Short answer: FHA loans are usually easier to qualify for if your credit score is lower or your debt is higher, and they allow as little as 3.5% down with a qualifying score. Conventional loans allow as little as 3% down for many first-time buyers, and they usually cost less over time if your credit is good, because the mortgage insurance is cheaper and can be removed. As a rough rule: lower credit or higher debt, look hard at FHA. Good credit, conventional often wins.
FHA vs. conventional at a glance
| FHA | Conventional | |
|---|---|---|
| Minimum down payment | 3.5% with a qualifying credit score | As little as 3% for many first-time buyers |
| Credit flexibility | More forgiving of lower scores and past credit issues | Rewards higher scores with better pricing |
| Debt-to-income flexibility | Often more flexible | Somewhat stricter |
| Mortgage insurance | Upfront premium plus a monthly premium, often for the life of the loan with a small down payment | Monthly PMI with less than 20% down, which can be removed as you build equity |
| Property standards | Stricter appraisal condition requirements | Standard appraisal |
| Property types | Primary homes only | Primary homes, second homes and rentals |
| Loan limits | FHA county limits | Conforming limits; above that is a jumbo loan |
Mortgage insurance: the biggest difference
FHA charges an upfront mortgage insurance premium, usually added to the loan, plus a monthly premium. With less than 10% down, the monthly premium typically stays for the life of the loan unless you refinance.
Conventional PMI depends heavily on your credit score and down payment. It’s often cheaper than FHA for borrowers with good credit. You can ask to remove it once you reach enough equity, and it ends automatically at a set point.
That’s why a buyer with a strong score usually pays less with conventional, while a buyer with a lower score may pay less, or only qualify at all, with FHA.
Who should look at FHA
- Your credit score is on the lower side, or you’ve had a past credit event.
- Your debt-to-income ratio is higher, such as with student loans or a car payment.
- You’re using gift funds or down payment help (both loan types allow gifts, but FHA is often more flexible overall).
Who should look at conventional
- Your credit score is good to excellent.
- You want mortgage insurance that goes away.
- You’re buying a second home or rental, or a home that needs some cosmetic work.
- You can put 20% down and avoid mortgage insurance entirely.
The best way to decide
Get quoted both ways. The right answer depends on your exact credit score, down payment and debts, and the difference in monthly payment and long-term cost can be significant. A good lender will show you both side by side.
Questions to ask your lender
- What would my monthly payment be with FHA and with conventional, including mortgage insurance?
- How much would I pay in total mortgage insurance over the time I expect to keep the loan?
- When could I remove mortgage insurance on each option?
- How much cash do I need at closing for each?
- Would raising my credit score a little change which option is better?
Other first-time buyer tips
- Get pre-approved before you shop. It sets your price range and makes your offer stronger.
- Save for closing costs too, not just the down payment. Sellers can sometimes cover part of them.
- Avoid new debt while you’re buying, like a car loan or new credit cards.
- Keep your paperwork organized: pay stubs, W-2s, bank statements and ID.
Frequently asked questions
Do I have to be a first-time buyer to get an FHA loan?
No. FHA loans are open to repeat buyers too, as long as the home will be your primary residence.
Can I switch from FHA to conventional later?
Yes. Many buyers start with FHA and refinance into conventional once their credit improves and they have enough equity, which can remove FHA mortgage insurance.
Can I use gift money for my down payment?
Yes, both FHA and conventional loans allow gift funds from eligible donors, usually with a gift letter.
Which one closes faster?
Timelines are usually similar. FHA appraisals have stricter condition rules, which can add time if repairs are needed.
What about VA loans?
If you’re an eligible veteran or service member, a VA loan is often better than both, with no down payment and no monthly mortgage insurance.
Compare your options
Tell us your rough credit score, down payment and price range. We’ll show you FHA and conventional side by side so you can see the real difference. Learn more about FHA loans and conventional loans, or call 949.423.3883.
Compare FHA and conventional for you
Tell us your rough credit score and down payment, and we’ll show you both side by side. No cost to find out what you qualify for.