Quick answer: If your credit score is below 680 or you have limited savings, FHA is usually your better option — it's more forgiving on qualifications and easier to get into. If your score is 700 or higher and you can put 5 to 20% down, conventional wins on total cost because PMI is cheaper than FHA's mortgage insurance and can be eliminated at 20% equity. The crossover point where conventional becomes cheaper than FHA is typically around a 680 credit score.
FHA and conventional loans are the two most common mortgage types in America, and the choice between them shapes what you'll pay for your home over the next 15 to 30 years. Choose wrong and you could pay tens of thousands of dollars more than necessary in mortgage insurance and interest.
The challenge is that the "better" loan depends entirely on your specific financial profile. A borrower with a 620 credit score and 3.5% down will get a completely different answer than someone with a 760 score and 20% down. This guide breaks down every factor so you can see which loan wins for your situation.
Side-by-side comparison
Here's every major difference between FHA and conventional loans in 2026, updated with the latest loan limits and requirements.
| Feature | FHA loan | Conventional loan | Edge |
|---|---|---|---|
| Min. credit score | 580 (3.5% down) or 500 (10% down) | 620 minimum; 740+ for best rates | FHA |
| Min. down payment | 3.5% (with 580+ score) | 3% (first-time) or 5% (repeat buyer) | Tie |
| Mortgage insurance | 1.75% upfront + 0.55%/yr for life of loan (if <10% down) | 0.25%–2%/yr PMI; drops at 20% equity | Conv. |
| Loan limits (2026) | $541,287 – $1,249,125 | $832,750 – $1,249,125 | Conv. |
| Max DTI ratio | 43–50% (with compensating factors) | 36–45% (up to 50% with strong credit) | FHA |
| Interest rates | Slightly lower base rate (~0.125–0.25% less) | Higher base rate but lower total APR for 720+ scores | Varies |
| Property types | Primary residence only | Primary, second home, or investment | Conv. |
| Appraisal | Stricter: safety + habitability checks | Standard market value; waivers possible | Conv. |
| Seller acceptance | Some sellers avoid FHA offers | Generally preferred by sellers | Conv. |
| Best for | Lower credit, limited savings, higher debt | Good credit, 5%+ down, want lower long-term cost | — |
The real cost difference: a $350,000 home
Numbers tell the story better than bullet points. Let's compare the actual cost of buying a $350,000 home with each loan type across two borrower profiles — one with average credit and one with strong credit.
Scenario 1: Buyer with a 640 credit score
FHA loan
Conventional loan
Scenario 2: Buyer with a 740 credit score
FHA loan
Conventional loan
The pattern is clear: below a 680 credit score, FHA usually costs less. Above 700, conventional almost always wins on total cost. The crossover zone between 680 and 700 depends on your specific down payment and lender — get quotes for both and compare the total APR, not just the interest rate.
Compare your own numbers
Plug in your credit score and down payment to see the real monthly cost
Try the mortgage calculatorMortgage insurance: the biggest cost difference
Mortgage insurance is where FHA and conventional loans diverge the most — and it's often the deciding factor in which loan is cheaper over time.
FHA mortgage insurance premium (MIP)
Every FHA loan requires two types of mortgage insurance. First, an upfront premium of 1.75% of the loan amount, which is typically rolled into the loan balance. On a $320,000 loan, that's $5,600 added to your debt before you make your first payment.
Second, an annual premium of 0.55% of the loan balance, paid monthly. On that same $320,000 loan, that's about $147 per month added to your payment.
The critical catch: if your down payment is less than 10%, FHA mortgage insurance lasts for the entire life of the loan — all 30 years. The only way to remove it is to refinance into a conventional loan. If you put 10% or more down, MIP drops off after 11 years.
Conventional private mortgage insurance (PMI)
Conventional loans only require PMI when you put less than 20% down. The cost ranges from 0.25% to 2% of the loan amount annually, depending heavily on your credit score. A buyer with a 740 score might pay 0.30% ($80/month on a $320,000 loan), while a 640-score buyer might pay 1.5% ($400/month).
The major advantage: conventional PMI automatically cancels when you reach 22% equity, or you can request removal at 20%. This makes the long-term cost significantly lower for buyers who will build equity over time through payments and home price appreciation.
Pro tip: On a $320,000 loan at 6.8%, you'd reach 20% equity in roughly 7 to 10 years through regular payments alone — faster if home values appreciate. FHA's MIP would keep charging for all 30 years (or 11 years with 10% down). Over the full loan term, this difference can exceed $30,000.
2026 loan limits compared
Loan limits determine the maximum you can borrow under each program. Conventional loans have a significant advantage here.
| Area type | FHA limit (2026) | Conventional limit (2026) |
|---|---|---|
| Standard areas (most counties) | $541,287 | $832,750 |
| High-cost areas (NYC, SF, etc.) | Up to $1,249,125 | Up to $1,249,125 |
In standard-cost areas, a conventional loan lets you borrow up to $291,463 more than FHA. This matters if you're buying in a market where median home prices exceed $541,000 — you'd need a conventional or jumbo loan, as FHA wouldn't cover the full amount.
The appraisal difference sellers care about
In competitive markets, this can make or break your offer. FHA appraisals follow strict HUD guidelines that go beyond just determining market value — the appraiser also checks for safety and habitability issues. Peeling paint, broken handrails, damaged roofing, and faulty electrical systems can all trigger required repairs before the loan can close.
Conventional appraisals focus primarily on market value. Some lenders even offer appraisal waivers for well-qualified buyers purchasing homes in areas with strong comparable sales data.
This is why sellers in hot markets often prefer conventional offers. An FHA appraisal introduces more uncertainty, potential repair requirements, and possible closing delays. If you're competing against multiple offers, an FHA loan can put you at a disadvantage — though a strong offer price and pre-approval letter can help offset this.
The FHA-to-conventional refinance strategy
Many savvy buyers use a two-step approach: get into a home with an FHA loan's easier qualifications, then refinance into a conventional loan once their financial situation improves.
This strategy works well when you need FHA's flexibility today (lower credit score, smaller down payment, higher DTI) but expect your finances to improve over the next 2 to 5 years. Once you've built 20% equity and your credit score is above 680, refinancing into conventional eliminates FHA's lifetime MIP and often secures a lower rate.
The key is timing. Refinancing costs typically run 2 to 5% of the loan amount in closing costs. You'll want to ensure the monthly savings from dropping MIP justify the refinance cost — which usually means staying in the home at least 2 to 3 more years after refinancing to break even.
Which loan should you choose?
Choose FHA if...
Your credit score is below 680
FHA pricing is more consistent at lower credit levels. Below 680, FHA's mortgage insurance is usually cheaper than conventional PMI.
You have less than 5% for a down payment
FHA's 3.5% minimum is more accessible, and your rate won't be penalized as heavily for the low down payment compared to conventional.
Your debt-to-income ratio is above 43%
FHA allows higher DTI ratios (up to 50% with compensating factors), making qualification easier if you carry significant existing debt.
You plan to refinance within 3 to 5 years
If your credit and equity will improve, starting with FHA and refinancing to conventional later can be the optimal path.
Choose conventional if...
Your credit score is 700 or higher
Above 700, conventional loans reward you with lower PMI rates that are significantly cheaper than FHA's MIP — and PMI goes away at 20% equity.
You can put 10 to 20% down
At 20% down, you avoid PMI entirely. Even at 10%, conventional PMI for good-credit borrowers is a fraction of FHA's MIP cost.
You're buying in a competitive market
Sellers prefer conventional offers because of faster, simpler appraisals. In a bidding war, conventional gives you an edge.
You want a second home or investment property
FHA loans are restricted to primary residences only. Conventional loans work for second homes and rental properties.
Run both scenarios with your numbers
Our calculator shows how credit score changes your rate — try 640 vs. 740 and see the difference
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