FHA vs. Conventional Loans: Which Is Right for You?

FHA and conventional loans are the two most common mortgage paths for U.S. buyers. They're both designed for primary residences, both close in roughly the same timeframe, and both can result in long-term homeownership. But the eligibility rules, mortgage-insurance treatment, and long-term cost can be very different.

How They're Different at a Glance

FHA loans are insured by the Federal Housing Administration and originated by private lenders. They were designed to make homeownership accessible to a wider range of buyers, with lower credit minimums and lower required down payments.

Conventional loans aren't government-insured. They follow underwriting standards set by Fannie Mae and Freddie Mac, and tend to be a better deal for borrowers with stronger credit because the mortgage insurance can be canceled and the lifetime cost is often lower.

Credit Score Requirements

FHA officially allows credit scores as low as 580 with a 3.5% down payment, or 500 with 10% down. In practice, most FHA lenders look for 620+.

Conventional loans typically require a 620 minimum, with significantly better pricing kicking in at 680, 720, and 740+. Above 740 you're in the best-rate tier.

Down Payment

FHA: 3.5% minimum, and 100% of the down payment can come from a gift (family, employer, qualifying down-payment program).

Conventional: as low as 3% down for first-time buyers using HomeReady or Home Possible. 5% is the standard minimum for repeat buyers on a primary residence.

Mortgage Insurance: The Biggest Long-Term Difference

On FHA loans, mortgage insurance is in two parts: an upfront MIP of 1.75% of the loan (rolled into the balance) plus an annual MIP typically 0.50%–0.85% of the loan balance. On most modern FHA loans, the annual MIP stays for the life of the loan.

On conventional loans with less than 20% down, you pay PMI, but it can be canceled once you reach 80% loan-to-value and is automatically removed at 78% LTV. That cancellation is a major reason conventional often wins for borrowers who plan to stay 5+ years.

When FHA Makes Sense

FHA is usually the right call if your credit is in the 580–660 range, your down payment is small (gifted or otherwise), or your debt-to-income is on the higher side. FHA also has more forgiving guidelines for past credit events like bankruptcies or collections.

When Conventional Wins

If your credit is 700+, you have meaningful savings, and you plan to stay in the home for years, conventional usually costs less over time. The bigger advantage: once you hit 20% equity, PMI disappears, saving you potentially hundreds per month.