Conventional and FHA loans are the two most common mortgage types for homebuyers, but they work differently in ways that can significantly affect your monthly payment and upfront costs. Here's how they compare.
Quick Comparison
| Conventional | FHA | |
|---|---|---|
| Minimum down payment | 3% | 3.5% |
| Minimum credit score | 620 | 580 (500 with 10% down) |
| Mortgage insurance | PMI, removable at 20% equity | MIP, often lasts life of loan |
| Loan limits | Higher limits, varies by county | Lower limits, varies by county |
| Property condition standards | More flexible | Stricter (must meet FHA standards) |
Down Payment Differences
Conventional loans can go as low as 3% down for qualified first-time buyers, while FHA requires 3.5% down with a 580+ credit score. The bigger difference isn't the down payment amount — it's who typically qualifies for each option.
Mortgage Insurance: The Biggest Long-Term Difference
This is where the two loan types diverge the most:
Conventional (PMI): Required if you put down less than 20%. Can be removed once you reach 20% equity, either through payments or home value appreciation.
FHA (MIP): Required regardless of down payment amount. On most FHA loans, mortgage insurance premiums last for the life of the loan unless you refinance into a different loan type.
This means an FHA loan can end up costing more over time, even if the upfront numbers look similar to a conventional loan.
Credit Score Flexibility
FHA loans are generally more forgiving of lower credit scores and past credit issues, including certain bankruptcies or foreclosures after a waiting period. Conventional loans are stricter but reward higher scores with better rates — the gap between an FHA and conventional rate narrows or disappears entirely for borrowers with strong credit.
Property Requirements
FHA loans require the property to meet specific safety and condition standards during appraisal. This can make FHA loans harder to use on fixer-uppers or older homes needing repairs. Conventional loans have more flexible property condition requirements, though the appraisal still needs to support the loan amount.
Which One Is Better?
There isn't a universal answer — it depends on your credit profile, how much you have saved, and how long you plan to keep the loan:
Conventional tends to make more sense if: you have a credit score above 680-700, plan to keep the loan long-term, or want the option to remove mortgage insurance later.
FHA tends to make more sense if: your credit score is below 620, you have limited savings for a down payment, or you've had past credit challenges you're recovering from.
Next Steps
The right choice often comes down to numbers specific to your situation — comparing your actual rate and payment on both loan types is the only way to know for sure.
Curious which loan fits your situation?
Get pre-approved with Loaning Now and we'll compare your real numbers on both loan types.
Get Pre-Approved with Loaning Now →This article is for informational purposes only and does not constitute financial advice. Loan terms, limits, and requirements vary by lender and are subject to change — contact us for current guidelines.