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FHA Loan vs. Conventional Loan
FHA and Conventional are the two most common mortgage programs in the country. Both work for purchase and refinance. The right one depends on your credit score, down payment, and whether you want to be rid of mortgage insurance later.
Side-by-side comparison
| FHA Loan Government-backed loan with flexible credit and 3.5% down. | Conventional Loan Fannie Mae or Freddie Mac loan with 3% – 20%+ down and no upfront MI. | |
|---|---|---|
| Minimum credit score | 580 (3.5% down) or 500–579 (10% down) | 620 typical (best pricing 700+) |
| Minimum down payment | 3.5% (or 10% at credit 500–579) | 3% for first-time buyers; 5% typical |
| Upfront mortgage insurance | 1.75% UFMIP (financed) | None |
| Monthly mortgage insurance | Annual MIP for life of loan (most files) | PMI until 78% LTV, then automatic drop |
| Maximum DTI | Up to 56.9% with compensating factors | 45% typical, up to 50% with strong file |
| 2026 loan limit (baseline) | $524,225 | $806,500 |
| Occupancy | Primary residence only | Primary, second home, or investment |
| Gift funds | 100% of down payment allowed | 100% allowed for primary; some restrictions on investment |
| Best for | Lower credit, first-time buyers, gift-funded down payment | Higher credit, wanting to remove MI, second homes, investment |
How to choose
- If your credit is 580–680: FHA usually wins on rate and DTI flexibility.
- If your credit is 720+: Conventional almost always wins because PMI is cheaper than FHA MIP and drops off automatically.
- If you plan to stay in the home 7+ years: Conventional wins long-term because you'll be free of PMI, while FHA MIP lasts the life of the loan.
- If you're using down payment assistance: FHA is more flexible with layered DPA programs.
Best for a FHA Loan
- Credit scores between 580 and 680
- Buyers using significant gift funds or down payment assistance
- Higher-DTI borrowers who need FHA's more forgiving DTI limits
- First-time buyers who need the lowest possible cash-to-close
Best for a Conventional Loan
- Credit scores of 700 or higher
- Buyers who want to remove mortgage insurance without refinancing
- Second home and investment property purchases
- Loan amounts between the FHA limit and the Conventional loan limit
Frequently asked questions
Which is easier to qualify for — FHA or Conventional?
FHA is generally easier to qualify for. It allows lower credit scores (down to 580 with 3.5% down, or 500 with 10% down), higher debt-to-income ratios (up to 56.9% with compensating factors), and 100% gift funds for the down payment. Conventional requires a 620+ credit score in most cases.
Is FHA or Conventional cheaper long-term?
It depends. FHA charges annual mortgage insurance (MIP) for the life of the loan in most cases, which adds up over years. Conventional PMI drops off automatically at 78% LTV — usually within 8 – 10 years for a typical purchase. If you plan to stay in the home long-term with a Conventional loan, it's often cheaper. If you plan to refinance out of FHA once you have 20% equity, the difference narrows.
Can I refinance from FHA to Conventional to drop mortgage insurance?
Yes — this is one of the most common reasons FHA borrowers refinance. Once you have 20% equity and meet Conventional credit and income requirements, refinancing into a Conventional loan removes the FHA MIP entirely.
What credit score gets the best rate on FHA vs Conventional?
On FHA, rate pricing is somewhat flatter across credit scores because the government guarantees the loan. On Conventional, rate pricing improves significantly at 680, 720, and 740. If you're at 740+, Conventional is usually cheaper. If you're under 680, FHA is usually cheaper.