FHA and conventional loans are the two workhorses of U.S. home financing, and the choice between them usually comes down to three things: how much you can put down, your credit profile, and how long you plan to keep the loan. Neither is universally "better" — each is cheaper in different circumstances, and getting the comparison wrong can cost thousands over the life of the loan.
The core differences
| FHA | Conventional | |
|---|---|---|
| Minimum down payment | 3.5% (with a 580+ score) | 3–5% on many programs, 20% to avoid mortgage insurance |
| Minimum credit score | 500–580 depending on down payment | Typically 620+ |
| Mortgage insurance | Upfront premium plus annual premium, often for the life of the loan | Private mortgage insurance (PMI), cancellable once you reach 20% equity |
| Debt-to-income flexibility | More flexible, can approve above 50% DTI with compensating factors | Generally capped around 43–45% |
| Property requirements | Must meet HUD minimum health and safety standards | Generally more flexible on condition |
| Loan limits | Lower, set by county | Higher conforming limits, plus jumbo options above that |
Where FHA wins
FHA exists precisely for borrowers conventional underwriting turns away: thinner credit files, lower scores, higher DTI. If your score is under 680 or your debt load is heavier, FHA often approves at a rate and cost conventional simply won't match. The 3.5% down payment also makes it the most accessible path to a first purchase for many buyers.
Where FHA costs you later
The catch is mortgage insurance. On most FHA loans originated with less than 10% down, the annual mortgage insurance premium (MIP) runs for the entire life of the loan — it doesn't cancel automatically at 20% equity the way conventional PMI does. The only way off it is to refinance into a conventional loan once your credit and equity improve. On a $300,000 loan, FHA's combined upfront and annual premiums commonly add well over $100,000 in insurance cost over 30 years if never refinanced away.
Where conventional wins
If your credit score is 680 or higher and you can put down at least 5%, conventional usually costs less overall, largely because PMI cancels once you hit 20% equity — either through payments or appreciation — while FHA's MIP typically does not. Conventional loans also carry no upfront mortgage insurance premium, which on FHA runs 1.75% of the loan amount, financed into the balance.
A rule of thumb
- Score below 680, thin credit file, or high DTI: FHA is usually the more realistic — sometimes the only — path today, with a plan to refinance to conventional once your profile improves.
- Score 680+ with 5%+ down: Run the numbers on conventional first. The PMI you'll shed in a few years usually beats FHA's lifetime MIP.
- Score 740+ with 20% down: Conventional with no mortgage insurance at all, generally the cheapest option available.
Not every lender treats the two loans the same way
Lenders specialize. Some do heavy FHA volume and price it aggressively and underwrite it efficiently; others barely touch it and their FHA process shows it in slower turn times and higher effective costs. Before assuming a lender is the right fit for either loan type, check its actual mix and denial rate by loan type — every lender's profile on this site breaks down applications by FHA, conventional, VA and USDA, along with the denial rate for each, so you can see whether a lender's FHA approval rate matches its conventional approval rate or lags well behind it.