- FHA accepts credit scores from 580 (3.5% down) and prices gently for imperfect credit; conventional rewards 680+ scores with cheaper insurance that eventually disappears.
- The decisive difference is mortgage insurance: FHA’s usually lasts the life of the loan; conventional PMI cancels at ~20–22% equity.
- Strong-credit borrowers usually save with conventional even at 5% down; sub-640 borrowers usually can’t beat FHA pricing.
- Many FHA buyers refinance into conventional later once credit and equity improve — a deliberate two-step strategy.
First-time buyers meet these two acronyms within minutes of getting serious, usually accompanied by strong opinions. The truth is less tribal: FHA and conventional loans are tools priced for different borrower profiles, and the right answer flips based on two numbers — your credit score and your down payment. Here's the comparison that actually decides it.
What each loan is
FHA loans are issued by regular lenders but insured by the Federal Housing Administration, which lets lenders accept riskier profiles: credit scores down to 580 with 3.5% down (even 500–579 with 10% down), higher debt-to-income ratios, and shorter waiting periods after bankruptcy or foreclosure.
Conventional loans carry no government insurance and follow Fannie Mae/Freddie Mac guidelines: minimum 620 score in principle, though pricing only becomes attractive from the high 600s upward, with down payments as low as 3% on first-time-buyer programs.
The real battleground: mortgage insurance
Both loans charge insurance when you put less than 20% down — but the structures differ in a way that compounds over years:
| FHA (MIP) | Conventional (PMI) | |
|---|---|---|
| Upfront charge | 1.75% of loan (usually financed) | None |
| Annual cost | ~0.15–0.75% of loan | ~0.2–1.5%, heavily credit-score dependent |
| How it ends | With under 10% down: never — lasts the life of the loan | Cancellable at 20% equity; auto-terminates at 22% |
That last row is the strategic difference. Conventional PMI is a temporary toll; FHA's MIP, for most low-down-payment borrowers, is permanent until you refinance or sell. Meanwhile PMI pricing punishes weak credit hard — which is exactly why each product owns its territory.
Who wins where
Credit 740+, any down payment: conventional
Cheap PMI (if any), competitive rates, insurance that dies at 20% equity. FHA's upfront 1.75% alone makes it uncompetitive here.
Credit 680–739: usually conventional
PMI costs more than for elite credit but generally still beats FHA's combined upfront-plus-permanent structure — worth confirming with side-by-side Loan Estimates.
Credit 620–679: run both
This is the genuine crossover zone. Conventional PMI gets expensive; FHA's flat-ish MIP starts winning, especially below 660 and at small down payments. Ask lenders to quote both on the same day and compare total monthly cost and five-year cost.
Credit below 620 or thin credit: FHA
Often the only realistic path — and a legitimate one. FHA also allows the entire down payment to come from gift funds and tolerates higher DTI, which helps buyers with strong income but limited savings.
The two-step strategy
Buying FHA doesn't mean staying FHA. A common deliberate path: enter with FHA's forgiving underwriting, spend two to four years improving credit and building equity through payments and appreciation, then refinance into a conventional loan — shedding the lifetime MIP. The math works when the rate environment cooperates; the mistake is assuming it will and overpaying meanwhile. Treat the refinance as an option, not a plan requirement.
Other differences worth knowing
- Loan limits: FHA caps vary by county and run below conventional conforming limits in most markets — expensive-area buyers may be pushed conventional regardless.
- Property standards: FHA appraisals enforce minimum property conditions; fixer-uppers can trip them (FHA 203(k) renovation loans exist for that case).
- Sellers’ perception: in competitive markets some sellers favor conventional offers, fairly or not, on closing-certainty grounds.
- Both allow refinancing streamlines: FHA-to-FHA streamline refis skip appraisals when rates drop; conventional has comparable programs.
Reader questions, answered
Is FHA only for first-time buyers?
No — anyone can use FHA for a primary residence. The first-time-buyer association comes from the low down payment, not eligibility rules.
Can I have two FHA loans at once?
Generally no — FHA is for primary residences, one at a time, with narrow exceptions (job relocation, household growth). Investors need conventional or other products.
How do I get rid of FHA mortgage insurance?
With under 10% down, MIP lasts the loan's life — removal means refinancing into conventional once you have ~20% equity and qualifying credit. With 10%+ down, MIP drops off after 11 years.
Do FHA and conventional rates differ?
FHA base rates often look slightly lower — but the insurance structure usually reverses the total-cost comparison for stronger-credit borrowers. Always compare full monthly payments and five-year costs, never rates alone.