The Core Difference

FHA loans are insured by the Federal Housing Administration and designed for buyers with lower credit scores or smaller down payments. Conventional loans are not government-backed — they follow guidelines set by Fannie Mae and Freddie Mac and are typically better suited for buyers with stronger credit.

Neither loan is universally better. The right choice depends on your credit score, down payment, debt-to-income ratio, and how long you plan to keep the loan.

Credit Score Requirements

FHA loans have the most lenient credit requirements of any government-backed mortgage program. Here’s how the minimums break down:

• FHA with 3.5% down: Minimum 580 credit score
• FHA with 10% down: Minimum 500 credit score
• Conventional: Minimum 620 credit score (most lenders prefer 660+)

Keep in mind that meeting the minimum doesn’t mean you’ll get the best rate. Conventional loan pricing improves significantly at 700, 720, and 740+. If your score is between 620 and 659, you may technically qualify for conventional but get a better deal with FHA.

Want to know how your credit score affects your rate? See our guide on minimum credit score requirements for a mortgage.

Down Payment Requirements

Both loan types allow low down payments, but there are important differences:

• FHA: 3.5% minimum (with 580+ score)
• Conventional: 3% minimum (Fannie Mae HomeReady or Freddie Mac Home Possible), 5% standard

At first glance, conventional’s 3% minimum looks competitive. But that 3% conventional option has income limits and stricter qualification requirements. For most buyers without a high income or strong credit, FHA’s 3.5% is the more accessible path.

Not sure how much house you can afford with your down payment? Try our mortgage affordability calculator.

Mortgage Insurance: The Biggest Difference

This is where FHA and conventional loans diverge most significantly — and where most borrowers make the wrong choice.

FHA Mortgage Insurance

FHA loans require two types of mortgage insurance regardless of your down payment:

• Upfront MIP (UFMIP): 1.75% of the loan amount, paid at closing (can be rolled into the loan)
• Annual MIP: 0.55% of the loan balance per year for most 30-year loans, paid monthly

The critical point: FHA mortgage insurance never automatically cancels on loans originated after June 2013 with less than 10% down. You either refinance out of it or pay it for the life of the loan.

Conventional PMI

Conventional loans require private mortgage insurance (PMI) only if your down payment is less than 20%. Key differences from FHA MIP:

• PMI rates are based on credit score — typically 0.2%–1.5% annually
• PMI automatically cancels when you reach 20% equity (at 78% LTV by law)
• You can request cancellation at 80% LTV

For a buyer with a 680 credit score and 5% down, conventional PMI might run around 0.7–0.9% annually. FHA MIP runs 0.55%. FHA looks cheaper — until you factor in the fact that FHA MIP never goes away, while conventional PMI cancels automatically. Want to see how long until you can remove PMI? Use our PMI removal guide.

Loan Limits

Both loan types have maximum loan amounts, but they differ by program and location:

• FHA 2026 standard limit: $524,225 for a single-family home in most counties
• FHA 2026 high-cost limit: $1,209,750 in designated high-cost areas
• Conventional conforming limit 2026: $806,500 nationwide

If you need a loan above these limits, you’ll be looking at jumbo financing. See our loan programs overview for more.

Debt-to-Income Ratio

FHA loans are more flexible on debt-to-income ratio (DTI) than conventional loans:

• FHA: Up to 57% DTI in some cases with compensating factors
• Conventional: Typically capped at 45–50% DTI

If you’re carrying student loans, car payments, or other debts, FHA’s flexibility may allow you to qualify where conventional would not. Calculate your own DTI with our debt-to-income calculator.

Property Requirements

FHA loans come with stricter property condition requirements. An FHA appraiser must certify the home meets HUD’s Minimum Property Standards, which means the home must be safe, sound, and secure. Homes with peeling paint, roof issues, or structural problems may not qualify for FHA financing.

Conventional appraisals focus on value rather than condition, making conventional loans easier to use on fixer-uppers or older homes that need work.

Side-by-Side Comparison

When to Choose FHA

• Your credit score is below 640
• You have limited savings and need the lowest down payment
• Your DTI is above 45% and conventional won’t approve you
• You plan to refinance in 3–5 years anyway (so lifetime MIP doesn’t matter)

When to Choose Conventional

• Your credit score is 680 or higher
• You can put down 10–20% and want PMI to cancel
• You’re buying a home that needs work or won’t pass FHA inspection
• You want a higher loan limit (above $524,225)

The Bottom Line

FHA is not a “bad” loan — it’s an essential tool for buyers who can’t yet qualify for conventional terms. But if you can qualify for conventional, it usually costs less over time because of how mortgage insurance works. Run the numbers for your specific situation using our mortgage payment calculator and FHA loan calculator side by side.

Ready to find out which loan you actually qualify for? Speak with a mortgage advisor who can compare both scenarios for your specific credit profile and goals.