FHA vs Conventional Loan
Last updated July 2026
FHA Loan
Making homeownership accessible with lower barriers
Advantages
- Down payment as low as 3.5% with a 580+ credit score
- More lenient credit requirements, scores as low as 500 with 10% down
- Higher debt-to-income ratios accepted than conventional loans
- Gift funds can cover the entire down payment
- Competitive interest rates even for lower credit scores
Drawbacks
- Mortgage insurance premium (MIP) lasts the life of the loan with less than 10% down
- Upfront MIP of 1.75% added to the loan balance
- Property must meet FHA appraisal standards which can be stricter
- Loan limits are lower than conventional in many markets
Conventional Loan
The standard mortgage for qualified buyers
Advantages
- PMI drops off at 80% loan-to-value, not permanent like FHA MIP
- No upfront mortgage insurance premium
- Higher loan limits and more property type flexibility
- Lower total cost over the life of the loan for borrowers with 700+ credit
- Can be used for second homes and investment properties
Drawbacks
- Requires higher credit scores for the best rates (740+)
- 3-20% down payment required
- Stricter underwriting standards for income and debt ratios
- PMI with less than 20% down adds $50-$200/mo
FHA and conventional loans are the two most common mortgage types for homebuyers, and first-time buyers agonize over this choice most. FHA loans have lower barriers to entry with smaller down payments and looser credit rules, while conventional loans can be cheaper long-term. Your credit score and savings decide which is right.
Feature Comparison
| Feature | FHA Loan | Conventional Loan |
|---|---|---|
| Down Payment | 3.5% (580+ score) or 10% (500-579 score) | 3-20% (5%+ typical for best terms) |
| Mortgage Insurance | Upfront 1.75% + annual 0.55%; lifetime with <10% down | PMI with <20% down; drops off at 80% LTV |
| Credit Score Requirement | 500 minimum (580+ for 3.5% down) | 620+ minimum; 740+ for best rates |
| Max Debt-to-Income Ratio | Up to 50% with compensating factors | Up to 45% typically; 50% with strong reserves |
| Loan Limits (2026) | $498,257 - $1,149,825 (varies by county, 2026) | $766,550 conforming; higher in HCOL areas (2026) |
| Eligible Property Types | Primary residence only; 1-4 units | Primary, second home, investment; 1-4 units |
| Interest Rates | Competitive; often similar to conventional | Best rates at 740+ credit; higher below 700 |
| Best For | First-time buyers, lower credit scores | Strong credit, 10%+ down payment |
Conventional Loan Wins
Conventional loans win for buyers with credit scores above 700 because PMI drops off, saving thousands over the life of the loan compared to FHA's permanent MIP.
FHA's permanent mortgage insurance is its Achilles heel. With less than 10% down, you pay MIP for the entire life of the loan unless you refinance into a conventional loan later. For a buyer with a 720 credit score putting 5% down, a conventional loan will be meaningfully cheaper over 10+ years because PMI disappears at 80% LTV. That said, FHA remains the better choice if your credit score is below 680 or you need a debt-to-income ratio above 45%, its flexibility gets people into homes who wouldn't qualify conventionally.
Related Comparisons
VA Loan vs Conventional Loan
How the VA home loan benefit stacks up against a standard conventional mortgage.
VA Loan vs FHA Loan
The military benefit against the government-backed loan built for lower-credit first-time buyers.
USDA Loan vs Conventional Loan
The zero-down rural loan against the standard mortgage, which one fits your home purchase?