FHA vs Conventional Loan: Complete Comparison for 2026

• Mortgage Expert

Quick Answer: FHA vs Conventional - Which Is Better?

Choose FHA if your credit score is under 680 or you have limited down payment savings. Choose conventional if your credit score is 680+ and you can put 5%+ down. Conventional loans typically cost less over time for qualified borrowers, while FHA is more accessible for those building credit.

  • FHA accepts credit scores as low as 500 (with 10% down) vs 620 for conventional
  • FHA requires mortgage insurance for the life of the loan; conventional PMI ends at 20% equity
  • FHA loans are assumable; conventional loans typically are not
  • Conventional loans often have lower total costs for borrowers with good credit
  • Both loan types have the same conforming loan limits

Side-by-Side Comparison

FeatureFHA LoanConventional Loan
Min. Credit Score500 (10% down) / 580 (3.5% down)620 (most lenders)
Min. Down Payment3.5%3% (first-time) / 5%
Mortgage InsuranceMIP (life of loan)PMI (ends at 20% equity)
Loan Limits 2026$766,550$766,550
AssumableYesNo (typically)
Property TypesPrimary onlyPrimary, secondary, investment
Seller CreditsUp to 6%3-9% (based on down payment)
Gift Funds100% allowedAllowed with documentation

FHA Loans

Pros

✅ Lower credit score requirements ✅ Lower down payment (3.5%) ✅ More flexible debt-to-income ratio ✅ Assumable by future buyers ✅ Higher seller credit allowance

Cons

❌ Mortgage insurance for life of loan ❌ Property must meet FHA standards ❌ Only for primary residences ❌ Higher mortgage insurance costs

FHA Mortgage Insurance (MIP)

TypeCost
Upfront MIP1.75% of loan (can be financed)
Annual MIP0.15-0.75% (based on loan term/amount)
DurationLife of loan (unless refinanced)

Example: $300,000 FHA Loan

  • Upfront MIP: $5,250 (financed = added to loan)
  • Monthly MIP (0.55% rate): $137.50/month
  • Total first year MIP: $6,900+

Conventional Loans

Pros

✅ PMI ends when reaching 20% equity ✅ Lower total mortgage insurance cost ✅ More property type options ✅ Higher loan amounts (jumbo available) ✅ Often lower interest rates for good credit

Cons

❌ Stricter credit requirements ❌ Higher down payment for lower credit ❌ Lower DTI requirements ❌ Not assumable

Conventional PMI

Down PaymentTypical PMI Rate
3-5%0.5-1.5% annually
5-10%0.3-1.0% annually
10-15%0.2-0.8% annually
15-20%0.1-0.5% annually
20%+$0 (no PMI required)

Cost Comparison Example

Scenario: $300,000 Home, 680 Credit Score

FactorFHA (3.5% down)Conventional (5% down)
Down payment$10,500$15,000
Loan amount$289,500$285,000
Interest rate7.0%6.875%
Monthly PI$1,926$1,877
Mortgage insurance$159$125
Total monthly$2,085$2,002
MI duration30 years~9 years
Total MI paid$57,240+$13,500

Conventional saves $83/month and $43,000+ in mortgage insurance

When to Choose FHA

Choose FHA if you:

  • Have a credit score under 680
  • Can only afford 3.5% down
  • Have higher debt-to-income ratio
  • Want maximum seller credits
  • Plan to refinance later when credit improves
  • Want an assumable loan

When to Choose Conventional

Choose Conventional if you:

  • Have a credit score of 680+
  • Can put 5% or more down
  • Plan to stay in home long-term
  • Want PMI to eventually end
  • Are buying investment property
  • Have limited cash but good credit

First-Time Buyer Considerations

3% Down Conventional

  • Available to first-time buyers (no ownership in 3 years)
  • Income limits may apply
  • May be cheaper than FHA with good credit

FHA Always an Option

  • FHA doesn’t require first-time buyer status
  • More lenient on credit history
  • Consider if conventional denied

Frequently Asked Questions

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