Choosing between an FHA vs conventional loan is less about which loan is “better” in general and more about which trade-off fits your credit, your deposit, and how long you plan to stay. An FHA loan usually lets you in with a lower score and a smaller deposit, but its mortgage insurance is harder to escape. A conventional loan usually asks more upfront, but its insurance has an exit. The right choice depends on those three points, not on a single headline rate.
This guide compares the two on what actually changes your payment and total cost: down payment, credit score, mortgage insurance, and how long that insurance lasts. It does not quote a loan limit, because limits vary by area and change over time; your lender must confirm the limit for the property you are buying. Rates in examples here are illustrative only.
FHA vs Conventional Loan: The Down Payment Difference
The headline difference is the minimum deposit. An FHA loan requires 3.5% down with a credit score of 580 or higher, and 10% down with a score of 500 to 579. A conventional loan can require as little as 3% down for a first-time buyer, though not every borrower or property qualifies for that lowest figure, and many conventional borrowers put down more.
That makes the deposit gap smaller than people expect. On a $300,000 home, 3.5% is $10,500 and 3% is $9,000, a difference of $1,500. The real difference is usually who qualifies: FHA’s lower credit threshold matters most below the conventional range, while conventional’s 3% option matters most for first-time buyers with stronger credit who want the lowest deposit without FHA’s insurance structure. Closing costs sit on top of the deposit as a separate bill. If you are still working out how much cash you need in total, our guide on how much down payment you need to buy a house covers the deposit itself in more detail, at the point where the deposit decision is made.
Credit Score and Approval
Credit score is where the two loans diverge most clearly. FHA loans are designed for borrowers with lower scores: 580 for the 3.5% deposit, 500 with 10% down. Conventional loans generally start around 620, and pricing improves as the score rises. That does not mean a conventional loan is impossible below a strong score, but the terms, and especially the mortgage insurance price, get worse as the score falls.
Around a score of 680, the balance often tips. Below that range, FHA’s insurance price, which does not depend much on credit score, can make FHA cheaper month to month even though its insurance lasts longer. Above that range, conventional pricing usually improves enough, and its insurance becomes cheaper or cancellable, that conventional pulls ahead. This crossover is a rule of thumb, not a law: the only reliable comparison is two Loan Estimates for the same home, from the same lender, on the same day.
Both loans also look at income, debts, employment, and the property itself, and FHA appraisals have their own condition requirements, which can matter for older homes. A lender’s answer for your specific home and score is worth more than any general comparison, including this one.
PMI vs MIP: The Insurance That Changes the Maths
Mortgage insurance is the cost most buyers underestimate, because it is bundled into the monthly payment rather than billed separately. The two loans handle it very differently.
Conventional PMI
With a conventional loan and less than 20% down, you usually pay private mortgage insurance, or PMI. Its price depends on your down payment and credit score, so a stronger score means cheaper PMI. The important feature is that PMI can end: you can ask your servicer to cancel it at 80% of the home’s original value, and it must cancel automatically at 78% if you are current. That exit makes conventional attractive over time: the insurance is a phase, not a permanent feature.
Our guide on what PMI is and how to remove it explains that cancellation process in full, and it is the right next read at this point if you are leaning conventional and want to know exactly how the exit works. That post is scheduled for 31 October 2026, so it will be live before this article publishes.
FHA MIP
With an FHA loan, mortgage insurance is called MIP, and it has two parts. The upfront MIP is 1.75% of the loan amount, usually rolled into the loan rather than paid in cash, which increases the amount you borrow. The annual MIP is around 0.55% of the loan amount, paid monthly as part of your payment. Unlike conventional PMI, FHA MIP does not depend much on your credit score.
The harder part is duration. With less than 10% down, MIP lasts for the life of the loan: it does not drop off at 20% equity. With 10% or more down, MIP drops off after 11 years. An FHA borrower who stays for decades can therefore pay insurance far longer than a conventional borrower, and the only way out for a low-deposit FHA loan is usually to refinance into a conventional loan later, if you then qualify. That refinance is a plan, not a guarantee.
A Total-Cost Example, With Illustrative Numbers Only
Take the same $300,000 home and a 30-year loan, with illustrative figures only. With 3.5% down on an FHA loan, you borrow $289,500, plus upfront MIP rolled in, so roughly $294,600 financed. Monthly MIP at around 0.55% a year adds roughly $135 a month to start. With 5% down conventional, you borrow $285,000, and PMI might add less each month if your credit is strong, and it ends at the cancellation thresholds.
Over five years, the FHA borrower has paid MIP every month with no exit in sight, while the conventional borrower moves toward PMI cancellation, especially if the home’s value rises or extra payments are made. Over 30 years, the FHA borrower’s insurance cost, if never refinanced, dwarfs the conventional borrower’s. That long tail is the real price of FHA’s lower entry barrier, which is why the comparison should be total cost over your expected time in the home, not just the first month’s payment. None of this makes FHA a bad loan: for a buyer with a score of 600 who could not get a conventional loan at all, FHA is the only option, and buying with it may still beat years of renting while waiting for a score to rise. The mistake is choosing FHA for a small deposit saving when you already qualify for conventional on good terms, then paying MIP for decades without a plan.
When Each Loan Wins
FHA usually wins when your score is below the conventional range, when your deposit is small and your score is modest, or when you need the most forgiving approval standards and accept that insurance will last. It is also worth considering if you plan to refinance within a few years once your score improves, though that should be treated as a hope, not a promise. Conventional usually wins when your score is around 680 or higher, when you can put down 5% or more, or when you expect to stay long enough for PMI cancellation to matter.
Before you decide, get both quotes, and ask how long the insurance lasts and how it ends. The Consumer Financial Protection Bureau’s Owning a Home guide to different kinds of loans is a useful independent check on loan types before you talk to lenders.
Frequently Asked Questions
Can I get a conventional loan with a low credit score?
Conventional loans generally start around 620, and pricing worsens as the score falls. Below that range, FHA is usually the realistic route, with 580 for 3.5% down and 500 with 10% down.
How does conventional PMI cancellation work?
You can request cancellation at 80% loan-to-value based on the original value, and it cancels automatically at 78% if you are current. Home value growth and extra payments can help you reach those thresholds sooner.
Disclaimer: This article is for general educational purposes only and does not provide personalised financial, investment, tax, or legal advice. Loan requirements, limits, insurance rates, and lender criteria vary by area, lender, and programme and can change. Confirm current limits and terms with your lender before acting.
