Conventional vs. FHA: Which Loan Is Right for Your Situation?

The Question I Get Asked More Than Almost Any Other

"Should I go conventional or FHA?" The honest answer is: it depends. The right answer genuinely varies from one borrower to the next. Here's how each loan works and the factors that typically tip the decision one way or the other.

The Core Differences

• Conventional — minimum credit score: 620 (660+ for better rates)
• FHA — minimum credit score: 580 for 3.5% down; some lenders allow 500-579 with 10% down
• Conventional — minimum down payment: 3% (certain programs), typically 5%
• FHA — minimum down payment: 3.5%
• Conventional — mortgage insurance: PMI required under 20% down; cancellable at 20% equity
• FHA — mortgage insurance: Upfront MIP of 1.75% plus monthly MIP that generally lasts the life of the loan
• 2026 Conventional loan limit: Up to $806,500 in most areas (higher in high-cost counties)

When Conventional Makes More Sense

Conventional loans reward strong credit. If your score is above 700 — especially above 740 — you'll generally get better pricing than FHA. FHA charges an upfront mortgage insurance premium of 1.75% of the loan amount ($7,000 on a $400,000 loan) added to your balance on day one, plus monthly MIP for the life of the loan if you put less than 10% down.

With conventional, PMI is typically cheaper and — crucially — it cancels when you reach 20% equity. Conventional is generally better when your credit score is 700+, you have 5-10%+ down, and you plan to stay long enough to benefit from PMI cancellation.

When FHA Makes More Sense

FHA exists to serve borrowers who don't yet have the credit history or savings conventional loans require. If your credit score is in the 580-659 range, FHA will often offer better pricing because conventional loans price credit risk aggressively through loan-level price adjustments at lower scores.

FHA also tends to be more forgiving of recent credit events, higher debt-to-income ratios, and limited credit history. It's generally better when your credit is below 680, you have a higher DTI, or you've had credit challenges in the past few years.

The Mortgage Insurance Trap

If you get an FHA loan with less than 10% down and hold it for the full term, you'll pay MIP for 30 years — potentially $40,000-$60,000 in total on a $350,000 loan. Conventional PMI disappears at 20% equity.

The fix, if you start with FHA, is to refinance into a conventional loan once your credit improves and you've built some equity. Many borrowers do exactly this — use FHA to get into the home, then transition to conventional a few years later.

The Honest Answer

Every time I talk to someone about this choice, I'm running numbers for their specific situation — credit score, savings, home price, length of planned stay. There's no universal right answer.

If you'd like to run the actual numbers for your scenario, I'm happy to do that with you.