FHA vs conventional
FHA is easier to get into. Conventional is cheaper to stay in. The difference comes down to mortgage insurance and whether it ever stops.
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Head to head
Side by side
The numbers that decide it
These two cover most buyers who cannot use VA or USDA. Choosing between them is usually simple.
If your credit clears 620 comfortably, conventional costs less over time. If it does not, FHA is the realistic route.
Which program wins on what
The trade-off in one view
If your score clears 620 comfortably, conventional usually costs less over time.
Side by side
Every difference that matters
| FHA | Conventional | |
|---|---|---|
| Minimum credit score | 580, or 500 at 10% down | Around 620 |
| Minimum down payment | 3.5% | From 3% |
| Mortgage insurance | MIP, upfront and annual | PMI, monthly only |
| Does insurance end | Usually not below 10% down | Yes, at about 20% equity |
| Debt-to-income | More flexible | Up to 45 to 50% with reserves |
| Appraisal | Condition standards apply | Fewer condition requirements |
| Best for | Rebuilding credit | Solid credit, longer holds |
Scroll sideways to see all columns.
The real cost
Why conventional usually wins over time
Conventional insurance stops
Ask to cancel it at about 20 percent equity. It ends on its own at 22 percent.
FHA insurance usually does not
Put down less than 10 percent and it runs for the life of the loan. Over a long hold that adds up.
The standard FHA exit is refinancing
Most FHA borrowers move to a conventional loan once credit and equity allow. That is when the insurance stops.
But FHA gets you in the door
If your score rules out conventional today, the real choice is not FHA or conventional. It is FHA or waiting.
Choosing
Which fits your situation
Choose FHA if
- Your credit score is below 620
- You have a recent blemish conventional will not look past
- Your debt-to-income is higher than conventional allows
- Your down payment is largely a family gift
Choose conventional if
- Your score clears 620 comfortably
- You want mortgage insurance that eventually ends
- You are buying a property that might struggle a stricter appraisal
- You plan to hold the loan for many years
One more factor
How the property itself affects the choice
Most comparisons stop at credit score and mortgage insurance. The property matters too, and it catches buyers out at the worst moment.
FHA appraisals apply minimum property standards. Peeling paint on an older home, a roof near the end of its life, missing handrails or non-working utilities can all hold the loan up until they are repaired. On a home in good order this is irrelevant. On a fixer, it can end the deal.
Conventional appraisals concern themselves mainly with value rather than condition, which is why some listing agents quietly prefer conventional offers on properties that need work.
If you are choosing between programs and you already know the kind of property you are looking at, factor that in alongside the cost. How the program shows on your letter.
Questions
Common questions
Is FHA or conventional better?
Conventional usually costs less over time because the mortgage insurance can be cancelled. FHA is easier to qualify for. If your score clears 620 comfortably, conventional is normally the cheaper choice.
What credit score do you need for each?
FHA allows 580 with 3.5 percent down, or 500 with 10 percent down. Conventional usually starts around 620, and some lenders want 640.
Can I refinance from FHA to conventional?
Yes, and it is the standard route out of FHA mortgage insurance. It requires enough equity and a qualifying credit score.
Which has the lower down payment?
Some conventional first-time buyer programs start at 3 percent, slightly below FHA's 3.5 percent. Neither requires 20 percent.
Do sellers prefer conventional offers?
Sometimes, on properties needing repair, because FHA appraisals apply condition standards. On a home in good order it matters far less than the strength of your letter.
Keep reading
Related guides
FHA loans
Requirements, MIP and the 500 to 579 band.
Conventional loans
Requirements, PMI and when it cancels.
Loan programs
Conventional, FHA, VA, USDA and jumbo compared.
Independent sources
- US Department of Housing and Urban Development — FHA requirements and mortgage insurance
- Consumer Financial Protection Bureau — comparing loan options
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