FHA vs. Conventional Loan
FHA loans open the door with lower credit and smaller down payments; conventional loans reward stronger credit and let you shed mortgage insurance. Here's how to tell which fits.
Choose an FHA loan if your credit is in the 580–669 range or you’re putting down less than 5%, and a conventional loan if your credit is 620+ and you can reach 20% equity within a few years to drop mortgage insurance. The two programs price risk differently — FHA insures the lender through the government, conventional relies on your credit and equity — and that single difference drives everything else.
Price both on your own numbers with the FHA Loan Calculator and the Mortgage Calculator, then read on for where each one wins.
FHA vs conventional at a glance
| FHA loan | Conventional loan | |
|---|---|---|
| Minimum credit score | 580 (3.5% down) · 500 (10% down) | ~620 |
| Minimum down payment | 3.5% | 3% |
| Mortgage insurance | MIP — upfront 1.75% + annual, usually for the life of the loan | PMI — cancels at 20–22% equity |
| 2026 limit (1-unit) | $541,287 floor → $1,249,125 ceiling | $832,750 → $1,249,125 |
| Best for | lower credit, smaller down payment, higher DTI | 620+ credit, dropping mortgage insurance later |
How an FHA loan works
An FHA loan is insured by the Federal Housing Administration, so lenders can accept down payments as low as 3.5% and credit scores down to 580 (or 500 with 10% down). That government backing is what makes it forgiving.
The trade-off is mortgage insurance, and it’s the detail that matters most. FHA charges an upfront premium of 1.75% of the loan (usually financed in) plus an annual premium added to every monthly payment. On most FHA loans today that annual premium runs for the life of the loan — it does not fall off at 20% equity the way conventional PMI does. See the exact figures with the FHA loan calculator and the current 2026 FHA loan limits.
How a conventional loan works
A conventional loan is any mortgage not backed by a government agency; it follows Fannie Mae and Freddie Mac guidelines. It asks for a little more up front — typically a 620 credit score and lower debt-to-income than FHA.
In return you get the flexibility FHA lacks. You can put as little as 3% down, and below 20% you pay private mortgage insurance (PMI) — but PMI cancels once you reach 20% equity and must be removed at 22%. With strong credit, your conventional rate and PMI can also come in cheaper than FHA’s premiums. Model it on the PMI calculator.
Down payment and credit: the real dividing line
The down-payment gap is small — 3.5% FHA versus 3% conventional. The real divider is credit:
- Below 620: FHA is usually your only realistic option.
- 620–679: run both. FHA may approve you more easily and price better at the low end of this band; conventional starts to compete as you climb it.
- 680 and up: conventional almost always wins on total cost, because your rate and PMI fall as your score rises while FHA’s premiums are fixed.
FHA is also more forgiving on debt-to-income, sometimes approving ratios near 50% with compensating factors, where conventional leans toward 43% or below.
Mortgage insurance: MIP vs PMI (the biggest long-term cost)
This is where most of the money is. On a $300,000 loan, FHA’s annual MIP of roughly 0.55% adds about $1,650 a year — every year you keep the loan. Conventional PMI on the same loan might run $1,200–$2,400 a year, but it disappears once you hit 20% equity, often within four to seven years.
Over a decade, FHA’s lifetime MIP can cost several thousand dollars more than cancellable PMI. The common workaround: start with FHA, then refinance into a conventional loan once you reach 20% equity to shed the premium for good.
Loan limits
Both programs cap how much you can borrow, and conventional caps higher in most of the country. For 2026 the conforming (conventional) limit is $832,750 for a one-unit home, while the FHA floor is $541,287 — both rise to $1,249,125 in high-cost areas. If your price sits between the FHA and conforming limits, conventional is the way in; above the conforming limit you’re into jumbo territory.
When an FHA loan wins
- Credit score in the 580–669 range
- Down payment under 5%
- A higher debt-to-income ratio
- Recent credit blemishes (FHA has shorter waiting periods after a bankruptcy or foreclosure)
When a conventional loan wins
- Credit score of 620+, and especially 680+
- You can reach 20% equity within a few years and drop mortgage insurance
- You want to avoid FHA’s upfront premium
- You’re borrowing above the FHA limit but under the conforming limit
The bottom line
FHA gets you in the door; conventional is usually cheaper to keep once your credit and equity are there. If your score is under 620 or your down payment is thin, start with FHA — and revisit a refinance to conventional once you cross 20% equity. Run your own figures side by side on the FHA loan calculator, the conventional mortgage calculator and the PMI calculator to see the real monthly difference.
This guide is general educational information, not financial advice. Confirm specifics with a licensed lender or advisor.