FHA vs Conventional Loan: Side-by-Side Comparison
FHA and conventional loans are the two big buckets most buyers choose between. They look similar from the outside but solve different problems. Here’s how to know which one fits your situation — and which one quietly costs more long-term.
The 30-second version
FHA loans are insured by the Federal Housing Administration and designed for buyers with lower credit scores or smaller down payments. Conventional loans are privately insured (or self-insured by the borrower with 20% down) and designed for borrowers with stronger credit and savings. FHA is easier to qualify for; conventional is usually cheaper if you can qualify.
Side-by-side
| FHA | Conventional | |
|---|---|---|
| Min. credit score | 580 (with 3.5% down) or 500 (with 10% down) | 620 typical; 740+ for best rates |
| Min. down payment | 3.5% | 3% (first-time programs) or 5% standard |
| Mortgage insurance | Upfront 1.75% + monthly MIP for life of loan in most cases | Monthly PMI, drops off automatically at 78% LTV |
| Max DTI | Up to 50%+ with compensating factors | 43%–50%, depending on program |
| Loan limits | County-based; lower than conventional | Conforming: $806,500 (2026, most counties) |
| Property condition | Stricter appraisal — must meet HUD standards | Standard appraisal |
| Property type | Primary residence only (usually) | Primary, second home, or investment |
| Interest rate | Often slightly lower headline rate | Higher rate, but no MIP after equity |
| Refinance later | Streamline refinance is fast, no full re-underwrite | Standard refi process |
| Assumable | Yes — buyer can take over your loan | Generally not assumable |
The mortgage insurance gotcha
This is the single most important difference and the place buyers get ambushed.
FHA MIP has two parts. An upfront 1.75% of the loan amount, financed into the loan ($5,250 on a $300k loan). And a monthly MIP of 0.55%–1.05% per year. Critically, MIP usually stays for the life of the loan if you put less than 10% down — it never goes away no matter how much equity you build. You can only escape it by refinancing into a conventional loan.
Conventional PMI is monthly only (no upfront), and automatically drops off at 78% LTV by federal law, and you can request cancellation at 80%. Once you reach 20% equity (through paydown or appreciation), PMI is gone for good.
Practical impact on a $300,000 loan with 5% down:
- FHA: pays MIP roughly $138/mo for the entire 30 years = ~$50,000
- Conventional: pays PMI ~$125/mo for ~8 years until 78% LTV = ~$12,000
The "FHA is for affordability" framing breaks down once you see this — over the life of the loan, conventional with 5% down is often $30,000+ cheaper than FHA with 3.5% down.
When FHA is the right choice
- Credit score 580–620. You’ll qualify for FHA but probably not conventional, or the conventional rate will be so high that FHA wins anyway.
- You’re tight on cash. 3.5% down vs 5% can be a real $5,000+ difference on a $300k home.
- You plan to refinance within 5 years. If your credit improves or the home appreciates, you can refinance into conventional and shed MIP. The trick is actually doing it.
- You expect to sell to a buyer who’ll assume the loan. If rates have risen since you locked, an assumable FHA loan at your old low rate is a real selling feature.
When conventional is the right choice
- Credit score 680+ with at least 5% down. The PMI rate at this credit level is meaningfully lower than FHA MIP, and PMI eventually disappears. Conventional usually wins at 30 years.
- You can put 20% down. No PMI at all from day one. Conventional is dramatically cheaper.
- The home doesn’t pass FHA appraisal standards. Older homes, fixer-uppers, and unusual properties often fail FHA’s stricter requirements. Conventional is more flexible.
- You’re buying an investment property or second home. FHA is primary residence only; conventional doesn’t have that restriction.
What about VA and USDA?
Two underused options worth knowing about:
- VA loans beat both FHA and conventional for eligible buyers — 0% down, no monthly mortgage insurance, competitive rates. Available to active-duty service members, veterans, and qualifying surviving spouses.
- USDA loans offer 0% down for properties in eligible rural and some suburban areas, with income limits. The eligibility map is broader than most people expect — check before assuming you don’t qualify.
Decision flow
- Are you eligible for VA or USDA? Use that.
- Otherwise: credit score 580–679 + low cash on hand → FHA.
- Credit score 680+ → run the numbers on both, conventional usually wins.
- 20% down available → conventional, no question.
- Edge case: planning to sell within 5 years and rates are low → FHA for the assumable feature is worth considering.
Run the numbers
Use our mortgage calculator with your real scenario — enter the same loan twice, once with FHA assumptions (3.5% down, ~0.55% MIP) and once with conventional (5% down, ~0.5% PMI), and compare total cost over 30 years.
Not sure how much house you can afford in either scenario? Try our affordability calculator first, then plug the answer into the loan comparison.
Curious how down payment fits in more broadly? Read how much down payment you actually need.