Decision Guide
8 min read
FHA vs Conventional: Which Loan Is Right for You?
FHA loans require 3.5% down with a 580 credit score; conventional loans require 3-5% down with a 620+ score. FHA has lifetime mortgage insurance; conventional PMI drops at 80% LTV. Here's the full comparison.
The Quick Comparison
| Feature | FHA | Conventional |
|---|---|---|
| Min. Down Payment | 3.5% | 3% (first-time) / 5% |
| Min. Credit Score | 580 (3.5% down) / 500 (10% down) | 620+ |
| Mortgage Insurance | Upfront MIP (1.75%) + Annual MIP | PMI (if <20% down) |
| MI Removal | Stays for life of loan (if <10% down) | Drops at 78-80% LTV |
| Max DTI | Up to 57% (with compensating factors) | Up to 50% |
| Loan Limits (2024) | $472,030 (most areas) | $472,030 (conforming) |
| Property Requirements | Stricter (must meet HUD standards) | More flexible |
When FHA Wins
- Credit score below 680. FHA rates are less sensitive to credit score. If your score is 580-660, FHA will likely offer better terms.
- High DTI. FHA allows DTI up to 57% with compensating factors. If your debts are high relative to income, FHA is more forgiving.
- Minimal savings. FHA's 3.5% down payment and the ability to use gift funds for the entire amount make it accessible.
- Recent credit events. FHA has shorter waiting periods after bankruptcy (2 years) and foreclosure (3 years) compared to conventional.
When Conventional Wins
- Credit score above 720. You'll get the best conventional rates, and PMI will be cheaper than FHA MIP.
- 10%+ down payment. Conventional PMI drops off at 80% LTV. FHA MIP stays for the life of the loan (unless you put 10%+ down, then it drops after 11 years).
- Higher-priced homes. Conventional loans have higher limits in some areas and don't have the same property condition requirements.
- Investment properties. FHA is only for primary residences. Conventional allows investment properties and second homes.
The MIP vs PMI Cost Difference
This is where the real money is. On a $300,000 home with 5% down:
| Cost | FHA | Conventional (720+ credit) |
|---|---|---|
| Upfront fee | $4,988 (1.75% MIP) | $0 |
| Monthly MI | $165/mo (0.55% annual) | $95/mo |
| MI duration | Life of loan | ~7 years (to 78% LTV) |
| Total MI cost (10 years) | $24,788 | $7,980 |
The Bottom Line
FHA is a great tool for getting into homeownership when your credit or savings aren't perfect. Conventional is better when you have strong credit and can put more down. Run both scenarios with our calculators to see which saves you more in your specific situation.
Run the Numbers
Try these calculators to apply what you learned