FHA or conventional — it's one of the most common questions I get from first-time buyers. And the honest answer is: it depends.

Both are excellent loan options. But they work differently, and the right choice depends on your credit score, down payment, and how long you plan to stay in the home.

Let me break it down.

⚖️ The Quick Comparison

	FHA	Conventional
Minimum credit score	580 (3.5% down) / 500 (10% down)	620
Minimum down payment	3.5%	3%
Mortgage insurance	Required for life of loan (if <10% down)	Required until 20% equity; then drops off
Loan limits (2026)	$498,257 (most areas) / higher in high-cost areas	$766,550 (conforming)
Property condition	Stricter standards	More flexible
Best for	Lower credit scores, limited down payment	Higher credit scores, want to drop PMI

🏦 What Is an FHA Loan?

FHA loans are insured by the Federal Housing Administration. Because the government backs the loan, lenders can offer more flexible terms — lower credit score requirements, lower down payments, and more lenient debt-to-income ratios.

The catch: FHA loans require mortgage insurance no matter what — and if you put less than 10% down, that insurance stays for the life of the loan.

FHA mortgage insurance has two components:

• Upfront MIP: 1.75% of the loan amount, added to your loan balance at closing
• Annual MIP: 0.55%–1.05% of the loan amount per year, paid monthly

On a $380,000 FHA loan, the upfront MIP is $6,650 — added to your loan. The annual MIP is roughly $2,090/year ($174/month) at the standard rate.

🏛️ What Is a Conventional Loan?

Conventional loans are not government-backed. They're originated by private lenders and typically sold to Fannie Mae or Freddie Mac.

Because there's no government guarantee, lenders require stronger credit. But conventional loans have a significant advantage: PMI (private mortgage insurance) goes away once you reach 20% equity.

You can request PMI cancellation when you reach 20% equity, and it automatically drops off at 22%. If home values rise, you may reach that threshold faster than you'd expect.

🛡️ The Mortgage Insurance Difference — Why It Matters

This is the most important factor in the FHA vs. conventional decision for most buyers.

FHA: If you put less than 10% down, you pay MIP for the entire life of the loan. The only way to get rid of it is to refinance into a conventional loan once you have 20% equity.

Conventional: PMI drops off automatically at 22% equity (or you can request cancellation at 20%). On a 30-year loan with normal appreciation, many buyers reach this point within 5–8 years.

Example:

• $400,000 home, 5% down ($20,000), $380,000 loan
• FHA MIP: ~$174/month for 30 years = $62,640 total
• Conventional PMI: ~$190/month for 7 years = **$15,960 total**

🔑 Even though the monthly PMI on a conventional loan is slightly higher, you pay it for far less time.

🏦 When FHA Makes More Sense

Choose FHA if:

Your credit score is below 620. Conventional loans aren't available below 620. FHA goes down to 580 (or even 500 with 10% down).

Your credit score is 620–659. At this range, FHA rates are often better than conventional rates. The credit score pricing adjustments on conventional loans can make FHA more competitive.

You have a higher debt-to-income ratio. FHA allows DTI up to 57% in some cases; conventional typically caps at 45–50%.

You're buying a fixer-upper with an FHA 203(k) loan. This specialized FHA product lets you finance renovation costs into the mortgage.

🏛️ When Conventional Makes More Sense

Choose conventional if:

Your credit score is 680 or higher. At this level, conventional rates are competitive and you'll benefit from PMI that eventually drops off.

You can put 20% down. No PMI at all — conventional is almost always better in this scenario.

You're buying a higher-priced home. FHA loan limits cap out at $498,257 in most areas (higher in high-cost areas like Los Angeles County). Conventional conforming loans go up to $766,550.

The property has condition issues. FHA appraisers flag more property issues than conventional appraisers. If the home needs work, conventional may be easier to close.

You plan to stay long-term. The ability to eventually drop PMI makes conventional more cost-effective over time.

📊 The Credit Score Sweet Spot

Here's a rough guide based on credit score:

Credit Score	Likely Better Option
Below 580	FHA (10% down required)
580–619	FHA
620–659	Run both scenarios — often FHA wins
660–679	Often a toss-up; run the numbers
680+	Usually conventional
740+	Conventional, no question

These are generalizations. The right answer for your specific situation depends on your exact score, down payment, loan amount, and how long you plan to stay.

🎯 The Bottom Line

There's no universally "better" loan. There's only the better loan for you.

When I work with a buyer, I run both scenarios side by side — FHA and conventional — and show you the real numbers: monthly payment, total mortgage insurance cost, break-even point, and long-term cost. Then you make an informed decision.

That's how it should work.

Let's run your numbers →