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.
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).
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.
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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.
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