FHA loans require as little as 3.5% down and accept lower credit scores, while conventional mortgages typically need 5–20% down with higher credit requirements. FHA loans include mortgage insurance; conventional loans may not. Choose based on your financial situation, credit profile, and down payment availability. (Related: How Rising Mortgage Rates Affect Home Affordability: Calculator Guide for Buyers) (Related: The Complete Guide to Home Buying Costs: What to Budget and How to Calculate Them) (Related: Closing Costs Calculator: Your Complete Guide to Understanding Real Estate Settlement Fees) (Related: How Rising Mortgage Rates Impact Home Affordability: Calculator Tools for Buyers) (Related: Closing Costs Calculator: What Buyers & Sellers Must Know) (Related: Today’s Fixed Mortgage Rates: A Complete Guide for 2024 and Beyond)
What Are FHA Loans?
FHA loans are government-backed mortgages insured by the Federal Housing Administration, a division of the U.S. Department of Housing and Urban Development. Because the federal government guarantees repayment to lenders if a borrower defaults, lenders can extend credit to buyers who might not qualify for conventional financing.
According to HUD’s official mortgage resource, FHA loans are especially popular among first-time homebuyers due to their flexible FHA loan requirements. To qualify for the 3.5% minimum down payment, borrowers need a credit score of at least 580. Borrowers with scores between 500–579 may still qualify but must put down 10%.
FHA loans are available through approved private lenders — banks, credit unions, and mortgage companies — but the loan itself is insured federally. This distinction matters when comparing mortgage insurance costs FHA vs conventional, as we’ll cover below.
What Are Conventional Mortgages?
Conventional mortgages are not government-insured. They are originated and backed by private lenders, often sold to Fannie Mae or Freddie Mac on the secondary market. Because no federal guarantee exists, lenders apply stricter underwriting standards to manage their risk.
Conventional loans typically require a minimum credit score of 620, though competitive rates generally go to borrowers with scores of 740 or higher. Down payments can be as low as 3% for first-time buyers through programs like Fannie Mae’s HomeReady, but 5–20% is the most common range. Put down 20% and you avoid private mortgage insurance (PMI) entirely — a major advantage over FHA products.
Key Differences: Down Payment Requirements
Down payment is often the deciding factor in the conventional mortgage vs FHA debate. Here’s how the two stack up on a $350,000 home:
- FHA loan (3.5% down): $12,250 required at closing
- Conventional loan (5% down): $17,500 required at closing
- Conventional loan (20% down): $70,000 required at closing
The lower FHA down payment requirement makes homeownership more accessible — but it comes with a long-term cost through mandatory mortgage insurance premiums (MIP), which we cover in detail below.
What are the main differences between FHA and conventional loans?
The core differences between FHA loans vs conventional mortgages come down to five factors: government backing, credit score minimums, down payment thresholds, mortgage insurance rules, and loan limits. FHA loans offer more lenient entry requirements; conventional loans reward stronger financial profiles with lower long-term costs and more flexibility at higher price points.
Credit Score Requirements Comparison
Credit score requirements are a critical dividing line. FHA loan requirements allow scores as low as 500 with a 10% down payment, or 580 for the standard 3.5% down option. Conventional loans set their floor at 620, with meaningfully better rates available above 740.
For buyers rebuilding credit or early in their financial journey, FHA financing is often the only viable path. For borrowers with strong credit histories, conventional financing typically delivers a lower total cost of borrowing despite the higher entry bar.
Mortgage Insurance: FHA vs Conventional
Mortgage insurance is where the FHA loan advantages and disadvantages become most visible. Understanding these costs is essential to making the right choice.
FHA Mortgage Insurance Premiums (MIP): FHA loans require two forms of MIP. An upfront MIP of 1.75% of the loan amount is due at closing (often rolled into the loan). Annual MIP — currently ranging from 0.45% to 1.05% depending on loan term and LTV — is paid monthly. Critically, MIP on most FHA loans originated after June 2013 lasts the life of the loan if the down payment is less than 10%.
Conventional PMI: If your down payment is below 20%, conventional loans require private mortgage insurance. PMI typically costs 0.2%–2% of the loan amount annually. Unlike FHA MIP, PMI automatically cancels once your loan-to-value ratio reaches 78%, per the Homeowners Protection Act. This makes conventional loans with PMI significantly cheaper over the long run for borrowers who can qualify.
Loan Limits and Eligibility
FHA loan limits are set annually by HUD based on local median home prices. For 2026, the standard FHA loan limit for a single-family home in most U.S. counties is $524,225, with higher limits in high-cost areas reaching $1,209,750. You can verify current limits using HUD’s official mortgage limits tool.
Conventional conforming loan limits for 2026 are set at $806,500 for most areas, with higher caps in designated high-cost counties. Borrowers needing financing above these thresholds must look at jumbo loan products, which require conventional-style qualification.
Closing Costs and Fees
Both loan types carry closing costs averaging 2–5% of the purchase price. However, FHA loans add the 1.75% upfront MIP on top of standard fees, which increases total out-of-pocket costs at closing unless it’s rolled into the loan balance. Conventional loans have no equivalent upfront insurance premium.
Sellers can contribute up to 6% of the purchase price toward FHA closing costs. Conventional loans cap seller concessions at 3% when the down payment is below 10%, rising to 6% for larger down payments — a meaningful distinction in buyer-negotiated transactions.
Which Loan Type Is Right for You?
Is an FHA loan or conventional mortgage better for first-time homebuyers?
For first-time homebuyers with credit scores below 680 or limited savings, FHA loans are usually the better starting point. The lower down payment threshold and more forgiving credit requirements open the door when conventional financing isn’t available. However, buyers who can put down 20% or who have strong credit profiles above 740 will typically save more over the life of the loan with a conventional mortgage, primarily by avoiding permanent mortgage insurance.
Run the numbers for your specific scenario — interest rates, loan term, insurance costs, and down payment amount all interact to determine total borrowing cost.
FHA Loans vs Conventional: Quick Comparison Table
| Factor | FHA Loan | Conventional Loan |
|---|---|---|
| Minimum Down Payment |
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