Is FHA or Conventional better for a first-time buyer?

It depends on your credit score. FHA is often better for borrowers with scores below 680 due to lower rates and flexible guidelines. Conventional is typically better for those with 720+ scores because PMI can be cancelled and there is no upfront mortgage insurance fee.

What is the main difference between FHA and Conventional mortgage insurance?

FHA mortgage insurance (MIP) is usually required for the life of the loan and includes a 1.75% upfront fee. Conventional private mortgage insurance (PMI) does not have an upfront fee and can be cancelled once you reach 20% home equity.

Which loan has a lower down payment, FHA or Conventional?

Both offer low down payments. FHA requires a minimum of 3.5%, while specific Conventional programs like the Conventional 97 or HomeReady allow for as little as 3% down for qualifying borrowers.

FHA vs. Conventional Loan Comparison: Which Mortgage is Right for You?

Choosing the right mortgage is the single most important decision when buying a home. The choice often comes down to the two most popular options: a Conventional Loan or an FHA Loan. While both help borrowers achieve homeownership, they differ significantly in their credit score requirements, property standards, and, most importantly, the long-term cost of mortgage insurance.

This comparison guide details the fundamental distinctions between the two, helping you determine which mortgage option aligns best with your financial goals in the 2026 market.

I. Understanding the Two Primary Mortgage Paths

The difference between these two loans stems from who insures the lender against default:

FHA Loans: These are insured by the Federal Housing Administration (FHA), a government agency. Because the government guarantees the loan, lenders can afford to take on borrowers with lower credit scores and smaller down payments. Review eligibility and limits in our comprehensive FHA Loan Guide.
Conventional Loans: These are privately backed and guaranteed by government-sponsored enterprises, Fannie Mae and Freddie Mac. They require stricter underwriting standards but offer flexibility and lower long-term costs. Explore all program options in our Conventional Mortgage Guide.

II. Core Differentiators: 2026 Quick Comparison

Feature	FHA Loan	Conventional Loan
Min. Credit Score	580 (3.5% down) / 500 (10% down)	620
Min. Down Payment	3.5%	3% (First-Time) / 5% (Standard)
2026 Loan Limit	$541,287 (Floor)	$832,750 (Baseline)
DTI Ratio Max	Up to 56.9%	Typically 43% – 50%

III. PMI vs. MIP (The Biggest Cost Factor)

The most critical difference lies in the cost of insuring the loan, which directly impacts your monthly payment and your long-term savings.

Loan Type	Insurance Type	Critical Difference
Conventional	PMI (Private Mortgage Insurance)	Cancellable. Removed when LTV reaches 78-80%. Learn how in our How to Cancel PMI Guide.
FHA	MIP (Mortgage Insurance Premium)	Usually Permanent. Mandatory for the life of the loan unless you put down 10% or more (which reduces it to 11 years).

IV. Deep-Dive: Property Standards & Appraisals

FHA Appraisal: Requires meeting “Minimum Property Requirements” (MPRs) for safety and soundness. Items like peeling paint, lack of handrails, or faulty HVAC must be fixed before closing.
Conventional Appraisal: Focuses primarily on market value and “habitable” condition. It is generally more lenient on cosmetic or minor safety issues. See our Documentation Checklist for appraisal data requirements.

V. Who Should Choose Which Loan?

Choose FHA If:

Credit score is below 620.
Higher Debt-to-Income ratio (up to 56.9%).
Limited funds for a down payment (3.5%).

Choose Conventional If:

Strong credit score (680+).
Want to eventually cancel mortgage insurance.
Eligible for HomeReady or Conventional 97.

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Expertise & Compliance Statement: This guide was reviewed and approved by Rick Woodruff (NMLS #248984). Metropolitan Mortgage is a Licensed Mortgage Lender in Kansas and Missouri and an Equal Housing Opportunity Lender.