Overview
FHA loans are government-backed mortgages designed for borrowers with lower credit scores or smaller down payments. Conventional loans are not government-insured and typically offer better terms for borrowers with strong credit. The right choice depends on your credit score, down payment savings, and how long you plan to keep the loan.
Side-by-Side Comparison
| Feature | FHA Loan | Conventional Loan |
|---|---|---|
| Minimum Down Payment | 3.5% (580+ credit) | 3% (some programs) |
| Credit Score Minimum | 500 (10% down) or 580 (3.5% down) | 620 typical minimum |
| Mortgage Insurance | Upfront MIP (1.75%) + annual MIP (0.55%) | PMI only if <20% down; drops at 80% LTV |
| MI Duration | Life of loan (if <10% down) | Cancellable at 80% LTV |
| Loan Limits (2024) | $498,257 (standard); $1,149,825 (high-cost) | $766,550 (standard); $1,149,825 (high-cost) |
| Property Requirements | Strict FHA appraisal standards | Standard appraisal |
| Seller Concessions | Up to 6% of purchase price | 3% (if <10% down), 6% (10-25%), 9% (25%+) |
| Interest Rates | Typically 0.25-0.5% lower | Slightly higher; rate depends on credit score |
| Assumable | Yes | No |
Pros & Cons
FHA Loan
Advantages
Lower credit score requirements — available with scores as low as 500
Lower down payment (3.5%) with moderate credit
More lenient DTI requirements (up to 50% in some cases)
Lower interest rates than conventional for lower-credit borrowers
Loan is assumable — a valuable feature if rates rise
Disadvantages
Mortgage insurance for the life of the loan (if <10% down)
Upfront MIP adds 1.75% to your loan balance
Stricter property standards — may fail appraisal on older homes
Lower loan limits in most areas
Conventional Loan
Advantages
PMI is cancellable once you reach 80% LTV
No upfront mortgage insurance premium
Higher loan limits for expensive markets
Less strict property requirements
Better long-term cost for borrowers with 20%+ down
Disadvantages
Higher credit score required (620+ minimum, 740+ for best rates)
Higher interest rates for borrowers with lower credit
Stricter DTI requirements (typically 43% max)
Not assumable
When to Choose Each Option
Choose FHA Loan if...
Choose FHA if your credit score is below 680, you have limited savings for a down payment, or you have a higher debt-to-income ratio. FHA is also a good choice if you plan to sell or refinance within a few years before the lifetime MIP becomes a major cost factor.
Choose Conventional Loan if...
Choose conventional if your credit score is 700+, you can put 10-20% down, or you plan to stay in the home long-term. The ability to cancel PMI makes conventional loans significantly cheaper over time for borrowers who start with less than 20% down.
The Bottom Line
For most borrowers with credit scores above 700 and at least 5% down, a conventional loan will cost less over time because PMI can be cancelled. FHA is the better path for borrowers with credit challenges or minimal savings. Run the numbers with both our FHA and mortgage cost calculators to see the actual dollar difference for your situation.
Run the Numbers
Frequently Asked Questions
It depends on your credit and savings. First-time buyers with credit scores above 700 and at least 5% down often save more with conventional. Those with lower credit or minimal savings benefit from FHA's more lenient requirements.
Yes. Many borrowers start with FHA and refinance into a conventional loan once their credit improves or they reach 20% equity. This eliminates the lifetime MIP requirement.
FHA charges both an upfront premium (1.75% of the loan) and annual premiums (0.55% for most borrowers). Unlike conventional PMI, FHA MIP cannot be cancelled if you put less than 10% down, making it more expensive over the full loan term.