Introduction
When you start shopping for a mortgage, FHA and conventional loans are the two options you'll hear about most. They're both solid paths to homeownership, but they serve different borrower profiles. FHA loans are backed by the Federal Housing Administration and designed for accessibility — lower credit thresholds, smaller down payments, and more flexibility with income situations. Conventional loans follow Fannie Mae and Freddie Mac guidelines and reward strong credit with better rates and the ability to drop mortgage insurance. The right choice depends on your credit score, savings, and how long you plan to stay in the home.
Quick Comparison
| Feature | FHA Loan | Conventional Loan |
|---|---|---|
| Minimum Credit Score | 580 (500 with 10% down) | 620 |
| Minimum Down Payment | 3.5% | 3% |
| Mortgage Insurance | Upfront MIP (1.75%) + annual MIP (0.55%/yr) for life of loan | PMI required below 20% down; removable at 20% equity |
| Loan Limits (2024) | $498,257 – $1,149,825 (varies by county) | $766,550 (up to $1,149,825 in high-cost areas) |
| Property Types | Primary residence only | Primary, second home, investment property |
| Best For | First-time buyers, lower credit scores, limited savings | Strong credit borrowers, those who want PMI removal |
FHA Loans in Detail
FHA loans exist to make homeownership accessible. The 580 minimum credit score is significantly lower than conventional requirements, and the 3.5% down payment can come entirely from gift funds — a major advantage for buyers without years of savings. Sellers can contribute up to 6% toward closing costs, further reducing out-of-pocket expenses.
The trade-off is mortgage insurance. FHA charges an upfront mortgage insurance premium of 1.75% of the loan amount (usually rolled into the loan) plus an annual premium of 0.55% paid monthly. Unlike conventional PMI, FHA mortgage insurance typically stays for the life of the loan unless you put 10% or more down, in which case it drops off after 11 years. For a $400,000 loan, that annual MIP adds roughly $183 per month to your payment — a cost that never goes away on the most common FHA terms.
FHA loans are also limited to primary residences. You can't use one for a vacation home or rental property. And while FHA limits can be high in expensive markets, they still cap out below what conventional jumbo or non-QM loans can cover.
Conventional Loans in Detail
Conventional loans reward financial strength. With a 740+ credit score and 20% down, you'll get the best rates available and zero mortgage insurance. Even with as little as 3% down, a conventional loan can work — but you'll pay PMI until you hit 20% equity. The key difference: conventional PMI is removable. Once your loan-to-value ratio reaches 78%, PMI drops automatically. You can also request removal at 80% equity, saving potentially thousands over the life of the loan.
Conventional loans are more versatile. You can use them for primary residences, second homes, and investment properties. Loan limits reach $766,550 in most markets (higher in expensive areas), and jumbo conventional options extend well beyond that. If you're buying a rental property or a vacation home, conventional is typically your only conforming option.
The qualification bar is higher, though. A 620 minimum credit score is the floor, and you'll need solid income documentation. Gift funds are allowed but with more restrictions than FHA, and seller concessions are capped at 3% for low down payment loans (compared to FHA's 6%).
Which Is Right for You?
Choose FHA if: Your credit score is between 580 and 700, you have less than 5% saved for a down payment, your down payment is coming from gift funds, or you're a first-time buyer who needs the most flexible qualification path.
Choose Conventional if: Your credit score is 700 or higher, you can put down 10% or more (ideally 20% to avoid PMI entirely), you want the option to buy a second home or investment property later, or you plan to stay long enough that the removable PMI saves you money over FHA's permanent insurance.
Consider both if: Your credit is in the 620–700 range. Run the numbers on both — sometimes the conventional rate is close enough that removable PMI makes it the better long-term value, even if FHA is easier to qualify for today.
The bottom line: FHA gets you into a home when your credit or savings aren't ideal. Conventional rewards you when they are. Both are legitimate paths to homeownership — the best one is the one that fits your financial reality today while positioning you well for tomorrow.
Compare These Loans Side by Side
Want to see exactly how FHA and conventional loans stack up for your specific situation? Use our interactive comparison tool to compare rates, monthly payments, and total costs.