FHA vs Conventional Loan: Which Is Right for You?
FHA and conventional loans are the two most common mortgage types. Each is best for different buyers. This guide compares them across credit, down payment, costs, and long-term flexibility. For a broader look at every loan program — including VA, USDA, and jumbo — see our [complete guide to mortgage types](/mortgage-types-explained).
Quick answer
Choose FHA if you have a lower credit score (under 680) or limited down payment (under 5%). Choose conventional if you have 5%+ down and a 680+ credit score — it's usually cheaper long-term.
Quick comparison
- Down payment: FHA 3.5% (with 580+ credit); conventional usually 3–5% min.
- Credit score: FHA 580+ (or 500 with 10% down); conventional typically 620+, best rates at 740+.
- Mortgage insurance: FHA requires MIP (upfront 1.75% + annual 0.55%) often for the life of the loan; conventional PMI drops automatically at 78% LTV.
- Loan limits (2026): FHA $498,257 (low cost), $1,149,825 (high cost); conventional similar.
- Property type: FHA stricter on condition; conventional more flexible.
When FHA is the right call
- Credit score below 680 — FHA accepts you when conventional may not.
- Less than 5% down — FHA's 3.5% with 580 credit is hard to beat.
- First-time buyer with limited savings — easier qualification.
- DTI ratios up to 50% in some cases — more flexibility.
When conventional wins
- Credit 680+ and 5%+ down — better interest rate, cheaper long-term.
- 20%+ down — no PMI at all.
- Investment property or second home — FHA doesn't allow these.
- Plan to keep the mortgage long term — conventional PMI eventually drops; FHA MIP doesn't (unless you put 10%+ down).
How FHA and conventional fit into the bigger picture
FHA and conventional aren't your only options. VA loans beat both for eligible veterans, USDA loans offer 0% down in rural areas, and jumbo loans handle homes above conforming limits. Our mortgage types explained guide walks through each program side by side so you can rule options in or out before applying.
Total cost example: $300K home
FHA with 3.5% down: ~$2,300/month all-in (P&I, taxes, insurance, MIP). Conventional with 5% down: ~$2,250/month. Conventional with 20% down: ~$1,920/month. Over 30 years the differences add to tens of thousands. Run your own numbers in the mortgage calculator or compare cash needed in the down payment calculator.
Side-by-side comparison
| Feature | FHA | Conventional |
|---|---|---|
| Minimum down payment | 3.5% (580+ score) | 3–5% |
| Minimum credit score | 580 (500 with 10% down) | 620, best pricing 740+ |
| Mortgage insurance | Upfront 1.75% + annual MIP | PMI only below 20% down |
| Can insurance be removed? | Usually only by refinancing | Automatically at 78% LTV |
| Max DTI | Often up to 50% | Typically 43–45% |
Typical 2026 terms; individual lenders vary.
The deciding factor is rarely the rate — it is whether the mortgage insurance ever goes away. Read the wider landscape in mortgage types explained.
Worked example: $340,000 home, 5% down
- FHA: $323,000 loan + 1.75% upfront MIP financed; annual MIP about $175/month for the life of the loan
- Conventional (700 score): $323,000 loan; PMI about $150/month, cancelled around year 8
- Ten-year cost difference: roughly $12,000 in favour of conventional
Flip the score to 640 and FHA usually wins, because the conventional rate and PMI factor both worsen sharply. Price your own case with the mortgage calculator.
Related questions
Can I refinance out of FHA later?
Yes, and it is the standard exit. Once you have 20% equity and a score above 680, a conventional refinance removes MIP entirely.
Does FHA have loan limits?
Yes, set by county. In higher-cost areas the limit rises, but expensive markets often push buyers to conventional or jumbo financing.
Which is better for a first-time buyer with thin credit?
FHA, almost always — see what credit score do you need for a mortgage and how much down payment do you need.
Key takeaways
- FHA is score-tolerant; conventional is cheaper once your score clears roughly 680–700.
- FHA mortgage insurance normally lasts the life of the loan; PMI cancels at 78% LTV.
- Refinancing out of FHA after building equity is a common and legitimate plan.
- Compare both payments in the mortgage calculator before choosing.
Use the calculator
Related Calculators & Guides
Hand-picked next steps that build on what you just learned.
- Mortgage CalculatorEstimate a full monthly payment including taxes and insurance before you commit to a purchase price.Explore
- Down Payment CalculatorSize the deposit you need for a target price and check whether you can avoid mortgage insurance.Explore
- Home Affordability CalculatorTurn your income, debts and deposit into a realistic maximum purchase price lenders would approve.Explore
- Mortgage Amortization CalculatorSee the month-by-month principal and interest split and how slowly early payments reduce the balance.Explore
- Mortgage Types ExplainedConventional, FHA, VA, USDA, jumbo and ARMs compared on eligibility, deposit and insurance rules.Explore
- How Much Down Payment Do You Need?Cornerstone guide comparing 3%, 5%, 10% and 20% deposits and when each one makes sense.Explore
Frequently Asked Questions
Can I refinance from FHA to conventional later?
Yes — and many people do once they have 20%+ equity, to drop the MIP. Watch for closing costs vs monthly savings.
Does FHA have a higher interest rate?
Usually slightly lower than conventional for similar credit, but the MIP premium often makes the all-in cost higher.
Are there income limits?
Neither loan has income limits — but USDA and some down payment assistance programs do.
What about VA loans?
If you're a veteran or active-duty service member, VA is almost always the best option — 0% down, no PMI, low rates.
Is an FHA loan bad for sellers?
Some sellers prefer conventional offers because of appraisal requirements, but in a balanced market FHA offers are routinely accepted.
Can I use FHA more than once?
Generally you can only hold one FHA loan at a time, with narrow exceptions for relocation or family size changes.