Most first-time buyers end up choosing between a Conventional loan and an FHA loan. Neither is universally "better" — they trade off differently depending on your credit, savings, and how long you plan to stay in the home.
Side-by-side comparison
| Conventional | FHA | |
|---|---|---|
| Minimum down payment | 3–5% | 3.5% |
| Minimum credit score (typical) | 620+ (better rates above 740) | 580 for 3.5% down; 500-579 possible with 10% down |
| Mortgage insurance | PMI — cancellable at 78-80% LTV | Upfront 1.75% + ~0.55%/yr — often for the life of the loan |
| Loan limits | Higher in most areas | Lower, varies by county |
| Seller-paid closing costs | Up to 3-9% (varies by down payment) | Up to 6% |
| Property condition standards | More flexible | Stricter (must meet HUD minimum standards) |
When Conventional usually makes more sense
- Your credit is good to excellent (680+), where conventional rates and PMI costs are usually more competitive
- You can put down 20% and want to avoid mortgage insurance entirely
- You plan to build equity relatively quickly and want PMI to actually go away rather than persist for the life of the loan
- The home doesn't meet FHA's stricter minimum property condition standards
When FHA usually makes more sense
- Your credit is in the fair range (roughly 580–670), where FHA's underwriting is often more forgiving
- You have limited savings and want the lowest realistic down payment
- You've had past credit issues (like a bankruptcy or foreclosure) — FHA's waiting periods are often shorter than conventional's
A concrete example
On a $250,000 home with 3.5–5% down, FHA and Conventional often land within a similar monthly payment range up front — but a buyer with 700+ credit frequently pays less over the following 5-10 years on Conventional, once PMI drops off, than an equivalent FHA borrower whose MIP keeps running. The right way to check your own numbers: run both scenarios through the calculator below.
Frequently asked questions
Can I switch from FHA to Conventional later?
Yes, through refinancing, once you have enough equity (usually 20%) and qualifying credit — a common strategy to shed FHA's persistent mortgage insurance.
Are VA and USDA better than both of these?
For eligible buyers (veterans/military for VA, rural properties for USDA), often yes — both can allow 0% down and have their own, generally cheaper, insurance/fee structures. They're just not available to everyone the way Conventional and FHA are.
Does the interest rate differ much between the two?
FHA rates are sometimes slightly lower on paper, but once you factor in FHA's mortgage insurance cost, the real all-in monthly cost is often higher than an equivalent Conventional loan for buyers with decent credit — another reason to compare full monthly payments, not just the advertised rate.