- Conventional loans are better if your credit score is 740+ and you have 5–20% down
- FHA loans are better if your score is 580–739 or you have limited savings
- FHA requires MIP for life with <10% down; conventional PMI can be removed at 20% equity
- Both have 2026 loan limits: conventional up to $832,750; FHA up to $524,225 standard
- FHA allows higher DTI ratios — up to 57% with compensating factors vs. ~50% for conventional
- Paired with DPA programs, both loans can result in $0 out of pocket for eligible buyers
Two of the most common mortgage choices for home buyers — especially first-time buyers — are conventional loans and FHA loans. Both can get you into a home, but they work differently, have different costs, and are suited to different financial situations.
Key Differences at a Glance
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| Feature | Conventional | FHA |
|---|---|---|
| Minimum Credit Score | 620 | 580 (3.5% down), 500 (10% down) |
| Minimum Down Payment | 3% | 3.5% |
| Mortgage Insurance | PMI removable at 20% equity | MIP for life of loan (if <10% down) |
| 2026 Loan Limit | $832,750 (standard) | $524,225 (standard) |
| Max DTI | ~45–50% | Up to 57% with compensating factors |
| Interest Rates | Typically lower at 740+ credit | Competitive at lower credit scores |
| Backed By | Fannie Mae / Freddie Mac | Federal Housing Administration |
Credit Score Requirements
This is often the deciding factor. With a score below 620, FHA is typically your only option (excluding VA/USDA). Between 620–739, both programs are available but FHA may offer better rates. Above 740, conventional usually wins on rate.
📊 Rule of thumb: Below 680 → lean FHA. Above 720 → lean conventional. Between 680–720 → run both scenarios with your loan officer.
Down Payment Comparison
Both programs allow low down payments, but there are differences:
- Conventional 3%: Fannie Mae HomeReady and Freddie Mac Home Possible allow 3% down for qualifying income levels. Standard conventional requires 5%.
- FHA 3.5%: Available to all qualifying borrowers with 580+ credit. 100% of the down payment can come from gifts or DPA programs.
Mortgage Insurance — The Critical Difference
This is where conventional loans often win long-term:
- Conventional PMI: Required when LTV exceeds 80%. Typically 0.5–1.5% annually. Can be removed when equity reaches 20%.
- FHA MIP: Required on ALL FHA loans. Upfront 1.75% + annual 0.55–1.05%. If you put less than 10% down, it stays for the entire loan term — you can't remove it without refinancing.
If you're putting 3.5% down with an FHA loan, you'll pay MIP for the life of the loan unless you refinance into conventional once you reach 20% equity. Factor this cost into your long-term decision.
Loan Limits in 2026
Conventional loans have a significant advantage for higher-priced homes:
- Conventional: $832,750 standard; $1,249,125 in high-cost areas
- FHA: $524,225 standard; $1,209,750 in high-cost areas
If you're buying a home above $524,225 in a standard-cost area, you'll need a conventional (or jumbo) loan.
Which Is Better for You?
Choose Conventional if:
- Your credit score is 720+
- You can put 5–20% down
- You want the ability to remove mortgage insurance
- The purchase price exceeds FHA limits
Choose FHA if:
- Your credit score is below 700
- You have limited savings or are using DPA programs
- Your DTI is above 45% (FHA is more flexible)
- You had a recent bankruptcy, foreclosure, or credit event (FHA has shorter waiting periods)
Not Sure Which Loan Is Right? Dustin Will Run Both Scenarios.
Dustin compares the total cost of FHA vs. conventional for your specific situation — including 5-year and 10-year projections — so you can make a fully informed decision.
Compare My Options →Dustin Carlson NMLS #193009 · First Colony Mortgage NMLS #3112