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FHA vs Conventional: Which Loan Is Right?

FHA and conventional loans are the two paths most first-time U.S. buyers choose between. They look similar on the surface — and very different once you do the long-term math on mortgage insurance.

Key takeaways
  • Down payment: FHA 3.5% with a 580+ FICO; conventional as low as 3% with a 620+ FICO.
  • FHA accepts lower credit and higher DTI; conventional rewards strong credit with better rates and removable PMI.
  • On most FHA loans with less than 10% down, MIP lasts the LIFE of the loan. Conventional PMI drops off automatically at 78% LTV.
  • Rule of thumb: FHA wins for lower credit scores; conventional wins for good credit and anyone who plans to build 20% equity.

Down payment minimums

  • Conventional: 3% down on first-time buyer programs (Fannie Mae HomeReady, Freddie Mac Home Possible); 5% down for most repeat buyers.
  • FHA: 3.5% down with a FICO of 580+. With a 500-579 score, FHA still allows the loan but requires 10% down.

Credit score

FHA is the more forgiving option on credit. Lenders routinely approve FHA loans with FICO scores in the low 600s and even high 500s. Conventional loans technically allow 620+, but the rate at 620 will be punishingly high — conventional really starts to make sense at 680+, and gets meaningfully better at 740+.

Mortgage insurance — where the loans really differ

Conventional PMI

Required when you put less than 20% down. Costs 0.5-1.5% of the loan per year. Drops off automatically at 78% loan-to-value, and you can request cancellation at 80%. In other words: it's temporary.

FHA MIP

FHA has two parts: an upfront MIP of 1.75% of the loan amount (usually financed into the loan), plus an annual MIP of roughly 0.15%-0.55% of the balance per year, paid monthly.

The catch most buyers don't see coming: on FHA loans originated after June 3, 2013 with less than 10% down, the annual MIP lasts the LIFE of the loan. It does not drop off at 78% LTV the way conventional PMI does. With 10% or more down, MIP drops off after 11 years. The only way out for a 3.5%-down FHA borrower is usually to refinance into a conventional loan once you have 20% equity.

Loan limits

Conventional conforming loans cap at $832,750 in most U.S. counties for 2026 (up 3.26% from 2025's $806,500), with higher limits in high-cost areas. FHA loan limits are lower and vary by county — the floor is $541,287 and the ceiling is $1,249,125 in high-cost areas (matching the conforming high-cost limit). Check the FHA limit for the specific county before assuming FHA fits.

Other differences

  • DTI: FHA commonly allows total DTI up to 50%+ with compensating factors. Conventional usually tops out around 43-45%.
  • Property condition: FHA has strict appraisal requirements (no peeling paint on pre-1978 homes, working systems, etc.). Some sellers prefer conventional offers to avoid the FHA appraisal.
  • Assumability: FHA loans are assumable by a qualified buyer. Most conventional loans are not. In a high-rate environment, an assumable low-rate FHA loan is a real selling point years later.

When FHA makes sense

  • Your FICO score is between roughly 580 and 680.
  • Your DTI is on the higher side.
  • You need the lower upfront monthly to qualify, and plan to refinance to conventional once you build 20% equity.

When conventional wins

  • Your FICO is 680+ (and especially 740+).
  • You can put 5-20% down.
  • You want PMI that will actually drop off as you build equity.
  • You're buying above the FHA county loan limit.
Try the math yourself

Compare what an FHA payment vs a conventional payment would look like in the mortgage calculator.

Frequently asked questions

Can I refinance an FHA loan to a conventional loan later?

Yes — once you have 20% equity (from price appreciation, principal paydown, or both), you can refinance into a conventional loan and drop MIP entirely. This is the standard playbook for buyers who use FHA to get in the door and then move to conventional once equity allows.

Is the FHA upfront MIP refundable?

Partially, if you refinance into another FHA loan within 3 years of origination — you get a prorated refund credited toward the new upfront MIP. If you refinance to a conventional loan, the upfront MIP is not refunded.

Does FHA have higher interest rates than conventional?

Often the base rate is similar or slightly lower than conventional — FHA loans are government-insured, which lowers lender risk. The total cost is usually higher than conventional, not because of the rate, but because of MIP over the life of the loan.

Are FHA loans only for first-time buyers?

No. FHA loans are open to any qualifying buyer for a primary residence. There's no first-time-buyer requirement, no income cap, and you can use FHA more than once over your lifetime (though you generally can't have two FHA loans at the same time).

HomeAfford provides educational estimates and general information, not financial, tax, or legal advice. Always confirm specifics with a licensed professional.

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