| Feature | FHA Loan | Conventional Loan |
|---|---|---|
| Minimum credit score | 580 (3.5% down) / 500 (10% down) | 620 typical (740+ best pricing) |
| Minimum down payment | 3.5% | 3% (first-time buyer programs) / 5% otherwise |
| Mortgage insurance | 1.75% upfront + 0.55%/yr (usually life of loan) | PMI varies; cancels at 78–80% LTV |
| Max DTI | 43% (50%+ with compensating factors) | 45–50% |
| Loan limits | Lower (county-based, $498K–$1.15M) | Higher conforming limits, plus jumbo above |
| Property types | Primary residence only | Primary, second home, investment |
| Seller concessions | Up to 6% of price toward closing | 3% (most LTV brackets), 6% (lower LTV) |
| Gift funds | 100% of down payment can be gifted | Allowed, but typically more restricted |
The complete picture
FHA and conventional are the two most common mortgage paths in the U.S. FHA loans are insured by the Federal Housing Administration, allowing lenders to accept lower credit scores (down to 580 for 3.5% down) and offer flexible underwriting. Conventional loans aren't government-insured and target borrowers with stronger credit profiles, typically 620+, with the best pricing reserved for 740+.
The biggest practical difference is mortgage insurance. FHA loans require upfront MIP (1.75% of loan, usually financed) plus annual MIP (0.55% typical) that lasts the life of the loan unless you put 10%+ down. Conventional loans require PMI only when you put less than 20% down, and that PMI drops off automatically at 78% LTV — a major advantage if you plan to build equity.
Most borrowers with credit scores between 620 and 680 should run both loan estimates side by side. Below 620, FHA usually wins. Above 740, conventional almost always wins. In between, your specific scenario (down payment, debt, seller concessions, future equity plans) determines the better option. A good loan officer will model both for you.
Frequently asked questions
Can I refinance from FHA to conventional?+
Yes. Many FHA borrowers refinance to a conventional loan once they reach 20% equity, specifically to eliminate FHA's monthly MIP. The savings on a typical $300K loan can be $1,500-$2,500 per year, which often justifies refinance closing costs within 12-18 months.
Are FHA rates higher or lower than conventional?+
FHA base rates are typically similar to or slightly lower than conventional rates. However, FHA's mandatory mortgage insurance often makes the total monthly payment higher for borrowers with credit scores above 700. Compare the full PITI, not just the rate.
Which loan is better for first-time buyers?+
Depends on credit and down payment. First-time buyers with strong credit (680+) and 3-5% down typically do better with conventional via HomeReady or Home Possible programs. First-time buyers with lower credit, smaller savings, or who need gift funds typically do better with FHA.
Can I have a co-signer on an FHA loan?+
Yes — FHA allows non-occupant co-signers, which conventional often doesn't. This is particularly valuable for first-time buyers whose parents want to help them qualify based on combined income.