Conventional Loan vs. FHA Loan: Which Is Better?
Last updated: October 2026 · Editorial standards
Conventional and FHA loans are the two most common mortgage types for home purchases. They’re not interchangeable — each has distinct strengths. The right one depends entirely on your credit score, down payment, and financial situation.
The Basic Difference
Conventional loans are not insured or guaranteed by any government agency. They’re originated by private lenders and sold to Fannie Mae or Freddie Mac on the secondary market.
FHA loans are insured by the Federal Housing Administration. The government guarantee allows lenders to accept lower credit scores and smaller down payments.
Credit Score Requirements
| Loan Type | Minimum Credit Score |
|---|---|
| Conventional | 620 |
| FHA | 580 (3.5% down) / 500 (10% down) |
If your credit score is below 620, FHA is likely your only option among standard mortgage types.
If your score is 680+, conventional loans often offer better terms (especially regarding mortgage insurance).
Down Payment Requirements
| Loan Type | Minimum Down Payment |
|---|---|
| Conventional | 3% (for first-time buyers) / 5% (repeat buyers, most programs) |
| FHA | 3.5% (with 580+ score) |
For credit scores 620–679, FHA’s 3.5% down is often more accessible because conventional lenders add pricing adjustments for lower scores.
Mortgage Insurance Comparison
This is often the deciding factor.
FHA Mortgage Insurance Premium (MIP)
- Upfront MIP: 1.75% of loan amount (can be financed)
- Annual MIP: 0.55–1.05% of loan balance, paid monthly
- Duration: For most FHA loans with less than 10% down — life of the loan
- To eliminate MIP, you must refinance into a conventional loan
Conventional Private Mortgage Insurance (PMI)
- No upfront PMI fee
- Monthly PMI: Typically 0.5–1.5% of loan balance
- Duration: Cancels automatically at 78% LTV; you can request cancellation at 80% LTV
- Eliminated without refinancing once you reach 20% equity
The key advantage of conventional PMI: It goes away. FHA MIP often doesn’t — making FHA more expensive over the long term for borrowers who stay in the loan.
Total Cost Comparison Over Time
| FHA | Conventional | |
|---|---|---|
| Better for lower credit | ✓ | |
| Better mortgage insurance terms | ✓ | |
| Better for smaller down payment (620+ score) | Tied | Tied |
| Long-term cost (10+ years) | Often higher | Often lower |
| Property condition requirements | Stricter | More flexible |
Property Requirements
FHA loans have stricter property standards. The appraiser looks for health and safety issues:
- Peeling paint on homes built before 1978
- Missing handrails
- Broken windows or doors
- Evidence of active roof leaks
- Non-functional utilities
If the home has deferred maintenance or cosmetic issues, FHA may require repairs before loan approval.
Conventional loans have fewer property condition requirements. Cosmetic issues rarely affect approval. This matters for fixer-uppers and older homes.
Loan Limits
FHA: $498,257–$1,149,825 depending on county (2026) Conventional conforming: $766,550 in most areas; higher in some counties
In most markets, conventional loans allow you to borrow more than FHA before jumping to a jumbo loan.
Who Should Choose FHA?
- Credit score below 620 (FHA may be the only option)
- Credit score 620–679 with less than 10% down (FHA often cheaper)
- First-time buyer who needs maximum accessibility
- Buying a home that might not meet conventional property standards
Who Should Choose Conventional?
- Credit score 680+ (PMI is typically cheaper than MIP)
- Plan to stay in the home long-term (PMI cancels; MIP often doesn’t)
- Buying a fixer-upper or older home
- Need to borrow above FHA limits
- Want to avoid upfront MIP of 1.75%
Key Takeaways
FHA loans are more accessible but often more expensive long-term due to persistent mortgage insurance. Conventional loans reward stronger credit with lower costs. Run the numbers for your specific credit score, down payment, and expected time in the home before deciding.
Frequently Asked Questions
Can you switch from FHA to conventional? Yes — through a refinance. Many FHA borrowers refinance to conventional once they have 20% equity to eliminate MIP.
Is FHA better for first-time homebuyers? FHA is often better for first-time buyers with lower credit scores or smaller down payments, but not universally. A first-time buyer with a 720+ credit score and 5% down is usually better served by conventional.
Do interest rates differ between FHA and conventional? FHA rates are often slightly lower, but the mortgage insurance premium typically makes the overall cost higher. Compare APR (annual percentage rate), not just the interest rate.
Can you use FHA and conventional for investment properties? No. Both FHA and conventional require the property to be your primary residence when used with low down payment programs. Conventional loans for investment properties require 15–25% down with different terms.
