FHA vs. Conventional Loan: Which Is Better for You in 2026?

Choosing between an FHA loan and a conventional mortgage shapes how much you pay at closing, how much you pay every month, and how much the loan costs you over 15 or 30 years. Get it right and you could save tens of thousands of dollars. Get it wrong and you’re paying for mortgage insurance longer than you need to — or locked out of a home you could have qualified for.

The short version: FHA loans are easier to qualify for and better for buyers with lower credit scores. Conventional loans cost less over time for buyers with stronger credit. But the break-even between the two is specific to your credit score, down payment, and timeline — and this guide walks through all of it.

Table of Contents

• FHA vs. Conventional: Side-by-Side Comparison
• Credit Score Requirements
• Down Payment Requirements
• Mortgage Insurance: The Most Important Difference
• The Real Cost of FHA vs. Conventional Mortgage Insurance
• Interest Rates Compared
• 2026 Loan Limits
• Debt-to-Income Ratio Requirements
• Property Requirements
• When an FHA Loan Is the Better Choice
• When a Conventional Loan Is the Better Choice
• How to Decide: A Simple Decision Framework
• Frequently Asked Questions

FHA vs. Conventional: Side-by-Side Comparison

Credit Score Requirements

Credit score is usually the deciding factor in which loan type you can access — and which one saves you more money.

FHA credit score requirements

The FHA minimum credit score is 500. Borrowers with scores between 500 and 579 must put down 10%. Borrowers with scores of 580 or higher qualify for the 3.5% minimum down payment.

In practice, many FHA lenders impose their own “overlays” — internal minimums above the FHA floor. Most FHA lenders want to see at least 580, and many prefer 620 or 640. If your score is between 500 and 580, shop specifically for lenders that accept the FHA floor rather than assuming all FHA lenders will approve you.

Conventional credit score requirements

Conventional loans require a minimum score of 620, but that floor gets you approved — not a good rate. Conventional loan pricing is highly score-dependent through LLPA (Loan Level Price Adjustments) — a Fannie Mae and Freddie Mac pricing system that charges higher fees for lower scores. The rate and fee tiers work roughly as follows:

• 740+: Best available rates and lowest fees
• 720–739: Minimal price adjustments
• 700–719: Moderate adjustments begin
• 680–699: Meaningful rate premium vs. 740+
• 660–679: Significant pricing surcharges
• 620–659: Highest conventional pricing — FHA is often cheaper here

This pricing structure is the primary reason that borrowers with scores below 680 often find FHA loans cheaper despite the lifetime mortgage insurance: FHA mortgage insurance rates are flat regardless of credit score, while conventional PMI and LLPAs increase sharply as scores fall.

For a full picture of how credit score affects your mortgage options, see our mortgage preapproval guide.

Down Payment Requirements

FHA down payment

The minimum FHA down payment is 3.5% for borrowers with scores of 580+. For a $350,000 home, that’s $12,250. For borrowers with scores of 500–579, the minimum is 10% — $35,000 on the same home.

The entire FHA down payment can come from gift funds from a family member, employer, or government entity. No personal contribution is required, which makes FHA particularly accessible for buyers receiving down payment help.

Conventional down payment

Conventional loans offer a 3% minimum through Fannie Mae’s HomeReady and Freddie Mac’s Home Possible programs — slightly lower than FHA’s 3.5%. These programs are available to first-time buyers (defined as someone who hasn’t owned a home in the past three years) and have income limits in most areas.

Standard conventional loans outside these programs typically require 5% down for first-time buyers and may require more for repeat buyers with lower credit scores. A 20% down payment eliminates PMI entirely — often the biggest single financial advantage a homebuyer can achieve if they have the savings.

Mortgage Insurance: The Most Important Difference

Mortgage insurance is where FHA and conventional loans diverge most dramatically — and where most of the long-term cost difference lives. Understanding this is essential before choosing a loan type.

FHA mortgage insurance (MIP)

All FHA loans require two forms of mortgage insurance regardless of your down payment:

• Upfront MIP (UFMIP): 1.75% of the loan amount, paid at closing or rolled into the loan. On a $350,000 loan: $6,125.
• Annual MIP: 0.55% per year for most 30-year FHA loans, divided into monthly payments. On a $350,000 loan: roughly $160/month at origination.

Critically: for borrowers who put down less than 10%, FHA annual MIP lasts for the life of the loan. It cannot be canceled. The only way to eliminate it is to refinance into a conventional loan once you reach 20% equity.

Borrowers who put down 10% or more can have MIP removed after 11 years — a meaningful improvement, but still far longer than conventional PMI.

Conventional PMI

Conventional loans require private mortgage insurance (PMI) only when the down payment is less than 20%. Unlike FHA MIP, conventional PMI:

• Has no upfront cost in most cases (lender-paid PMI options exist but come with a higher rate)
• Cancels automatically when your loan balance reaches 78% of the original purchase price (per the Homeowners Protection Act)
• Can be requested for removal at 80% LTV
• Varies in cost based on your credit score and LTV — borrowers with higher scores pay less

Conventional PMI typically runs 0.5%–1.5% of the loan amount annually, depending on your credit score and down payment percentage. A borrower with a 720 credit score and 5% down might pay around 0.65% annually. A borrower with a 660 score might pay 1.2%. Learn more about getting rid of your PMI.

The Real Cost of FHA vs. Conventional Mortgage Insurance

This is where the numbers tell a clear story. Let’s compare a $350,000 loan at 5% down for a borrower with a 700 credit score:

For a borrower with a 700 credit score who plans to stay in the home long-term, a conventional loan is dramatically cheaper over time — even if the conventional interest rate is slightly higher. The mortgage insurance math overwhelms most rate differences.

The picture changes at lower credit scores. At 620–660, conventional PMI rates are punishing (1.2–1.5% annually), and conventional LLPAs add further cost. At those scores, FHA’s flat 0.55% MIP rate is often genuinely cheaper on a monthly basis — the total cost comparison gets closer, and the accessibility advantage of FHA (lower credit bar, more lenient underwriting) has real value.

Interest Rates Compared

FHA interest rates are often quoted lower than conventional rates — and that’s technically accurate. Freddie Mac’s Primary Mortgage Market Survey for the week of May 7, 2026 shows the 30-year fixed average at 6.37%. FHA rates from approved lenders tend to run 0.10–0.25 percentage points below conventional rates for the same borrower.

But interest rate alone is misleading. The more useful comparison is the total monthly cost including mortgage insurance:

• A borrower with a 700 score getting 6.20% on an FHA loan and 6.37% on a conventional loan pays slightly less interest monthly on the FHA side — but adds $159 in MIP vs. $152 in PMI. The difference is minimal in the early years.
• After the conventional PMI cancels (roughly year 8–9), the conventional borrower’s monthly payment drops by ~$152. The FHA borrower keeps paying MIP for another 20+ years unless they refinance.

The takeaway: don’t choose your loan based on the interest rate alone. Run the full monthly payment comparison including mortgage insurance, and factor in how long you expect to keep the loan. Try our mortgage calculator to see what your monthly payment could be.

Compare current rates from multiple lenders for both loan types at our mortgage rate comparison page.

2026 Loan Limits

Both FHA and conventional loans have borrowing limits that vary by county. Here’s how 2026 limits compare:

The conforming limit for conventional loans is $806,500 in standard counties in 2026 — meaningfully higher than the FHA floor of $541,287. In many markets where home prices are between $550,000 and $806,500, only a conventional loan can finance the purchase without requiring a jumbo product. This is an important practical consideration in mid-to-high-cost housing markets.

In the highest-cost areas (parts of California, New York, Hawaii, and a handful of other counties), both FHA and conventional limits reach the same ceiling of $1,249,125.

Debt-to-Income Ratio Requirements

Your debt-to-income ratio (DTI) — total monthly debt payments divided by gross monthly income — affects eligibility for both loan types, but FHA is more forgiving:

• FHA: Standard limit is 43% back-end DTI. With compensating factors (large cash reserves, a strong credit score, a history of paying similar or higher housing costs), lenders may approve DTIs up to 50%.
• Conventional: Most lenders cap at 43–45%. With automated underwriting approval and strong credit, some lenders accept up to 50%, but this is less consistently available than with FHA.

If you carry significant student loans, car payments, or other recurring debt, FHA’s higher DTI tolerance may be what makes you eligible at all — even if a conventional loan would cost less over time.

Property Requirements

FHA loans have stricter property standards than conventional mortgages — a practical consideration when making offers on older or distressed homes.

FHA appraisers evaluate the property against HUD’s Minimum Property Standards for safety, security, and soundness. Common issues that can fail an FHA appraisal include:

• Roof with less than 2–3 years of remaining life
• Peeling or chipping paint (especially in pre-1978 homes, due to lead paint concerns)
• Missing handrails on stairs
• Evidence of water intrusion or structural damage
• Non-functional utilities at the time of inspection

Conventional appraisals focus primarily on value rather than condition. A conventional lender doesn’t care if the kitchen is dated or the carpet is worn — they care what the home is worth. This makes conventional loans more usable for fixer-uppers, homes sold as-is, and properties in deferred-maintenance condition.

If you’re buying a home needing significant repairs and want FHA financing, the FHA 203(k) rehabilitation loan is designed for exactly this — combining purchase and renovation costs into a single FHA loan.

When an FHA Loan Is the Better Choice

Choose an FHA loan when:

• Your credit score is below 680. At scores below 680, conventional LLPA surcharges and higher PMI rates make FHA’s flat-rate mortgage insurance genuinely competitive. Below 620, FHA may be your only option entirely.
• You’ve had a recent bankruptcy or foreclosure. FHA allows borrowers back into the market 2 years after a Chapter 7 bankruptcy discharge. Conventional loans require 4 years. FHA also has shorter waiting periods after foreclosure (3 years vs. 7 for conventional).
• Your down payment is coming from gift funds. FHA allows 100% of the down payment to be gifted with no personal contribution required. Conventional loans with 3–5% down typically require at least some personal funds.
• Your DTI is above 45%. FHA’s higher DTI tolerance may be the only path to approval if your debt load is significant.
• You’re a first-time buyer with limited credit history. FHA underwriting is more forgiving of thin credit files and non-traditional credit histories.

First-time buyers using FHA loans can also combine them with down payment assistance programs to reduce or eliminate the 3.5% requirement. Our guide to buying a house with no money down covers which DPA programs pair with FHA and how to stack them.

When a Conventional Loan Is the Better Choice

Choose a conventional loan when:

• Your credit score is 700 or above. At 700+, conventional PMI is cheaper than FHA MIP, and the elimination of MIP at 80% LTV makes the long-term savings significant — often $30,000–$60,000 over the life of the loan.
• You can put down 20%. No PMI at all. The mortgage insurance comparison becomes irrelevant, and conventional wins on every metric.
• You’re buying above the FHA loan limit. If your loan amount exceeds $541,287 in a standard county, a conventional loan (up to $806,500) avoids the need for a jumbo product.
• You’re buying a property that isn’t your primary residence. FHA loans are primary residence only. Vacation homes and investment properties require conventional financing.
• You’re buying a fixer-upper or as-is property. Conventional appraisals focus on value, not condition. FHA appraisals may flag repair requirements that delay or kill a transaction.
• You plan to refinance or sell within a few years. If you’re planning to exit the loan before conventional PMI would cancel, the cost difference between FHA MIP and conventional PMI is smaller — but conventional still avoids the upfront UFMIP of 1.75%.

How to Decide: A Simple Decision Framework

Walk through these questions in order:

1. Is your credit score below 580?
If yes → FHA is your primary option (with 10% down). Conventional requires 620+.

2. Is your credit score 580–619?
If yes → FHA is almost certainly better. Conventional is possible but comes with significant LLPA pricing surcharges.

3. Is your credit score 620–679?
Run both scenarios with a lender. FHA’s flat MIP may beat conventional’s PMI + LLPA combination. Compare total monthly payment including mortgage insurance, not just the interest rate.

4. Is your credit score 680–699?
Conventional is likely cheaper over time due to PMI cancellation, but the gap is narrower than at higher scores. If your DTI is high or your credit history is thin, FHA may still be preferable from an approval standpoint.

5. Is your credit score 700 or above?
Choose conventional if you can meet the down payment requirement. The long-term mortgage insurance savings are substantial.

6. Can you put down 20%?
Choose conventional. Full stop. No PMI, no upfront MIP, lower monthly payment.

The best way to make a definitive comparison is to get a Loan Estimate from at least one FHA lender and one conventional lender for the same purchase price, and compare the APRs (which capture both rate and fees) and the total monthly payment including mortgage insurance. Use our eligibility check tool to get matched with lenders offering both loan types, and our mortgage calculator to model monthly payment scenarios side by side.

You may also want to explore other low-down-payment programs depending on your situation. Our USDA loan guide covers zero-down options for eligible rural buyers, and our closing costs guide explains what you’ll pay at settlement regardless of which loan type you choose.

Frequently Asked Questions