The two most popular mortgage types compared head-to-head. FHA wins for lower credit and smaller down payments. Conventional wins on mortgage insurance. Here's exactly when each one makes sense.
FHA loans are backed by the Federal Housing Administration and are more accessible — lower credit scores, higher DTI limits, and 100% gift funds allowed. Conventional loans are backed by private capital and sold to Fannie Mae or Freddie Mac — they require better credit but offer more flexibility on property type and allow PMI cancellation.
The choice between FHA and conventional is one of the most common questions in mortgage. The right answer depends almost entirely on two factors: your credit score and how long you plan to keep the loan.
| Feature | FHA Loan | Conventional Loan | Winner |
|---|---|---|---|
| Min Credit Score | 580 (3.5% dn) / 500 (10% dn) | 620 | FHA |
| Min Down Payment | 3.5% | 3% (HomeReady) | Conventional (slightly) |
| Max DTI | 57% | 45–50% | FHA |
| Gift Funds | 100% allowed | Partial (varies) | FHA |
| Upfront MI | 1.75% of loan | None | Conventional |
| Monthly MI | 0.55%/yr (most loans) | 0.5%–1.5%/yr | Depends on credit |
| MI Cancellation | Life of loan (<10% dn) | At 80% LTV (cancelable) | Conventional |
| Conforming Limit | $498,257 (most areas) | $766,550 (most areas) | Conventional |
| Second Homes | Not allowed | Allowed (higher down) | Conventional |
| Investment Props | Not allowed | Allowed | Conventional |
| Property Standards | Strict FHA MPRs | More flexible | Conventional |
| Seller Concessions | Up to 6% | Up to 3–9% | FHA (standard) |
| After Bankruptcy | 2-year wait | 4-year wait | FHA |
| After Foreclosure | 3-year wait | 7-year wait | FHA |
Mortgage insurance is where the FHA vs conventional decision really gets made. Consider a $300,000 loan at today's rates:
| Scenario | FHA (3.5% dn) | Conventional (5% dn) |
|---|---|---|
| Loan Amount | $293,947 (incl. UFMIP) | $285,000 |
| Interest Rate | 6.58% | 6.82% |
| Monthly P&I | $1,894 | $1,882 |
| Monthly MI | $135 (MIP, life of loan) | $200 (PMI, until 80% LTV) |
| Total Month 1 | $2,029 | $2,082 |
| MI Cancels | Never (unless refi) | ~Year 8 (~$0 after) |
| Total Cost (30 yr) | ~$730,000 | ~$695,000 |
The verdict: FHA often has a lower payment early on, but conventional wins long-term because PMI eventually disappears. If you're staying in the home 10+ years and have decent credit, conventional is usually cheaper overall. FHA wins for credit scores below 680, very high DTI, or when using all-gift down payments.