FHA and conventional are the two loan types most first-time buyers end up choosing between, and the honest answer to "which is better" is that they solve different problems. FHA exists to make homeownership accessible to buyers with less-than-perfect credit or a smaller down payment. Conventional exists for buyers who can qualify without that extra flexibility — and who don't want to carry permanent mortgage insurance. Here's the real comparison.
The comparison at a glance
| Category | FHA | Conventional |
|---|---|---|
| Minimum down payment | 3.5% (with 580+ credit score) | 3-5% for qualifying first-time buyer programs, 5% standard |
| Minimum credit score | 580 for 3.5% down; some lenders go to 500 with 10% down | Typically 620+ |
| Mortgage insurance | MIP — often lasts the life of the loan | PMI — cancels automatically at 78% LTV |
| DTI flexibility | Generally more forgiving | Stricter, though still allows fairly high back-end ratios with strong compensating factors |
| Property condition standards | Stricter — health & safety issues can hold up the loan | Less strict, focused mainly on value |
| Loan limits | Set annually by county, generally lower than conventional | Set annually (conforming limit), generally higher |
| Assumable | Yes, by a qualifying buyer | Generally no |
| Best for | Lower credit scores, smaller down payments, first-time buyers still building credit | Stronger credit, wanting to eventually drop mortgage insurance, buying above FHA loan limits |
Exact loan limits change annually and vary by county — check the current limits for your area with your lender before assuming either loan type covers your target price.
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This is where FHA's whole reason for existing shows up. FHA allows a 580 credit score with just 3.5% down, and some lenders will go as low as 500 with 10% down. Conventional loans generally want at least 620, and the best pricing — meaning the lowest rate — usually doesn't show up until closer to 680-740 and above.
If your credit is still a work in progress, FHA is often the more realistic path today. If your credit is strong, conventional usually ends up cheaper over the life of the loan, mainly because of what happens with mortgage insurance next.
Mortgage insurance: the real difference
This is the single biggest long-term cost difference between the two, and it's more important than the interest rate for most buyers. Conventional PMI cancels automatically once you reach 78% loan-to-value — meaning it eventually goes away on its own. FHA MIP works differently: if your down payment was under 10%, it typically lasts for the life of the loan. Put down 10% or more, and it drops off after 11 years — still much longer than most conventional PMI timelines.
The only way to remove FHA MIP early in most cases is refinancing into a conventional loan once your credit and equity support it — which is a real, common strategy, but it's a plan, not something that happens automatically. For the full mechanics of both — rates, upfront costs, cancellation rules — see the mortgage insurance breakdown in our down payment guide.
Property requirements: the part people don't expect
FHA appraisals aren't just about value — they include health and safety checks. Peeling paint, exposed wiring, a non-functioning furnace, or a roof in poor condition can all hold up or outright derail an FHA loan until the seller fixes them or the price gets renegotiated. Conventional appraisals are typically less strict about condition and focus mainly on confirming the home is worth what you're paying.
This matters most with older homes or homes needing work — an FHA buyer can end up in a standoff with a seller over repairs that a conventional buyer would never have to negotiate.
Which one actually fits you
FHA tends to make sense if:
- Your credit score is below 620, or you're still actively rebuilding it
- You don't have much saved for a down payment
- You plan to refinance into conventional once your credit and equity improve
Conventional tends to make sense if:
- Your credit score is 680 or higher
- You can put down at least 5%, ideally closer to 20% to skip PMI entirely
- You want mortgage insurance that eventually goes away on its own
One more thing worth knowing about: in slower markets, buyers sometimes negotiate a temporary rate reduction called a 2-1 buydown, usually funded through seller concessions, on either loan type. See exactly how the numbers work — including who typically pays for it and when it's actually worth asking for — in our dedicated guide.
Mistakes that cost buyers here
- Choosing FHA out of habit rather than need. If your credit and down payment already qualify you for conventional, FHA's mortgage insurance structure usually makes it the more expensive choice long-term.
- Not planning the refinance-out-of-FHA step. If you go FHA now expecting to refinance into conventional later, that's a fine plan — but it only works if you actually revisit it once your credit and equity improve, not "someday."
- Assuming an older home will sail through FHA appraisal. If you're eyeing a fixer-upper, check its condition against FHA's health and safety standards before you fall in love with it.
- Comparing rate only, ignoring the mortgage insurance timeline. A slightly lower FHA rate can still cost more overall once you factor in MIP lasting the life of the loan.
Frequently asked questions
Is FHA or conventional better for a first-time buyer?
It depends on your credit score and down payment. FHA is generally more forgiving on credit score and easier to qualify for with a smaller down payment. Conventional often wins if your credit is strong and you can put at least a little down, since mortgage insurance is cancellable and total costs are often lower over time.
Can I ever get rid of FHA mortgage insurance?
Usually not without refinancing. FHA MIP typically lasts for the life of the loan if your down payment was under 10%, and for 11 years if it was 10% or more. Conventional PMI cancels automatically once you reach 78% loan-to-value.
Do FHA loans have stricter property requirements than conventional?
Yes, generally. FHA appraisals include health and safety checks — issues like peeling paint, exposed wiring, or a non-functioning furnace can hold up or derail an FHA loan until repaired. Conventional appraisals focus primarily on value.
What credit score do I need for FHA vs conventional?
FHA allows scores as low as 580 for the 3.5% down payment minimum, and sometimes down to 500 with a larger down payment. Conventional loans typically want at least 620, with the best pricing starting around 680-740 and up.