An FHA loan requires a 580 credit score and just 3.5% down — making it the most accessible mortgage for most first-time buyers. A conventional loan requires at least 620 (most lenders prefer 680+) but lets you cancel mortgage insurance once you hit 20% equity, making it cheaper over the long run for borrowers with stronger profiles. The right choice depends almost entirely on your credit score and how long you plan to own the home.
For a full overview of all loan types, see Mortgage Types Explained 2026.
FHA vs. Conventional: Side-by-Side Comparison
| Feature | FHA Loan | Conventional Loan |
|---|---|---|
| Min. credit score | 580 (3.5% down); 500 (10% down) | 620 (most lenders prefer 680+) |
| Min. down payment | 3.5% | 3% (HomeReady/Home Possible); typically 5% |
| Mortgage insurance | Required always; lasts life of loan if <10% down | PMI required if <20% down; cancelable at 20% equity |
| Upfront MIP | 1.75% of loan amount | None |
| Annual MIP | 0.55% of loan (most borrowers) | PMI: 0.5–1.5% depending on credit/LTV |
| Loan limit (2026) | $524,225 (standard areas) | $806,500 (conforming limit) |
| DTI limit | Up to 57% with compensating factors | Up to 50% (43–45% preferred) |
| Property condition | Must meet HUD minimum standards | Fewer restrictions |
| Gift funds | Allowed 100% | Allowed with documentation |
The Mortgage Insurance Cost Comparison — The Critical Difference
This is the single most important number to compare.
FHA MIP structure (2026):
- Upfront MIP: 1.75% of loan amount, paid at closing (or rolled into loan)
- Annual MIP: 0.55% for most 30-year loans (paid monthly)
- Duration: Life of loan if down payment < 10%; 11 years if ≥ 10% down
Conventional PMI:
- No upfront PMI
- Annual PMI: 0.5–1.5% depending on credit score and loan-to-value ratio
- Duration: Automatically cancels when you reach 22% equity; can request removal at 20%
Worked Example: $300,000 Loan, 5% Down ($285,000 borrowed)
FHA option:
- Upfront MIP: $285,000 × 1.75% = $4,988 (rolled into loan)
- Annual MIP: ~$1,568/year ($131/month)
- MIP never cancels (5% down < 10% threshold)
- Total MIP cost over 30 years: $47,000+
Conventional option (680 score):
- No upfront PMI
- Annual PMI: ~$1,140/year ($95/month) at ~0.4% rate
- PMI cancels when loan balance reaches ~$228,000 (≈ year 8)
- Total PMI paid: approximately $9,000
Winner at 680+ credit score: Conventional, by $38,000+ in mortgage insurance savings alone — even though the initial rate may be slightly higher.
When FHA Wins
1. Credit Score Below 680
Conventional PMI rates skyrocket below 680, and approval becomes harder. FHA’s consistent MIP pricing means it often wins on total cost for lower-score borrowers.
| Credit Score | FHA Total Cost (30yr) | Conventional Total Cost (30yr) | Winner |
|---|---|---|---|
| 580–619 | Lower | Much higher PMI / possible denial | FHA |
| 620–659 | Often lower | Higher PMI rate | FHA |
| 660–679 | Comparable | Comparable or slight FHA edge | Toss-up |
| 680–719 | Higher (non-cancelable MIP) | Lower PMI, cancelable | Conventional |
| 720+ | Higher | Lowest rates + cancelable PMI | Conventional |
2. Down Payment Under 5%
FHA allows 3.5% down at 580+. Conventional programs like HomeReady (Fannie Mae) and Home Possible (Freddie Mac) allow 3% down, but require 620+ and income limits may apply.
3. Higher Debt-to-Income Ratio
FHA can approve up to 57% DTI with compensating factors. Conventional caps around 50%, and most lenders prefer 43–45%.
When Conventional Wins
1. Credit Score 680+
At 680 and above, conventional PMI rates drop, and the ability to cancel PMI once you hit 20% equity makes the total cost significantly lower than non-cancelable FHA MIP.
2. Larger Down Payment (10%+)
At 10% or more down, FHA MIP drops off after 11 years — but conventional PMI becomes very cheap (or disappears at 20%+) and costs less over any horizon.
3. You Plan to Stay Long-Term
FHA MIP lasting the life of the loan is a guaranteed cost. Conventional PMI cancels — the longer you stay, the more conventional saves.
4. You Are Buying a High-Value Home
FHA loan limits are $524,225 in standard areas. Above that, only conventional (or jumbo) financing applies. In high-cost metros, this limit is higher but still below the conventional conforming limit of $806,500.
5. Investment Properties or Second Homes
FHA requires owner-occupancy — it cannot be used for investment properties or second homes.
Comparing Total Costs on a Real Loan
Scenario: $350,000 purchase, 5% down ($332,500 loan), 30 years, 2026 rates, 700 credit score
| FHA | Conventional | |
|---|---|---|
| Interest rate | ~7.10% | ~7.25% (slightly higher at 700) |
| Monthly P&I | $2,231 | $2,269 |
| Monthly MIP/PMI | $152 (MIP) | $130 (PMI, cancels yr ~10) |
| Upfront MIP/PMI | $5,819 (FHA) | $0 |
| Total over 30 years | ~$601,000 | ~$582,000 |
At 700 score, conventional still wins by ~$19,000 over 30 years in this scenario — primarily because PMI cancels at year 10 while FHA MIP runs the full term.
Note: rates and PMI costs vary by lender. Always get quotes for both and compare the Loan Estimate (required by law within 3 business days of application).
How to Decide: Four Questions
- What is your credit score? Below 680 → lean FHA. Above 680 → lean conventional.
- How much can you put down? Less than 5% with below-620 score → FHA is often your only option.
- How long will you stay? Short term (under 7 years) → FHA MIP impact is lower. Long term → conventional cancelable PMI wins.
- What is your DTI? Above 45% → FHA may be your only qualifying path.
When in doubt, apply for both and compare the official Loan Estimate documents side by side.
Key Takeaways
- FHA requires 580 credit score and 3.5% down; conventional typically requires 620+ and 3–5% down
- FHA MIP lasts the life of the loan (with < 10% down); conventional PMI cancels at 20% equity — this is the crucial long-term cost difference
- Borrowers with scores above 680 almost always come out ahead with conventional financing due to cancelable PMI
- The 2026 FHA limit is $524,225 for standard areas; conventional conforming limit is $806,500
- For a full breakdown of all mortgage options, see FHA Loan Requirements and Rates and the Mortgage Types guide
The content on Wealthvieu is for informational purposes only and should not be considered financial, tax, or investment advice. Consult a qualified professional before making financial decisions. Full disclaimer · Editorial policy