FHA vs Conventional Loan: Which Is Better for You?
Compare FHA and conventional mortgages on down payment, mortgage insurance, credit requirements, loan limits, and total cost over time.
Choose an FHA loan if your credit is under about 680 or your down payment is minimal, and choose a conventional loan if you have good credit and at least 5% down, because its mortgage insurance can be cancelled at 20% equity.
What you'll walk away with
Skim these first — then dig into the details below.
- 1FHA: 3.5% down at 580 credit, but mortgage insurance usually lasts the life of the loan.
- 2Conventional: 3% down with good credit, and PMI cancels at 20% equity.
- 3FHA is more forgiving on credit history and debt-to-income ratio.
- 4Compare total cost including insurance, not just the interest rate.
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FHA and conventional loans are the two paths most buyers choose between. FHA is government-insured and built for borrowers with weaker credit or thin savings. Conventional loans are not government-backed and reward stronger credit with better pricing and cancellable mortgage insurance.
Run both scenarios side by side in the loan comparison calculator, then check the full monthly payment in the mortgage calculator.
Side-by-side requirements
These are program minimums. Individual lenders can and often do require more, particularly on credit score.
- Minimum credit: FHA 580 (or 500 with 10% down) versus conventional 620.
- Minimum down payment: FHA 3.5% versus conventional 3% for eligible first-time buyers.
- Mortgage insurance: FHA charges 1.75% upfront plus an annual premium; conventional charges monthly PMI only.
- Insurance removal: FHA usually never (unless you put 10% down); conventional at 20% equity.
- Debt-to-income allowance: FHA up to about 50%; conventional typically 45%.
- Property condition: FHA appraisals apply stricter minimum standards.
When FHA is the better choice
FHA exists to make homeownership reachable when your credit file is not yet strong. Used deliberately, it is a bridge rather than a permanent arrangement.
- Your credit score is between 580 and 660.
- You have a recent bankruptcy, foreclosure, or short collection history.
- Your debt-to-income ratio is above 45%.
- You have minimal savings and need the lowest possible cash to close.
- You plan to refinance into a conventional loan once credit and equity improve.
When conventional is the better choice
If your credit qualifies, conventional almost always costs less over the life of the loan because the insurance is temporary.
- Your credit score is 680 or higher — pricing improves sharply at 740.
- You can put down 5% or more.
- You intend to stay in the home long enough to reach 20% equity.
- You want to avoid the 1.75% upfront FHA premium.
- You are buying a property that would not pass FHA appraisal standards.
How to decide and what to compare
Ask each lender to quote both programs so you are comparing your actual options, not a general rule.
- 1
Pull your middle credit score from all three bureaus.
- 2
Request Loan Estimates for FHA and conventional from three lenders on the same day.
- 3
Compare the total monthly payment including mortgage insurance, not just principal and interest.
- 4
Add up total cost over the years you realistically expect to own the home.
- 5
If you choose FHA, plan a refinance review once you reach roughly 20% equity. Read our PMI guide first.
Disclaimer: This page includes AI-assisted educational content reviewed for general accuracy. It is not personalized financial, tax, or legal advice. Verify numbers with a qualified professional and our editorial standards.
Continue reading
Related guides that deepen the same decision.
First-Time Homebuyer Guide: Steps, Programs & Mistakes
Buy your first home by getting pre-approved before you shop, saving both a down payment and 2–5% for closing costs, and comparing at least three lenders on the same day for the best rate.
ReadReal EstateWhat Is PMI? Private Mortgage Insurance Explained
PMI is insurance that protects your lender when you put less than 20% down, typically costing 0.5–1.5% of the loan per year until you reach 20% equity.
ReadReal EstateWhat Credit Score Do You Need for a Mortgage?
Most conventional mortgages require a 620 minimum and FHA loans go as low as 580 with 3.5% down, but you generally need 740 or higher to qualify for the best available interest rate.
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