FHA vs Conventional
Loans
Two of the most popular mortgage options, each with distinct advantages. Find out which loan type aligns with your financial goals and situation.
Last updated: March 2026
Side-by-Side Comparison
Every key metric compared so you can make an informed decision.
| Feature | FHA Loan | Conventional Loan |
|---|---|---|
| Minimum Down Payment | 3.5% (580+ credit score) | 3% (first-time buyers) or 5% |
| Minimum Credit Score | 500 (10% down) / 580 (3.5% down) | 620 minimum (680+ for best rates) |
| Mortgage Insurance | Upfront MIP (1.75%) + Annual MIP (0.55%) for life of loan | PMI required below 20% down; removable at 20% equity |
| Loan Limits (2025) | $524,225 (standard) / $1,209,750 (high-cost areas) | $806,500 (standard) / $1,209,750 (high-cost areas) |
| DTI Ratio Maximum | Up to 43% (sometimes 50% with compensating factors) | Up to 45% (sometimes 50% with strong reserves) |
| Property Requirements | Must meet FHA Minimum Property Standards; primary residence only | Standard appraisal; primary, second home, or investment |
| Seller Concessions | Up to 6% of purchase price | 3% (under 10% down) to 9% (25%+ down) |
| Interest Rates | Typically 0.15%–0.25% lower than conventional | Slightly higher, but lower total cost if credit is strong |
| Assumability | Yes — FHA loans are assumable | Generally not assumable |
Down Payment Breakdown
Understanding how down payment requirements differ between FHA and Conventional loans.
FHA Down Payment
FHA loans require just 3.5% down with a credit score of 580 or higher. If your score is between 500 and 579, you will need 10% down. The entire down payment can come from gift funds from family members, employers, or charitable organizations.
- 3.5% minimum with 580+ score
- 10% required for 500–579 score
- 100% gift funds allowed
- Down payment assistance eligible
Conventional Down Payment
Conventional loans start at 3% down for first-time buyers and 5% for repeat buyers. Putting 20% down eliminates the need for Private Mortgage Insurance (PMI), which can save hundreds per month over the life of the loan.
- 3% minimum for first-time buyers
- 5% standard minimum
- 20% eliminates PMI entirely
- Gift funds allowed with documentation
PMI vs MIP: The Real Cost
Mortgage insurance is often the deciding factor between FHA and Conventional loans.
FHA Mortgage Insurance Premium (MIP)
FHA loans require two types of mortgage insurance:
- 1. Upfront MIP: 1.75% of the loan amount, typically rolled into the loan balance.
- 2. Annual MIP: 0.55% of the loan balance, paid monthly. Required for the life of the loan if you put less than 10% down.
On a $400,000 loan, upfront MIP is $7,000 and annual MIP adds approximately $183/month.
Conventional Private Mortgage Insurance (PMI)
Conventional loans require PMI only when your down payment is less than 20%:
- 1. No upfront fee — PMI is paid monthly only.
- 2. Rate varies: 0.3%–1.5% of the loan balance annually, based on credit score and LTV.
- 3. Removable: PMI can be canceled once you reach 20% equity (or automatically at 22%).
On a $400,000 loan with 5% down, PMI might range from $95–$475/month depending on credit.
Pros & Cons of Each Loan Type
FHA Loan Pros
- Lower credit score requirements (500–580)
- Lower down payment (3.5%)
- More lenient DTI requirements
- Lower interest rates for lower credit scores
- Assumable by future buyers
- Generous seller concession limits (6%)
- Easier qualification after bankruptcy (2-year wait)
FHA Loan Cons
- MIP for the life of the loan (if under 10% down)
- Upfront MIP adds to loan balance
- Lower loan limits than conventional
- Primary residence only — no investment properties
- Stricter property condition requirements
- Sellers may prefer conventional offers
Conventional Loan Pros
- PMI is removable at 20% equity
- No upfront mortgage insurance fee
- Higher loan limits
- Available for second homes and investment properties
- Less restrictive property standards
- More attractive to sellers
- Lower total cost with strong credit
Conventional Loan Cons
- Higher credit score requirements (620+)
- Higher interest rates for lower credit scores
- Stricter DTI and reserve requirements
- Higher down payment for best terms
- PMI can be expensive with lower credit
- Not assumable
Which Loan Is Right for You?
Follow this decision flowchart to find your best option.
Step 1
What is your credit score?
Below 620
FHA is likely your best option
620–739
Compare both — proceed to Step 2
740+
Conventional usually wins
Step 2
How much can you put down?
Less than 5%
FHA at 3.5% is hard to beat
5%–19%
Compare total monthly costs
20%+
Conventional — no PMI needed
Step 3
What type of property are you buying?
Primary Residence
Either loan type works
Second Home / Investment
Conventional is your only option
Step 4
How long do you plan to stay?
Less than 5 Years
FHA's lower rate may save more short-term
5+ Years
Conventional wins long-term (removable PMI)
Scenario Comparisons
See how these loans stack up with real numbers on a $400,000 home purchase.
Scenario 1: First-Time Buyer, 620 Score
Limited savings, rebuilding credit after a life event.
- FHA: $14,000 down, ~$2,450/mo total
- Conv: $20,000 down, ~$2,680/mo total
- Winner: FHA saves $230/month
Scenario 2: Strong Buyer, 760 Score
Good savings, excellent credit history.
- FHA: $14,000 down, ~$2,350/mo total
- Conv: $12,000 down, ~$2,280/mo total
- Winner: Conventional saves $70/mo + removable PMI
Scenario 3: 20% Down, 740 Score
Significant savings available for down payment.
- FHA: Still pays MIP even with 20% down
- Conv: $80,000 down, ~$1,950/mo, NO PMI
- Winner: Conventional — always at 20%+ down
Not Sure Which Loan Is Right for You?
Our team at Theos Financial analyzes both options for every client. We run the numbers on FHA and Conventional side by side so you can see exactly which saves you more.