI is modest and cancels at 20% equity — likely within a few years. Conventional is cheaper long term and the obvious choice.
Example 3: FHA Now, Refinance Later
A common strategy: buy with FHA today (lower bar), then refinance to a conventional loan once your credit improves and you hit 20% equity — dropping the lifetime MIP. Run the numbers on closing costs before refinancing.
❓ Frequently Asked Questions
Is an FHA or conventional loan better?
It depends on your credit and down payment. FHA is easier to qualify for with lower credit and 3.5% down; conventional is cheaper long term for borrowers with 620+ credit who can reach 20% equity.
Can I get rid of FHA mortgage insurance?
Usually only by refinancing into a conventional loan. In most FHA loans today, MIP lasts the life of the loan, unlike conventional PMI which cancels at 20% equity.
What credit score do I need for each?
FHA: around 580 for 3.5% down (500 with 10% down). Conventional: typically 620+, with the best rates at 740+.
Which has a lower down payment?
Conventional can go as low as 3% for some first-time buyers, slightly under FHA's 3.5% — but FHA is more flexible on credit. Use our [mortgage affordability calculator](/calculators/mortgage-affordability-calculator.html) to compare.
Does FHA have loan limits?
Yes — FHA limits are set by county and are generally lower than conventional conforming limits, so high-priced homes may require a conventional loan.