FHA and conventional are the two most common loan types for buyers who aren't using a VA or USDA program. They overlap, they compete, and on paper they can look surprisingly similar — but the long-term cost can differ by tens of thousands of dollars.
Here's how to think about which one fits.
Quick comparison
| FHA | Conventional | |
|---|---|---|
| Minimum down payment | 3.5% (580 FICO) | 3% (first-time) / 5% otherwise |
| Minimum credit score | 580 (or 500 w/ 10% down) | Typically 620 |
| Mortgage insurance | Upfront (UFMIP) + monthly MIP, often for life of loan | Monthly PMI, removable at ~20% equity |
| Loan limits | Lower in standard counties, higher in high-cost counties | Conforming limits set by FHFA |
| Property condition | Stricter — FHA appraisal flags more items | More flexible |
| Gift funds | Full down payment can be gifted | Up to 100% can be gifted for primary residence |
When FHA is the better fit
- Credit score under 660. FHA pricing barely moves between 580 and 660; conventional pricing rewards higher scores meaningfully. Below 660, FHA is usually cheaper monthly even after MIP.
- Higher debt-to-income. FHA can stretch to DTIs above 50% in many cases. Conventional caps tighter.
- Tighter on cash. FHA accepts 100% gift funds for down payment, and the down payment is lower (3.5% vs. 5% for most non-first-time buyers).
When conventional is the better fit
- Credit score 700+. PMI cost drops sharply at higher scores, and you keep the option to drop PMI entirely at 20% equity.
- You plan to drop mortgage insurance. On most FHA loans with under 10% down, MIP stays for the life of the loan. Conventional PMI is removable.
- You're buying a condo not on the FHA approved list. Conventional is often the only way to close that property without project approval headaches.
The long-term math
Imagine a $600,000 purchase price with 5% down ($570,000 loan) in 2026:
- FHA: Monthly MIP ≈ 0.55% of the loan amount per year = $261/month. Over 10 years, that's about $31,300 in MIP that conventional borrowers would have paid off and stopped paying at 20% equity.
- Conventional: PMI ≈ $130 – $170/month for a 740 FICO borrower at 95% LTV. Removable in 4 – 7 years for most borrowers in appreciating markets.
This isn't a reason to default to conventional — for many borrowers the FHA loan is simply the only way to get into the home — but it's the trade-off to understand.
Refinancing later
A common strategy: use FHA today to buy the home, then refinance into a conventional loan two to three years later once your equity grows and your credit improves. That removes lifetime MIP and locks in your home at the price you paid.
Sources
- HUD — FHA program guidelines
- Fannie Mae — HomeReady program
- Freddie Mac — Home Possible program
Want to see what each program looks like for your specific scenario? Send us a quick note and we'll model the numbers side-by-side.