FHA vs. Conventional: Which Loan Fits You?
A side-by-side look at credit, down payment, and mortgage insurance - with real math on which loan actually costs less.
The Short Version
FHA and conventional loans are the two mainstream options for buyers who don't qualify for VA or USDA. The right choice comes down to your credit score, your down payment, and whether you plan to keep the loan long enough for conventional's dropping mortgage insurance to win the long-term math.
As a rough rule: below 680 credit or under 5% down, FHA usually wins. At 700+ credit with 5%+ down, conventional usually wins. Between those ranges, it's a real calculation.
Head-to-Head at a Glance
Every dimension below matters, but the ones that most often decide the outcome are minimum credit, mortgage insurance behavior over time, and whether the seller can help with closing costs.
| Minimum down payment | FHA: 3.5% (at 580+ score) | Conventional: 3% (first-time buyers) |
| Minimum credit score | FHA: 580 typical, 500 with 10% down | Conventional: 620 typical |
| Mortgage insurance up front | FHA: 1.75% UFMIP financed | Conventional: none |
| Monthly mortgage insurance | FHA: 0.55% annual, life of loan in most cases | Conventional: varies by credit + LTV, drops off at 80% LTV |
| Max DTI (typical) | FHA: 45%–56.9% | Conventional: 45%–50% |
| Seller credit cap | FHA: up to 6% | Conventional: 3% (LTV > 90%), 6% (LTV 75%–90%) |
| Property condition standards | FHA: strict (safety, security, soundness) | Conventional: lender/appraiser judgment |
When FHA Is the Right Answer
FHA was designed to widen access to homeownership. If your credit is in the 580–680 range, if you've had a recent late payment, a bankruptcy that just seasoned out, or a higher DTI than a conventional lender is comfortable with, FHA's flexibility is often the difference between qualifying and not.
FHA is also friendlier when the seller is contributing significantly to closing costs (up to 6% vs conventional's 3% at high LTV) and when the property needs the appraiser to check for basic safety and soundness - a mild feature for buyers, not a bug.
- Credit score 580–679, or a recent credit event.
- Higher DTI (48%–56% back-end).
- You need a large seller credit for closing costs.
- You plan to refinance out of FHA in the next few years anyway (e.g., after building equity).
When Conventional Is the Right Answer
The single biggest cost difference between the two programs is that FHA mortgage insurance sticks with the loan for its life in most cases (any loan with less than 10% down). Conventional PMI drops off automatically at 80% loan-to-value based on original value. Over a five- to ten-year hold, that can be tens of thousands of dollars.
Conventional also prices better at high credit scores. At 740+ credit with 20% down, the effective rate + insurance cost is almost always lowest on conventional.
- Credit score 700+ and at least 5% down.
- You expect to stay in the home more than five years.
- You have 20% down and want to skip mortgage insurance entirely.
- The property has cosmetic issues that might snag on FHA's minimum property standards.
The Math That Actually Matters: Cost over the Hold
Comparing rate alone is a mistake. The right comparison is total monthly PITI + MI at each program, plus when (if ever) the mortgage insurance drops. A conventional loan with slightly higher rate but MI that ends in year six can cost less than a slightly-cheaper FHA loan that carries MIP for 30 years.
We'll run this comparison for you at application. As a shortcut, if you're at 680–700 credit and 5%–10% down, ask specifically for a side-by-side quote - that's where the two programs are close enough that a small change in market pricing tips the answer.
Conventional at 6.75% ≈ $2,464 P&I + $132 PMI = $2,596 mo., with PMI ending around year 8. FHA at 6.25% ≈ $2,346 P&I + $175 MIP = $2,521 mo., with MIP for the life of the loan. Over 10 years, the conventional loan saves roughly $8,000 despite the higher starting payment - because PMI dropped.
A Common Third Path: Refinance Out of FHA Later
If FHA is the only way to get into a home today, that's fine. Once you've built to 20% equity through payments and appreciation - often within a few years in appreciating markets - you can refinance into a conventional loan and drop mortgage insurance entirely. This is a routine and very common progression.
Just do the refinance math when the time comes: the savings on MI have to outweigh the closing costs on the refi, using the same break-even framework we use for any refinance decision.