FHA vs. Conventional Loan: Which One Is Right for You?

When you start shopping for a mortgage, two loan types come up more than any others: FHA and conventional. Both can get you into a home. Both have their advantages. But they're designed for different situations, and choosing the wrong one can cost you real money over time.

Here's a clear, honest breakdown of how they differ — and how to figure out which one fits your situation.

What Is an FHA Loan?

An FHA loan is a mortgage insured by the Federal Housing Administration. The FHA doesn't actually lend you money — it guarantees the loan for the lender, which reduces the lender's risk and allows them to offer more flexible terms to borrowers who might not qualify for conventional financing. FHA loans are popular with first-time buyers and people with lower credit scores or smaller down payments.

What Is a Conventional Loan?

A conventional loan is any mortgage not backed by a government agency. These loans are typically sold to Fannie Mae or Freddie Mac and must meet their underwriting standards. Conventional loans generally require stronger credit and a larger down payment than FHA, but they come with fewer long-term costs for well-qualified borrowers.

Credit Score Requirements

This is often the deciding factor. FHA loans allow credit scores as low as 580 with a 3.5% down payment. If your score is between 500 and 579, you can still qualify, but you'll need to put down 10%. Conventional loans typically require a minimum score of 620, and the best rates are reserved for scores above 740.

If your credit score is below 620, FHA is likely your only real option. If your score is above 700, a conventional loan often becomes the smarter financial choice once you factor in mortgage insurance costs.

Down Payment

FHA requires a minimum of 3.5% down (assuming a 580+ score). Conventional loans technically allow as little as 3% down through specific programs, though most conventional borrowers put down 5%–20%.

If a 3%–5% down payment is what you can manage, both options are available — but the long-term mortgage insurance picture is very different between them, which brings us to the most important difference.

Mortgage Insurance: The Biggest Difference

This is where the two loans diverge most significantly, and it's where many borrowers make a costly mistake by not thinking long-term.

With a conventional loan, if you put down less than 20%, you pay PMI — but only until you reach 20% equity. Once you're there, PMI goes away automatically or you can request its cancellation. On a $300,000 loan, PMI might cost $80–$200 per month. When you hit that 20% mark, it's gone.

FHA loans charge two types of mortgage insurance: an upfront premium (1.75% of the loan amount, added to your loan balance at closing) and an annual premium (0.55%–1.05% of the loan balance, paid monthly). Here's the crucial part: if you put down less than 10%, FHA mortgage insurance stays for the entire life of the loan. It never cancels. On a 30-year loan, you could be paying FHA MIP for all 30 years.

This is why many financial advisors recommend using an FHA loan to get into a home, then refinancing to a conventional loan once you've built 20% equity and your credit has improved. You get the accessibility of FHA upfront and the lower long-term cost of conventional down the road.

Interest Rates

FHA loans often carry slightly lower interest rates than conventional loans for borrowers with lower credit scores, because the government guarantee reduces lender risk. However, once you factor in the mortgage insurance premiums, the effective cost is usually higher than a comparable conventional loan for well-qualified borrowers.

For borrowers with scores above 720, conventional loans are almost always cheaper on a total-cost basis. For scores in the 620–680 range, it's worth running the numbers on both. Use our FHA loan calculator alongside our standard mortgage calculator to compare real payment estimates.

Loan Limits

FHA loans have borrowing limits that vary by county. In 2026, the standard FHA limit for a single-family home is $524,225 in most areas, rising to $1,209,750 in high-cost markets. If you're buying a higher-priced home, you may not qualify for an FHA loan at all, making conventional financing your only path.

Conventional conforming loans follow Fannie Mae/Freddie Mac limits, which sit at $806,500 in most of the country for 2026, with higher limits in expensive areas. Loans above these limits are called jumbo loans and have their own underwriting rules.

Property Requirements

FHA has stricter property standards than conventional lending. The home must be your primary residence (no investment properties), and it must meet FHA minimum property requirements around safety, soundness, and security. This means fixer-uppers in rough shape may not qualify for FHA financing even if you're willing to buy them.

Conventional loans are more flexible on property condition, which matters if you're considering a home that needs work.

Which One Should You Choose?

Choose FHA if your credit score is below 680, your down payment is limited, or you've had past financial difficulties that make conventional approval difficult. The accessible qualification standards and lower barrier to entry make FHA genuinely useful.

Choose conventional if your credit score is 700 or above, you can put down 10%–20%, or you're buying a more expensive home or a property that might not meet FHA standards. The long-term savings on mortgage insurance alone often justify the higher qualifying bar.

When in doubt, get quotes for both and compare the full monthly cost — including all insurance — over a 5-year, 10-year, and 30-year horizon. The right loan is the one that actually fits your situation, not the one that's easiest to get.