FHA and conventional loans are the two most common mortgage options for first-time buyers. Each has distinct advantages depending on your credit score, down payment, and the type of home you're buying. Here's an in-depth comparison.
FHA Loans at a Glance
FHA loans are insured by the Federal Housing Administration. Because the government backs them, lenders take less risk — allowing them to offer these loans to buyers with lower credit scores and smaller down payments.
- Minimum credit score: 580 (3.5% down) or 500 (10% down)
- Minimum down payment: 3.5%
- Debt-to-income ratio: Up to 57% in some cases
- Mortgage insurance: Upfront MIP (1.75% of loan) + Annual MIP (0.55%–1.05% of loan)
- Loan limits: Vary by county ($498,257–$1,149,825 in 2024 for single-family homes)
- Property condition: Stricter standards — must be safe, sound, secure
Conventional Loans at a Glance
Conventional loans are not government-backed. They follow Fannie Mae and Freddie Mac guidelines and typically require stronger credit profiles.
- Minimum credit score: 620 (typically; better rates at 740+)
- Minimum down payment: 3% (Fannie/Freddie programs); 5% standard
- Debt-to-income ratio: Up to 45–50%
- PMI: Only required until 20% equity — can be removed; no upfront premium
- Loan limits: $766,550 (most areas) to $1,149,825 (high-cost areas) in 2024
- Property condition: Less strict than FHA
Long-Term Cost Comparison
FHA loans have permanent mortgage insurance (for the life of the loan with <10% down) — the only way to remove it is to refinance to a conventional loan. Conventional PMI is removable once you reach 20% equity. Over 30 years, this can add $20,000–$50,000 in total costs for FHA borrowers.
| Factor | FHA | Conventional |
|---|---|---|
| Best credit score | 580+ | 620+ (740+ for best rates) |
| Down payment | 3.5% | 3–5% |
| Mortgage insurance | For life of loan (if <10% down) | Removable at 20% equity |
| Seller concessions | Up to 6% | 3–9% depending on down payment |
| Condo approval | Must be FHA-approved | More flexible |
| Rate vs. conventional | Typically 0.1%–0.4% lower rate | Better rate with strong credit |
If your credit score is below 680 or you have limited savings, FHA is often the better choice. If your score is 740+ and you can put 5–10% down, conventional will usually cost less over time thanks to removable PMI.