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Conventional and FHA loans are the two most common paths to financing a home purchase, and each one fits a different kind of borrower better. Neither is universally "better." The right choice depends on your credit profile, how much you have for a down payment, and how long you plan to stay in the home. Here's how the two actually compare.
A conventional loan is a mortgage that isn't insured or guaranteed by a government agency. Many conventional loans are eligible for purchase by Fannie Mae or Freddie Mac, which sets standardized underwriting guidelines lenders follow.
An FHA loan is insured by the Federal Housing Administration, a part of the U.S. Department of Housing and Urban Development. Because the government insures the lender against loss, FHA loans generally allow more flexibility on credit and down payment than conventional financing.
This is one of the clearest differences between the two. Conventional loan programs like the Conventional 97, which allows a 3% down payment, generally require a minimum credit score around 620. FHA loans are more flexible: a credit score of 580 or higher typically qualifies for the standard 3.5% down payment, and some lenders will approve credit scores as low as 500, though that usually requires a larger 10% down payment. If your credit is still a work in progress, FHA financing tends to open more doors.
FHA loans require a minimum down payment of 3.5% for qualifying credit scores. Conventional loans can go slightly lower, with programs like Conventional 97 allowing as little as 3% down for eligible first-time buyers, though eligibility and terms vary by lender and specific program. Neither loan type requires the traditional 20% down payment that's often assumed, but both come with trade-offs tied to putting down less than that.
This is one of the most important practical differences between the two loan types, and it's often the deciding factor for borrowers who qualify for both.
Conventional loans with less than 20% down require private mortgage insurance (PMI). PMI can be canceled once you reach roughly 20% equity through a request, and it's automatically terminated at approximately 22% equity under federal law, regardless of how you built that equity.
FHA loans require mortgage insurance premium (MIP) instead, structured differently. There's an upfront premium of 1.75% of the loan amount, usually financed into the loan, plus an ongoing annual premium, typically around 0.55% for most borrowers, paid monthly. The key difference is duration: depending on your original down payment and when your loan originated, FHA MIP can last for 11 years or for the life of the loan, and it generally can't be canceled early simply by paying down principal faster. You can review current FHA mortgage insurance policy through HUD's Single Family Housing Policy Handbook for the specifics that apply to your loan's origination date.
For a borrower who expects to build equity and stay in the home long-term, this difference matters. PMI on a conventional loan has a clear exit path. FHA's MIP often doesn't, short of refinancing into a conventional loan once you qualify.
Both loan types have maximum loan amounts that vary by county, but FHA limits are generally lower than conventional conforming limits in the same area. For 2026, the FHA floor for a one-unit property is $541,287 in most of the country, according to HUD's announced loan limits, while the conventional conforming loan limit floor is $832,750, as set by the Federal Housing Finance Agency.
In high-cost counties, both programs raise their limits, and both are capped at the same national ceiling of $1,249,125 for a one-unit home. But FHA and conventional limits are calculated using separate formulas tied to each county's median home price, so the actual limit that applies in a specific county isn't guaranteed to match between the two programs, even when both are below their respective ceilings. It's worth checking your specific county's limit for each loan type rather than assuming they line up.
FHA appraisals include property acceptability requirements in addition to establishing market value, meaning the appraiser checks that the home meets FHA's minimum property standards for safety and habitability. This isn't the same as a full home inspection, but it can surface issues, like peeling paint or missing handrails, that need to be addressed before closing, even if they wouldn't affect a conventional appraisal. Conventional appraisals focus primarily on establishing value and are generally less prescriptive about property condition, though individual lenders may still flag safety concerns they notice.
Both loan types consider your debt-to-income ratio, but FHA underwriting has historically allowed somewhat more flexibility for borrowers with higher debt loads relative to income, particularly when other compensating factors are strong. Conventional loans can also accommodate higher ratios depending on the specific program and your overall credit profile, so this isn't a hard rule so much as a general tendency.
If your credit score is on the lower end, or you have limited cash for a down payment and reserves, FHA financing is often the more accessible path. If your credit is solid, you have at least 3% to put down, and you want a clearer path to eliminating mortgage insurance once you build equity, a conventional loan is frequently the better long-term value, even if the upfront qualifying bar is slightly higher.
The only way to know for certain which fits your situation is to run both scenarios side by side with real numbers: your actual credit score, your available down payment, and your target purchase price and county.
If you'd like to see both options laid out for your specific numbers, our loan programs page covers both conventional and FHA financing in more detail. Or contact our team and we can run a side-by-side comparison before you decide which path fits you best.
