Key takeaways
- FHA allows 3.5% down with a 580+ score (10% down at 500 to 579); conventional loans generally need 620 and can start at 3% down.
- FHA charges 1.75% upfront MIP plus annual MIP, which lasts for the life of the loan with less than 10% down.
- Conventional PMI can be canceled at 80% of the original value and ends automatically at 78%.
- In our hypothetical $300,000 example, conventional costs about $53 less per month with strong credit, but FHA wins if PMI is priced high.
- Compare Loan Estimates for both loan types, factoring in how long mortgage insurance lasts.
FHA and conventional loans are the two most common mortgage options for U.S. homebuyers, and choosing between them can change your down payment, your monthly payment, and how long you pay for mortgage insurance. FHA loans are insured by the Federal Housing Administration and are known for flexible credit standards. Conventional loans are not government-insured and usually follow guidelines set by Fannie Mae and Freddie Mac. This guide compares the two on down payment, credit, debt-to-income, and mortgage insurance, then runs a side-by-side hypothetical example.
FHA vs. conventional at a glance
| Feature | FHA loan | Conventional loan |
|---|---|---|
| Minimum down payment | 3.5% with a 580+ credit score; 10% with 500 to 579 | 3% through certain programs; 5% or more is common |
| Typical minimum credit score | 500 (with 10% down) or 580 (with 3.5% down), subject to lender overlays | Generally 620 |
| Upfront mortgage insurance | 1.75% of the base loan, usually financed | None |
| Monthly mortgage insurance | Annual MIP, divided monthly | PMI if less than 20% down |
| When mortgage insurance ends | Life of loan with under 10% down; 11 years with 10% or more | Can be canceled at 80% loan-to-value; ends automatically at 78% |
| Debt-to-income flexibility | Often more flexible | Usually somewhat stricter |
| Property standards | FHA appraisal with minimum property standards | Standard appraisal |
| Occupancy | Primary residence only | Primary, second home, or investment property |
Down payment requirements
FHA loans require at least 3.5% down if your credit score is 580 or higher, and 10% down if your score is between 500 and 579. Down payment funds can come from savings, a qualifying gift, or an approved assistance program.
Conventional loans can go as low as 3% down through programs designed for first-time buyers and moderate-income borrowers, such as Fannie Mae's HomeReady and Freddie Mac's Home Possible, which have income limits and other conditions. Many conventional borrowers put down 5% to 20%. Putting down 20% eliminates PMI entirely, which is a major advantage over FHA. For a broader look at entry-level options, read our first-time homebuyer FHA guide.
Credit score and debt-to-income
Credit is where FHA loans shine. Because the government insures the lender against loss, FHA guidelines allow lower scores and can be more forgiving of past credit problems, including bankruptcy or foreclosure after required waiting periods. Individual lenders often set their own higher minimums, called overlays, so a 580 score does not guarantee approval everywhere.
Conventional loans typically require a score of at least 620, and pricing is tied closely to credit. Borrowers with lower scores can face higher rates and noticeably more expensive PMI, while borrowers with strong scores often get the best conventional pricing. Our article on how credit scores affect loan rates explains why.
FHA underwriting can also accept higher debt-to-income ratios in many cases. If you have student loans or a car payment, compare both options with real numbers. See our guide on debt-to-income ratio to calculate yours.
Mortgage insurance: MIP vs. PMI
Mortgage insurance protects the lender, not you, if you stop paying. It is the biggest structural difference between these loans.
FHA mortgage insurance premium (MIP)
- Upfront MIP: 1.75% of the base loan amount, usually added to the loan balance.
- Annual MIP: charged as a percentage of the loan and paid monthly. For most 30-year FHA loans with less than 5% down, the annual rate is 0.55%.
- Duration: with less than 10% down, annual MIP lasts for the life of the loan. With 10% or more down, it ends after 11 years. The usual way to remove lifetime MIP is to refinance into a conventional loan once you have enough equity.
Conventional private mortgage insurance (PMI)
- No upfront premium in the standard monthly-pay structure.
- Cost varies based on credit score, down payment, and loan-to-value. Strong credit can mean relatively low PMI; weaker credit can make it expensive.
- Cancellation: under the federal Homeowners Protection Act, you can request cancellation once your balance reaches 80% of the home's original value, if you have a good payment history. PMI must end automatically when your balance is scheduled to reach 78%.
Side-by-side hypothetical example
Consider a $300,000 home. To isolate the effect of mortgage insurance, both loans use the same hypothetical 6.5% fixed rate on a 30-year term. In practice, FHA and conventional rates can differ, and taxes and homeowners insurance are excluded here because they would be similar for both.
| Item | FHA (3.5% down) | Conventional (5% down) |
|---|---|---|
| Down payment | $10,500 | $15,000 |
| Base loan amount | $289,500 | $285,000 |
| Upfront mortgage insurance | $5,066 (financed) | None |
| Total loan amount | $294,566 | $285,000 |
| Principal and interest | $1,862 | $1,801 |
| Monthly mortgage insurance (hypothetical) | $135 (0.55% annual MIP) | $142 (0.60% annual PMI) |
| Estimated monthly payment before taxes and insurance | $1,997 | $1,944 |
| When mortgage insurance ends | Life of loan (unless refinanced) | Request at 80% LTV, about 10 years and 4 months on schedule; automatic at 78%, about 11 years and 3 months |
For a borrower with strong credit, the conventional loan costs about $53 less per month in this example and the PMI eventually goes away, though it requires $4,500 more down. Now assume the same buyer has a lower credit score that pushes hypothetical PMI to 1.2% a year. Conventional PMI would rise to about $285 a month, for a payment of roughly $2,086, which is about $90 more than the FHA option. That flip is why credit score is often the deciding factor.
Other differences worth knowing
Loan limits
Both loan types have maximum loan amounts that are updated each year. Conventional conforming loan limits are set by the Federal Housing Finance Agency, with higher limits in high-cost areas; loans above the limit are jumbo loans with their own rules. FHA limits vary by county and are often lower than conforming limits outside high-cost markets. Check the current limits for your county before you set a price range.
Property and appraisal standards
FHA appraisals check the home against HUD minimum property standards for safety, security, and soundness. Issues such as peeling paint in older homes, missing handrails, or a failing roof may need to be repaired before closing. Conventional appraisals focus mainly on value, so a home needing cosmetic work can be easier to finance conventionally. Some sellers in competitive markets prefer conventional offers for this reason.
Assumability and seller contributions
FHA loans are generally assumable by a qualified buyer, which can be valuable if you sell when rates are higher than your locked rate. Most conventional loans are not assumable. Both programs allow seller contributions toward closing costs, up to limits that depend on the program and, for conventional loans, on your down payment.
Which loan may fit you better
FHA often fits borrowers with credit scores below the mid-600s, limited savings, higher debt-to-income ratios, or recent credit setbacks. Conventional often fits borrowers with good to excellent credit, at least 5% down, or plans to buy a second home or investment property. If you choose FHA now, you can still refinance to conventional later; our mortgage refinance page explains when that may make sense.
The most reliable way to decide is to request Loan Estimates for both loan types from licensed lenders and compare total costs. Lending Buddy is not a mortgage lender and does not set rates or make credit decisions, but it can connect you with licensed mortgage partners offering FHA, conventional fixed-rate, and first-time buyer programs. Lending Buddy is free for borrowers, and there is no obligation to accept an offer. Visit our home loans page, and verify any lender's license at NMLS Consumer Access.
The bottom line
FHA loans offer lower credit requirements and 3.5% down at 580+, but carry upfront and annual MIP that often lasts the life of the loan. Conventional loans usually need a 620 score and can start at 3% down, and PMI can be canceled at 80% loan-to-value. With strong credit, conventional is often cheaper; with weaker credit, FHA may win. Run both scenarios with real quotes before you commit. When you are ready to be connected with mortgage partners in the Lending Buddy network, you can Apply Now.
Frequently Asked Questions
Is an FHA loan only for first-time homebuyers?
No. FHA loans are available to repeat buyers as well as first-time buyers, as long as the home will be your primary residence and you meet credit, income, and property requirements. FHA loans are popular with first-time buyers because of the low down payment and flexible credit standards, but there is no first-time buyer requirement.
Can I remove FHA mortgage insurance?
It depends on your down payment. If you put down 10% or more, annual MIP ends after 11 years. If you put down less than 10%, MIP generally lasts for the life of the loan. Many borrowers remove it by refinancing into a conventional loan after building about 20% equity, though refinancing involves new closing costs.
Are FHA interest rates lower than conventional rates?
FHA rates are sometimes lower than conventional rates, especially for borrowers with moderate credit scores, because the government insurance reduces lender risk. However, the total cost also includes upfront and annual mortgage insurance. Comparing the APR and the full monthly payment on Loan Estimates for both options gives a more accurate picture than comparing rates alone.
Which loan is better with a 620 credit score?
At 620, you may qualify for both. Conventional PMI tends to be expensive at that score, so FHA often produces a lower monthly payment. If you can raise your score before applying, conventional pricing may improve. Request Loan Estimates for both from licensed lenders and compare total monthly cost and how long mortgage insurance lasts.
