FHA vs. Conventional Loans: Which Is Right for You?

Ask ten people "FHA or conventional?" and you'll get ten confident answers — most of them wrong for your situation. The truth is that neither loan is universally better. They're built for different borrowers, and the right choice comes down to your credit score, your down payment, and how long you plan to keep the loan. Let's compare them piece by piece.

The Quick Comparison

Minimum down payment: FHA 3.5% (at 580+ credit) · Conventional 3% (at 620+ credit)

Minimum credit score: FHA 580 for 3.5% down, 500–579 with 10% down · Conventional typically 620

Mortgage insurance: FHA charges 1.75% upfront + 0.55%/year for the life of the loan in most cases · Conventional PMI varies by score and down payment, and can be removed at 20% equity

2026 loan limits (most areas): FHA $498,257 floor · Conventional $832,750

Best for: FHA favors lower credit scores and smaller down payments · Conventional favors stronger credit and long-term cost

Now the details behind each line.

Down Payment: Nearly a Tie

This surprises people: conventional loans can actually require less down than FHA. Conventional programs allow 3% down for qualified first-time buyers, while FHA requires 3.5% (with a 580+ score). On a $400,000 home, that's $12,000 vs. $14,000 — a $2,000 difference in conventional's favor.

But the down payment is only the entry fee. What matters is the total monthly cost, and that's where mortgage insurance changes everything (more below). Also note: both programs allow gift funds from family for the down payment, and both pair with down payment assistance programs in our states.

Credit Scores: FHA Is More Forgiving

This is FHA's home turf. FHA approves borrowers at 580 with 3.5% down and all the way down to 500 with 10% down. Conventional lending typically starts at 620, and the pricing gets meaningfully better with every tier you climb — 680, 700, 720, 740, 760+.

Here's the practical breakpoint I use with clients: below ~680, FHA usually prices better because conventional rate adjustments punish lower scores harshly. Above ~700, conventional usually wins on both rate and insurance cost. Between 680 and 700, we quote both and compare the actual monthly payment — it varies by down payment and loan amount, so there's no shortcut around running the numbers.

If your score is below 620 and you're not FHA-eligible either, don't give up — work the credit playbook in our credit score guide and recheck in a few months.

Mortgage Insurance: The Deciding Factor

If you put down less than 20%, you'll pay mortgage insurance either way — but the two versions are very different animals.

FHA mortgage insurance premium (MIP) has two parts: an upfront premium of 1.75% of the loan amount (usually rolled into the loan, so you're financing it) plus an annual premium of 0.55% for most borrowers, paid monthly. The kicker: with less than 10% down, that monthly MIP lasts for the life of the loan. The only way out is refinancing into a different loan type.

Conventional private mortgage insurance (PMI) has no upfront fee. The monthly cost is priced by your credit score and down payment — excellent credit with 10% down pays far less than fair credit with 3% down. And crucially, PMI can be cancelled: you can request removal at 20% equity (based on current value with an appraisal), and it drops automatically at 78% of the original value.

Run a 7-year comparison and conventional PMI is usually thousands cheaper than FHA MIP for the same borrower. This single difference is why borrowers with decent credit almost always land on conventional — and why FHA borrowers should plan their exit strategy (see below).

Loan Limits in 2026

For 2026, the conforming loan limit — the ceiling for conventional loans — is $832,750 for a one-unit home in most areas, higher in designated high-cost counties. The FHA floor is $498,257 in most counties, also higher in high-cost areas.

In practice: if you're buying a $550,000 home in Salt Lake County with 10% down, your $495,000 loan fits both programs. But a $700,000 purchase with 10% down ($630,000 loan) exceeds FHA's local limit in most of our markets while fitting comfortably under the conventional ceiling. In pricier pockets of Colorado and Florida, conventional's higher limit is often the deciding factor before the comparison even starts.

Property Rules and Appraisals

FHA appraisals do double duty as a basic health-and-safety inspection. The appraiser will flag peeling paint on pre-1978 homes, missing handrails, broken windows, exposed wiring, non-functioning utilities, and similar issues — and they must be repaired before closing. Conventional appraisals focus primarily on value.

This makes FHA tougher for fixer-uppers and short sales with deferred maintenance. On the other hand, it protects buyers from inheriting serious problems. If you're buying a well-maintained home, the difference rarely matters. If you're eyeing a handyman special, conventional (or an FHA 203(k) renovation loan) is the conversation to have. Both programs require the home to be your primary residence — neither is for investment properties.

Seller Concessions

Sellers can contribute toward your closing costs, and FHA is more generous here: up to 6% of the price regardless of down payment. Conventional allows 3% with less than 10% down, 6% with 10–25% down, and 9% at 25%+ down. In a market where sellers are offering concessions to move inventory, FHA's flat 6% can be a real negotiating advantage for low-down-payment buyers.

A Side-by-Side Monthly Cost Example

Numbers make this concrete. Take a $450,000 purchase with 5% down ($22,500) and a 700 credit score — the loan amount is $427,500. The figures below are illustrative only; your actual rate depends on credit, down payment, and market conditions:

FHA path: 3.5% down is the FHA minimum at this score, but let's keep the comparison apples-to-apples at 5% down. You'd pay the 1.75% upfront MIP (about $7,480, typically rolled into the loan, raising your balance) plus roughly 0.55%/year in monthly MIP — around $196/month — for the life of the loan. FHA rate pricing at a 700 score is decent but not top-tier.

Conventional path: same 5% down, no upfront fee. PMI at a 700 score with 5% down might run roughly $150–$250/month initially — but it drops off entirely once you reach 20% equity, whether through paydown, appreciation, or a combination. On a home appreciating modestly, many borrowers shed PMI within 4 to 7 years without refinancing.

The takeaway from the math: FHA's upfront MIP alone adds thousands to your financed balance on day one, and the monthly MIP never ends. Conventional's PMI ends. Over a 7-to-10-year hold, the conventional borrower in this scenario typically saves five figures — which is exactly why the 680–700 score band deserves a real side-by-side quote instead of a default to FHA.

Which One Is Right for You?

Choose FHA if: your credit score is under 680, your down payment is small and your credit is imperfect, you need the higher debt-ratio flexibility FHA allows, or you want the 6% seller concession ceiling.

Choose conventional if: your score is 700+, you have 5%+ down, you want the option to drop mortgage insurance at 20% equity, or your loan amount exceeds local FHA limits.

Either way, have a plan: FHA borrowers should calendar a check-in at 20% equity — refinancing FHA-to-conventional to kill lifetime MIP is one of the highest-value moves in homeownership. Conventional borrowers with PMI should track their equity and request PMI removal the moment they qualify rather than waiting for the automatic drop.

The honest answer is that the comparison has to be run with your actual numbers — same price, same down payment, both programs, real monthly payments side by side. That's a 15-minute exercise on our FHA and conventional pages' pre-approval flow, and it's the only comparison that matters: yours.