FHA vs Conventional Loans: Which Is Right for You?

Two of the most popular mortgage options in America — but which one saves you more money? We break down every key difference so you can choose with confidence.

Quick Answer

FHA loans are ideal for borrowers with credit scores 580–619 or limited savings. Conventional loans offer lower costs for borrowers with 680+ credit and 10%+ down.

SIDE-BY-SIDE

FHA vs Conventional at a Glance

FeatureMinimum Credit Score
FHA Loan580 (3.5% down); 500 (10% down)
Conventional Loan620 minimum; best rates at 740+
FeatureDown Payment
FHA Loan3.5% minimum
Conventional Loan3% minimum (first-time buyers); 5%+ typical
FeatureMortgage Insurance
FHA LoanMIP: 1.75% upfront + 0.55%/yr annual — required for life of loan if down payment < 10%
Conventional LoanPMI: 0.2%–1.5%/yr — removable once you reach 80% LTV
FeatureLoan Limits (2026)
FHA Loan$541,287 standard; up to $1,249,125 in high-cost areas
Conventional Loan$832,750 standard; up to $1,249,125 in high-cost areas
FeatureDTI Ratio
FHA LoanUp to 57% with compensating factors
Conventional LoanTypically 45%; up to 50% with strong reserves
FeatureProperty Types
FHA Loan1–4 units; must be primary residence
Conventional Loan1–4 units; primary, second home, or investment property
FeatureAppraisal Standards
FHA LoanStricter HUD/FHA property standards
Conventional LoanStandard appraisal; appraisal waivers possible
FeatureBest For
FHA LoanLower credit scores, first-time buyers, limited savings
Conventional LoanHigher credit scores, those wanting to avoid long-term mortgage insurance

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DECISION GUIDE

Which Should You Choose?

Choose FHA If You...

  • ✓Have a credit score between 580 and 679
  • ✓Can only put 3.5% down
  • ✓Have a higher debt-to-income ratio
  • ✓Are a first-time homebuyer with limited savings
  • ✓Had a bankruptcy or foreclosure in the past 2–3 years

Choose Conventional If You...

  • ✓Have a credit score of 680 or higher
  • ✓Can put 10–20% down to avoid or remove PMI
  • ✓Want to buy a second home or investment property
  • ✓Prefer lower long-term mortgage insurance costs
  • ✓Want the option to get an appraisal waiver
FAQ

Frequently Asked Questions

Yes. Many homeowners refinance from FHA to conventional once they build enough equity (typically 20%) or improve their credit score. This eliminates the annual MIP and can lower your monthly payment.
It depends. FHA MIP has a 1.75% upfront premium plus 0.55% annually. Conventional PMI rates range from 0.2% to 1.5% depending on credit score and LTV. For borrowers with 720+ credit, conventional PMI is usually cheaper. For borrowers under 680, FHA MIP may cost less.
FHA loans can take slightly longer due to stricter appraisal requirements. Average FHA closing is 45–50 days vs. 30–45 days for conventional. However, with a prepared lender like NetCORE Lending™, we streamline the process to minimize delays.
Yes. Both FHA and conventional loans allow gift funds for the down payment. FHA loans allow 100% of the down payment to come from gift funds. Conventional loans may require you to contribute a portion from your own funds if your down payment is less than 20%.
Closing costs are similar for both loan types, typically 2%–5% of the loan amount. However, FHA loans have the additional 1.75% upfront MIP. FHA also allows sellers to contribute up to 6% toward closing costs (vs. 3%–9% for conventional depending on down payment).

Still Not Sure? Let Us Help You Decide

Our loan officers compare both options using your actual financial profile — credit score, savings, DTI, and goals — to recommend the best fit.

Get Pre-QualifiedLearn About FHA LoansLearn About Conventional

This information is not intended to be an indication of loan qualification, loan approval or commitment to lend. Rates, terms, and availability of programs are subject to change without notice.

Reviewed by Joann Ton, Loan Officer (NMLS# 1461031) | Last updated: June 2026

NMLS# 1484338Equal Housing Lender