Choosing between an FHA vs. conventional loan is one of the first big decisions most homebuyers face. Both are mainstream mortgages offered by private lenders, both can come with a down payment well under 20%, and both are widely available. Yet the rules behind them are different, and those differences can add up to thousands of dollars over the life of the loan.
The short version: FHA loans are insured by the federal government and tend to be more forgiving on credit and down payment, while conventional loans follow rules set largely by Fannie Mae and Freddie Mac and often cost less for borrowers with solid credit. This guide walks through how each one works, where the costs hide, and how to compare real offers side by side.
What Is an FHA Loan?
An FHA loan is a mortgage made by a private lender and insured by the Federal Housing Administration, which is part of HUD. The FHA does not lend money itself. Its insurance protects the lender if the borrower defaults, which is why lenders can accept smaller down payments and lower credit scores than they otherwise might. If you want a deeper primer on the program itself, see our guide on how an FHA loan works as a mortgage.
Under HUD’s current rules, a borrower whose minimum decision credit score is below 500 is not eligible for FHA financing. A score from 500 to 579 limits the loan to a maximum loan-to-value (LTV) ratio of 90%, which means at least 10% down. A score of 580 or higher qualifies for maximum financing, which for a standard owner-occupied purchase means a down payment as low as 3.5%. Individual lenders can and often do set stricter minimums of their own.
Every FHA loan carries mortgage insurance. There is an upfront premium of 1.75% of the base loan amount, plus an annual premium that is paid in monthly installments as part of your mortgage payment.
What Is a Conventional Loan?
“Conventional” simply means the loan is not part of a government program such as FHA, VA or USDA. Most conventional mortgages are “conforming,” meaning they meet the size limits and underwriting rules that allow Fannie Mae or Freddie Mac to buy them from lenders. Loans above those limits are called jumbo loans and follow each lender’s own rules.
The CFPB notes that conventional loans typically cost less than FHA loans but can be harder to qualify for. Low down payments are possible: Fannie Mae offers 97% LTV financing (a 3% down payment) on fixed-rate loans for a one-unit primary residence, either through its HomeReady program or through its standard product when at least one borrower is a first-time homebuyer.
Credit standards have also shifted. Fannie Mae removed its long-standing 620 minimum credit score for loans run through its Desktop Underwriter system, effective for casefiles created on or after November 16, 2025. That does not mean any score gets approved: the system still weighs your full credit history, and lenders and private mortgage insurers can keep their own minimums. Conventional pricing is also risk-based, so a lower score usually means a higher rate or higher fees.
FHA vs. Conventional Loan: Side-by-Side Comparison
Here is how the two loan types line up on the features that matter most. Figures are as of November 2026.
| Feature | FHA Loan | Conventional (Conforming) Loan |
|---|---|---|
| Backed or insured by | Federal Housing Administration (HUD) | No government insurance; most are sold to Fannie Mae or Freddie Mac |
| Minimum down payment | 3.5% with a 580+ score; 10% with a 500–579 score | As low as 3% on eligible fixed-rate, one-unit primary homes |
| Credit score floor | 500 under HUD rules; lenders may require more | No hard Fannie Mae floor for Desktop Underwriter loans since Nov. 2025; lenders and insurers set their own |
| Upfront mortgage insurance | 1.75% of the base loan amount | None required (PMI is usually paid monthly) |
| Ongoing mortgage insurance | Annual MIP, commonly 0.50%–0.55% on 30-year loans | PMI if you put down less than 20% |
| When insurance ends | After 11 years if LTV was 90% or less at origination; otherwise for the life of the loan | Can request removal at 80% of original value; automatic at 78% under federal rules |
| 2026 one-unit loan limit | $541,287 floor to $1,249,125 ceiling, by county | $832,750 baseline; up to $1,249,125 in high-cost areas |
| Often a fit for | Lower credit scores, small down payments | Good credit, especially with 10% or more down |
Mortgage Insurance: The Biggest Cost Difference
For most borrowers, the real gap between these loans is mortgage insurance, not the interest rate.
FHA mortgage insurance premium (MIP)
HUD cut annual FHA premiums by 0.30 percentage points for loans endorsed on or after March 20, 2023. For a loan longer than 15 years with a base amount at or below the national conforming limit, the annual MIP is 0.55% if your LTV is above 95%, and 0.50% if your LTV is 95% or less. The duration matters even more than the rate: if your LTV at origination is 90% or less (at least 10% down), the annual premium lasts 11 years. If you put down less than 10%, it lasts for the full mortgage term. In practice, the main way to drop FHA insurance on a low-down-payment loan is to refinance into a different loan later.
Conventional private mortgage insurance (PMI)
Conventional loans with less than 20% down usually require PMI, priced by private insurers based on factors like your credit score and down payment. The key advantage is that PMI is designed to go away. Under federal rules summarized by the CFPB, you can ask your servicer in writing to cancel PMI once your balance is scheduled to reach 80% of the home’s original value, provided you are current on payments, have no junior liens and the home’s value has not dropped. PMI must end automatically when the balance is scheduled to hit 78% of the original value, and no later than the month after the midpoint of the loan term. Our guide to PMI costs and how to remove it covers the process step by step.
A Worked Example (Hypothetical)
Consider a hypothetical $350,000 home purchased with a 30-year fixed-rate FHA loan. These numbers are for illustration only and ignore property taxes, homeowners insurance and closing costs.
- FHA with 3.5% down: The down payment is $12,250 and the base loan is $337,750. The upfront premium at 1.75% is about $5,911, which many borrowers add to the loan. With an LTV above 95%, the annual MIP rate is 0.55%, or roughly $1,858 in the first year (about $155 a month), and it stays for the life of the loan.
- FHA with 10% down: The down payment is $35,000 and the base loan is $315,000. The upfront premium is about $5,513. With a 90% LTV, the annual rate is 0.50%, roughly $1,575 in the first year (about $131 a month), and it ends after 11 years.
- Conventional with 5% or 10% down: There is no upfront premium. Monthly PMI depends on your credit profile and the insurer, so request a written quote. Because PMI can be canceled at 80% of the original value and ends automatically at 78% under the rules above, the total insurance paid can be far lower over a long ownership period, especially if you prepay principal.
The takeaway: an FHA loan may offer easier approval or a competitive rate, but lifetime MIP on a small down payment can make it more expensive over time. The CFPB’s general guidance is that FHA loans tend to cost more for borrowers with good credit and a 10%–15% down payment, while for borrowers with lower scores or smaller down payments FHA can often be the cheapest option.
2026 Loan Limits for FHA and Conventional Mortgages
Both loan types cap how much you can borrow. For 2026, the FHFA set the baseline conforming loan limit for a one-unit home at $832,750, with a ceiling of $1,249,125 in high-cost areas. FHA limits are tied to that figure: for case numbers assigned on or after January 1, 2026, the FHA one-unit floor is $541,287 and the ceiling is $1,249,125. Many counties fall between the floor and the ceiling, so check HUD’s FHA mortgage limits lookup or the FHFA county list for your exact area.
How to Decide Which Loan Fits You
There is no universal winner. A few questions can point you in the right direction:
- What is your credit score? If your score is in the 500s or low 600s, FHA’s published rules may give you a better shot at approval at a reasonable rate. Our explainer on what counts as a good credit score can help you see where you stand.
- How much can you put down? With 10% or more down and good credit, conventional loans frequently win on total cost. With 3%–5% down, compare both carefully.
- How long will you keep the loan? Lifetime FHA MIP hurts most if you stay in the loan for many years. If you expect to refinance or sell soon, the gap may be smaller.
- What kind of property is it? FHA purchase financing is built around a home you will live in. A home above your county’s FHA limit, or a second home, may push you toward a conventional loan.
- What do real offers say? Ask at least two or three lenders for Loan Estimates on both loan types for the same price and down payment, then compare the combined cost of rate, upfront fees and mortgage insurance over the years you expect to keep the loan.
Frequently Asked Questions
Is an FHA loan easier to get than a conventional loan?
Usually, yes. HUD’s rules allow scores as low as 500 with 10% down and 580 with 3.5% down, and the CFPB describes FHA as accepting lower credit scores than most conventional loans. Individual lenders may still set higher minimums.
Can I switch from an FHA loan to a conventional loan later?
Yes, by refinancing. Borrowers sometimes do this once their credit improves or they build enough equity to avoid or limit PMI, which can end lifetime FHA mortgage insurance. Refinancing has its own closing costs, so run the numbers first.
Do I need 20% down for a conventional loan?
No. Fannie Mae allows as little as 3% down on eligible fixed-rate purchases of a one-unit primary home. Putting down less than 20% generally means paying PMI until it can be canceled.
Bottom Line
An FHA loan is often the more accessible path if your credit is still developing or your savings are thin, thanks to HUD’s 500 and 580 score tiers and a 3.5% minimum down payment. A conventional loan often costs less over time for borrowers with good credit, largely because PMI can be removed while FHA premiums on small down payments last for the life of the loan. The smartest move is to get Loan Estimates for both on the same home and compare the total cost over the years you plan to keep the mortgage.
Sources
- CFPB – FHA loans
- CFPB – Conventional loans
- CFPB – When can I remove private mortgage insurance (PMI) from my loan?
- HUD – Mortgagee Letter 2023-05: Reduction of FHA Annual MIP Rates
- HUD – Mortgagee Letter 2026-11: Minimum Decision Credit Score Methodology
- HUD – FHA Announces 2026 Loan Limits
- FHFA – Conforming Loan Limit Values for 2026
- Fannie Mae – FAQs: 97% LTV Options
This article is for general information only and is not financial advice. See our Disclaimer.
