🇺🇸 Comparison
FHA vs Conventional Loan: which is right for you?
FHA loans favor lower credit scores and smaller down payments. Conventional loans typically cost less over the life of the loan if you qualify. Here's the head-to-head — and the calculators to run your specific scenario.
| Feature | FHA Loan | Conventional Loan |
|---|---|---|
| Minimum down payment | 3.5% (with 580+ FICO) | 3% (first-time buyer programs); 5% otherwise |
| Minimum credit score | 580 (with 3.5% down) or 500 (with 10% down) | 620 typical; 740+ for best rates |
| Mortgage insurance | Upfront 1.75% MIP + annual MIP for life of loan if <10% down | PMI removed automatically at 78% LTV |
| Annual MI rate | 0.55% (most loans) | 0.20–0.55% based on LTV + credit score |
| Max DTI ratio | 43% (sometimes 50% with compensating factors) | 45% standard; 50% with strong reserves |
| Loan limits (2025) | $498,257 floor; $1,209,750 ceiling (high-cost areas) | $806,500 baseline; $1,209,750 high-cost |
| Property condition | Strict — FHA appraisal flags safety/structural defects | Less strict — standard appraisal |
| Occupancy requirement | Must be primary residence | Owner-occupied OR investment OR second home |
| Gift funds for down payment | 100% of down payment can be gifted | Allowed but with documentation requirements |
| Best for | Lower credit, smaller down, first-time buyers | Strong credit, larger down, lower lifetime cost |
When an FHA loan makes sense
Pick FHA if any of these apply:
- Your credit score is 580–720. FHA approves credit profiles that conventional lenders reject. PMI on a conventional loan with a 620 credit score is also more expensive than FHA MIP.
- Your down payment is under 5%. FHA's 3.5% minimum (with 580+ FICO) is the lowest down payment available for most buyers without a special program. Conventional 3% programs exist (HomeReady, Home Possible) but require higher credit and income limits.
- You're using gift funds. 100% of an FHA down payment can be gifted from family, employers, charities, or government. Conventional gifts are allowed but tightly documented.
- Your DTI is high (43–50%). FHA's 43% cap can stretch to 50% with compensating factors (cash reserves, residual income, low payment shock).
- You're a first-time buyer. FHA isn't limited to first-timers, but it's designed around the typical first-time buyer profile.
When a conventional loan makes sense
Pick conventional if any of these apply:
- Your credit score is 720+. Conventional rates and PMI are both significantly cheaper at high credit scores. Above 740, conventional almost always wins on lifetime cost.
- You can put 20% down. No PMI at all on conventional. FHA requires upfront MIP (1.75% rolled in) and annual MIP regardless of down payment size — and annual MIP runs for the life of the loan if down payment is under 10%.
- You plan to stay 7+ years. The lifetime MIP cost on FHA stacks up over time. Conventional PMI auto-terminates at 78% LTV (often 5–10 years in).
- You're buying an investment property or second home. FHA is owner-occupied only. Conventional supports both.
- The property might fail FHA appraisal. Older homes, fixer-uppers, or properties with safety issues (peeling paint pre-1978, missing handrails, broken HVAC) are easier to finance with conventional.
The math: FHA vs Conventional at 5% down
For a $400,000 home with 5% down ($20,000) and a 720 credit score at typical 2025 rates:
- FHA: ~$2,750/mo PITI (P&I + MIP + tax + ins). Annual MIP runs 30 years = ~$66,000 total MIP.
- Conventional: ~$2,650/mo PITI initially. PMI drops at year 11 (when LTV hits 78% via amortization). Total PMI cost ~$15,000.
Difference over 30 years: conventional is roughly $50,000 cheaper in this scenario, primarily because FHA MIP doesn't auto-cancel.
Run the numbers on your scenario
Use our calculators to model both:
- FHA Loan Calculator — payment with upfront and annual MIP, full PITI breakdown.
- Mortgage Calculator — conventional payment with PMI auto-removal at 78% LTV.
- DTI Calculator — see if you qualify for both at your income and debt level.
- Home Affordability Calculator — see your max home price under each loan's DTI cap.
What about VA, USDA, jumbo?
If you're a veteran, active military, or surviving spouse, the VA loan usually beats both FHA and conventional — 0% down, no monthly mortgage insurance, and competitive rates. See the FHA vs VA comparison.
For loans above the conventional baseline ($806,500 in 2025), you need a jumbo loan — these usually require 10–20% down and 700+ FICO. Above the high-cost ceiling ($1,209,750), all loans are jumbo.
Quick decision tree
- Credit 580–680, down payment under 5%? → FHA
- Credit 720+, down payment 5%+? → Conventional
- Credit 680–720, down payment 5–10%? → Run both calculators; lifetime cost decides
- Investment property or second home? → Conventional (FHA disallows)
- Veteran or active military? → VA loan
- Loan amount over $806,500 in standard area? → Jumbo (not covered here)