Conventional loans are often better for borrowers with 680+ credit and 5%+ down — PMI cancels automatically at 22% equity (or can be requested at 20% equity). FHA loans may be the better option for borrowers with lower credit scores, higher debt-to-income ratios, or those who may have shorter waiting periods following certain major credit events, based on FHA guidelines. Dustin Carlson (NMLS #193009) can model both options for your exact scenario — call (281) 939-5191.
- Conventional PMI is removable at 20% equity; FHA MIP stays for life of loan with <10% down
- Credit score below 680: FHA usually wins on rate and availability
- Credit score 720+: Conventional wins with lower overall PMI cost
- FHA allows 100% gift funds for down payment; conventional has restrictions
- Conventional for investment properties and second homes (FHA: primary only)
- 2026 conventional limit: $832,750; FHA limit: $524,225–$1,149,825 by county
A conventional loan is not government-backed and requires 3–20% down; PMI cancels automatically at 22% equity (you may request cancellation at 20% equity). An FHA loan is government-insured, requires 3.5% down with a 580+ credit score, but carries MIP that never cancels with less than 10% down. Rule of thumb: conventional wins above 720 credit; FHA often wins below 680.
Choosing between a conventional loan and an FHA loan is one of the most important decisions a home buyer makes — and the right answer depends entirely on your credit score, down payment and how long you plan to stay in the home. This guide gives you a clear, side-by-side comparison so you can make the right decision for your situation.
Quick Comparison
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| Factor | Conventional Loan | FHA Loan |
|---|---|---|
| Min. Down Payment | 3–5% (with PMI) | 3.5% (580+ credit) |
| Min. Credit Score | 620 (most lenders) | 580 (3.5% down) |
| Mortgage Insurance | PMI — removable at 20% equity | MIP — life of loan if <10% down |
| Loan Limit (2026) | $832,750 standard | $524,225–$1,149,825 by county |
| Max DTI | 43–50% (with exceptions) | 43–57% (with compensating factors) |
| Property Types | Primary, second, investment | Primary residence only |
| Seller Concessions | 3–9% (by LTV) | Up to 6% |
| Gift Funds | Allowed (with conditions) | 100% of down payment |
The Mortgage Insurance Difference — This Matters Most
This is where the decision often gets made:
Conventional PMI
- Required when down payment is less than 20%
- Rate depends on credit score and LTV; the exact amount varies by borrower profile
- Automatically cancels when your loan balance reaches 78% of the original purchase price (22% equity) — this is the Homeowners Protection Act automatic termination point
- Can be requested for removal at 80% LTV (20% equity) with a good payment history and, in some cases, a new appraisal
- Note: putting 20% down on a purchase or having 20% equity at refinance means no PMI at all — the 20% request and 22% automatic cancellation rules apply to loans that started with PMI
FHA MIP
- Required on all FHA loans regardless of down payment
- Upfront MIP: a one-time premium rolled into the loan balance at closing
- Annual MIP: an ongoing monthly premium added to the payment; the exact amount varies by loan term, LTV, and loan amount
- With less than 10% down: MIP stays for the LIFE of the loan
- With 10%+ down: MIP cancels after 11 years
📊 Key Insight: If you plan to keep the loan long-term (10+ years), conventional's removable PMI typically wins over FHA's lifetime MIP — even if the initial rate on FHA is slightly better.
Which Loan Wins by Credit Score
| Credit Score | Likely Winner | Why |
|---|---|---|
| 760+ | Conventional | most favorable rates, lowest PMI or no PMI with 20% down |
| 720–759 | Conventional | Competitive rates; PMI cheaper than FHA MIP at this tier |
| 680–719 | Depends | Run the numbers both ways; FHA MIP vs. conventional PMI is close |
| 640–679 | FHA | FHA rates and PMI costs favor lower-credit borrowers here |
| 580–639 | FHA | Conventional rarely available at this range; FHA is the standard choice |
| 500–579 | FHA (10% down) | Only FHA serves this range |
Which Loan Wins by Down Payment
Less than 5% Down
FHA and Conventional 97 are both available. If credit is below 680, FHA usually wins on rate. If credit is 720+, Conventional 97 may have cheaper PMI.
5–19% Down
This is the comparison zone. At higher credit scores, conventional PMI rates drop dramatically. FHA's MIP becomes comparatively expensive when you'll eventually build 20% equity.
20%+ Down
Conventional wins clearly. No PMI, no MIP — just a clean fixed-rate loan with the most favorable pricing.
When FHA Clearly Wins
- Credit score below 680 with limited down payment
- High DTI (above 45%) where conventional approval is difficult
- Using DPA grants layered on top (FHA allows 100% gift down payment)
- Recent credit events (bankruptcy 2+ years ago, foreclosure 3+ years ago)
When Conventional Clearly Wins
- Credit score of 720+ with 5–10% down
- Any borrower putting 20%+ down
- Investment property or second home purchase (FHA doesn't allow)
- Loan amounts above FHA limits
- Long-term homeowners who want PMI removal potential
Let Dustin Run the Numbers for Your Specific Scenario
There's no universal winner — the most suitable loan depends on your credit, down payment, goalsand how long you plan to stay. Dustin will model both options side-by-side in 90 minutes with no obligation and
Compare Conventional vs. FHA for My Situation →Dustin Carlson NMLS #193009 · First Colony Mortgage Corporation NMLS #3112