FHA vs Conventional Loan: Which Is Best? (2026 Guide)

Quick answer

FHA loans allow 3.5% down with a 580+ credit score and more flexible debt limits, but charge upfront and annual mortgage insurance that often lasts the life of the loan. Conventional loans need about a 620+ score and 3% to 5% down, and their PMI can be removed at 78% to 80% loan-to-value. Good credit usually favors conventional; lower credit favors FHA.

FHA and conventional loans are the two most common mortgages for first-time buyers. Here is how they compare on down payment, credit score, mortgage insurance and total cost, with a side-by-side example.

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What Is PMI First-Time Buyer Programs Down Payment Guide

FHA vs conventional at a glance

	FHA loan	Conventional loan
Minimum down payment	3.5% (580+ score); 10% (500 to 579)	3% to 5% for many buyers
Typical minimum credit score	500 to 580 (lenders may require more)	About 620+
Mortgage insurance	Upfront MIP (1.75% of loan) + annual MIP	PMI only if under 20% down
Insurance removal	Often lasts the life of the loan if under 10% down; 11 years if 10%+ down	Can cancel at 80% of original value; ends at 78%
Debt-to-income limits	More flexible	Usually stricter
Loan limits	FHA county limits (often lower)	Conforming limits (often higher)
Property rules	Must meet FHA appraisal standards	Standard appraisal

Rules as commonly applied; check current HUD and lender requirements.

Cost comparison example

A $350,000 home with an FHA loan (3.5% down, upfront MIP financed, 0.55% annual MIP, example rate 6.25%) versus a conventional loan (5% down, PMI at 0.6% a year, example rate 6.5%):

	FHA	Conventional
Down payment	$12,250	$17,500
Loan amount	$343,661 (incl. upfront MIP)	$332,500
Principal and interest	$2,116	$2,102
Mortgage insurance	$155 (MIP)	$166 (PMI)
P&I + insurance	$2,271	$2,268
Insurance ends	Likely never (refinance to remove)	At 78% to 80% loan-to-value

Example rates and insurance costs only. Actual pricing depends on credit score and lender.

In this example the monthly costs are close. The big difference is long-term: conventional PMI goes away, while FHA MIP usually stays unless you refinance.

Fha vs conventional loan – Couple signing documents — Compare both loan types on your Loan Estimates.

When an FHA loan makes sense

Your credit score is below about 620 to 680.
You have a higher debt-to-income ratio.
You have a small down payment and limited savings.
You plan to refinance later once your credit and equity improve.

When a conventional loan makes sense

Your credit score is about 680 or higher (better PMI pricing).
You want mortgage insurance that can be removed.
You are buying a higher-priced home above FHA limits.
You are buying a condo or home that might not meet FHA rules.

Person holding a credit card — Credit score often decides which loan is cheaper

Large brick house with a lawn — Credit score often decides which loan is cheaper

Lower credit or high debt: FHA is often easier. Good credit: conventional usually costs less over time because PMI can be removed.

Can you switch later?

Yes. Many buyers start with an FHA loan, then refinance into a conventional loan once they have about 20% equity and better credit, which removes mortgage insurance. Use our refinance calculator to check if it would pay off.

Orange and blue painted house — Ask lenders to quote both FHA and conventional options.

How to choose

Check your credit score.
Get FHA and conventional quotes.
Compare monthly cost and insurance length.
Factor in how long you will stay.
Plan a future refinance if FHA.

FHA vs conventional loan: the long-term cost of mortgage insurance

The monthly payments in the example above are almost the same, so the real difference in an FHA vs conventional loan shows up over many years. Using the same $350,000 example (same rates and insurance assumptions, no extra payments, no home value growth):

Time period	FHA (MIP, about 0.55% a year)	Conventional (PMI, about $166 a month)
Years 1 to about 11	Roughly $19,500 in MIP	Roughly $22,400 in PMI
When insurance can stop	Usually never, unless you refinance	About year 10 if you request removal at 80% LTV; automatic at 78% in about year 11
Years 12 to 30	Roughly $17,000 more in MIP	$0
Approximate total over 30 years	About $36,500 plus the upfront MIP	About $22,400

Worked example using this post’s assumptions. Rising home values or extra payments can end PMI sooner; refinancing can end FHA MIP but has its own closing costs.

This is why the FHA vs conventional loan choice often comes down to how long you will keep the loan. If you expect to refinance or sell within about 10 years, FHA can be competitive. If you plan to stay long-term, conventional usually wins once PMI drops off.

Three buyer examples: which loan fits?

Buyer A: 640 credit score, 3.5% saved

With a score in the low 600s, conventional PMI is often priced higher, and some lenders may decline the file. FHA is usually the easier approval and may cost less each month. Plan to refinance into a conventional loan once your credit improves and you build about 20% equity. For this buyer, the FHA vs conventional loan answer is usually FHA first, conventional later.

Buyer B: 740 credit score, 5% saved

Good credit means better PMI pricing. Conventional is usually cheaper over time because PMI can be cancelled. Ask lenders for both quotes anyway; sometimes a low FHA rate narrows the gap in the FHA vs conventional loan math.

Buyer C: 700 credit score, higher debt-to-income

If student loans or a car payment push your debt-to-income ratio up, FHA’s more flexible limits can make approval possible. Paying down a debt before applying may open the conventional option. See our debt-to-income ratio calculator.

How to compare an FHA vs conventional loan step by step

Check your credit score and report for errors a few months before you apply. Your score drives most of the FHA vs conventional loan pricing gap.
Decide your down payment. Our down payment guide walks through 3%, 3.5%, 5%, 10% and 20%.
Ask two or three lenders for both loan types on the same day, with the same price and down payment.
Compare the Loan Estimates line by line: rate, APR, monthly mortgage insurance, upfront MIP and lender fees.
Ask how long insurance lasts on each option and how removal works.
Estimate how long you will stay in the home and whether you expect to refinance.
Check property rules. If you are buying a condo or a home needing repairs, confirm it can qualify for FHA.

Property and appraisal differences to know

FHA appraisals check health and safety items such as peeling paint in older homes, missing handrails, roof condition and working utilities. Sellers may need to fix issues before closing.
Condos often need to be on an approved list for FHA. Conventional condo rules differ, so ask early.
Fixer-uppers can be harder with a standard FHA loan, though renovation loan programs exist for both types.
Competitive markets: some sellers prefer conventional offers because they worry about FHA repair requests. A strong pre-approval helps either way; see how to get pre-approved.

Common mistakes when choosing between FHA and conventional

Comparing only the interest rate. A lower FHA rate can still cost more over time because of lifelong MIP.
Forgetting the upfront MIP. It is usually added to the loan, which raises the balance you pay interest on.
Assuming you must put 20% down for conventional. Many buyers qualify with 3% to 5% down.
Not planning the refinance. If you choose FHA, track your equity and credit so you know when switching makes sense.
Skipping first-time buyer help. Down payment assistance can change which loan works; see first-time home buyer programs.

Bottom line: the FHA vs conventional loan decision depends mostly on your credit score, your down payment and how long you will keep the mortgage. Get both quotes, run the numbers over your real time horizon, and pick the loan that costs less for your plans.

Worked example: when could you refinance FHA to conventional?

Using the same FHA example (about $343,661 borrowed at 6.25%), the balance falls to roughly $320,800 after 5 years, $309,400 after 7 years and $289,500 after 10 years with normal payments.

To reach 20% equity on a $350,000 home, you need a balance of about $280,000 or less. With no change in value, that takes a little over 10 years. If the home is worth more when you refinance, you get there sooner. For example, at a $390,000 value, 80% is $312,000, which the balance passes around year 7.

Refinancing has closing costs, so check the break-even point with our refinance calculator before you switch. If rates are higher than your FHA rate at that time, removing MIP may not be worth it. This is one more reason to think about the full life of the loan, not just year one, when you weigh an FHA vs conventional loan.

Helpful resources: For more on FHA vs conventional loan, see the Consumer Financial Protection Bureau and U.S. Department of Housing and Urban Development.

Fha vs conventional loan: frequently asked questions

Is FHA or conventional better?

FHA is often better for lower credit scores or higher debt. Conventional is usually cheaper over time for buyers with good credit, because PMI can be removed.

What credit score do you need for an FHA loan?

FHA allows scores as low as 580 with 3.5% down, or 500 to 579 with 10% down, but many lenders set higher minimums.

Does FHA mortgage insurance ever go away?

If you put less than 10% down, annual FHA MIP usually lasts for the life of the loan. With 10% or more down, it typically lasts 11 years. Refinancing to conventional can remove it.

Can I get a conventional loan with 3% down?

Yes. Programs such as Fannie Mae HomeReady, Freddie Mac Home Possible and standard conventional 97 loans allow 3% down for eligible buyers.

Is it better to get an FHA or conventional loan for a first-time buyer?

It depends on credit and plans. First-time buyers with scores below about 620 to 680 or higher debt often do better with FHA. Buyers with good credit who plan to stay long-term usually pay less with conventional because PMI can be removed.

Why do sellers prefer conventional loans over FHA?

Some sellers worry that an FHA appraisal will require repairs before closing. In practice, a well-kept home usually passes, and a strong pre-approval letter helps either type of offer stand out.

Sources: HUD: FHA loans, Consumer Financial Protection Bureau, Fannie Mae. Prices are national planning ranges, not quotes. See how we research costs.