Choosing between a conventional loan and an FHA loan is less about finding the “best” mortgage overall and more about finding the loan that fits your credit profile, available cash, and long-term plans. FHA financing can be easier to qualify for when credit is weaker or the down payment is small. A conventional loan can be more attractive for borrowers with stronger credit, especially when private mortgage insurance can be avoided or removed later.
Conventional vs FHA Loan at a Glance
A conventional mortgage is not insured by a federal government agency. Many conforming conventional loans follow standards used by Fannie Mae or Freddie Mac, although lenders can add their own requirements. FHA loans are made by approved lenders and insured by the Federal Housing Administration.
Some conventional programs allow qualified buyers to put as little as 3% down. FHA generally allows 3.5% down for borrowers with credit scores of 580 or higher. Under FHA rules, borrowers with scores from 500 through 579 may be eligible with at least 10% down, although lenders can require higher scores.
Which Loan Is Easier to Qualify For?
FHA has traditionally been the more forgiving option for borrowers with weaker credit histories. Its published score-and-down-payment framework can give buyers a clearer route to eligibility, but meeting the federal minimum does not guarantee approval. Income, debts, property eligibility, and lender standards still matter.
Conventional underwriting is more nuanced than the old rule of thumb that every borrower needs a 620 score. Since November 2025, Fannie Mae’s Desktop Underwriter does not require a minimum third-party credit score for loan casefiles evaluated through that system. Manually underwritten loans, other conventional programs, and individual lenders can still apply minimum scores.
Down Payment: 3% Conventional vs 3.5% FHA
On a $350,000 home, 3% equals $10,500, while 3.5% equals $12,250—a difference of $1,750. But down payment is only part of cash to close. Closing costs, prepaid taxes and insurance, discount points, lender credits, and reserves can have a larger effect on how much cash you need.
A 3% conventional option is not available to every borrower or transaction. FHA’s 3.5% minimum is more standardized for eligible borrowers with scores of at least 580. Compare both against your home affordability budget rather than choosing the smallest down payment automatically.
Mortgage Insurance Can Decide the Winner
Conventional PMI
With a conventional loan, borrowers who put less than 20% down typically pay private mortgage insurance, or PMI. The cost varies with factors such as credit profile, down payment, loan type, and insurer pricing. Borrower-paid PMI can generally be removed once applicable cancellation requirements are met. For many eligible mortgages, federal law allows borrowers to request cancellation when the principal balance is scheduled to reach 80% of the home’s original value, with automatic termination generally occurring at 78% if required conditions are satisfied.
FHA Mortgage Insurance
FHA loans generally include both an upfront mortgage insurance premium and an annual premium paid monthly. The upfront premium for most FHA purchase loans is 1.75% of the base loan amount and can usually be financed into the mortgage.
For many 30-year FHA borrowers making the minimum 3.5% down payment, annual mortgage insurance remains for the full loan term because the original loan-to-value ratio is above 90%. If the original LTV is 90% or less, annual MIP is generally scheduled for 11 years. This can make conventional financing cheaper for borrowers who qualify for favorable pricing and keep the mortgage for many years.
Interest Rate vs Total Cost
FHA rates can sometimes be lower than conventional rates, particularly for borrowers with less-than-perfect credit. That does not automatically make FHA cheaper because mortgage insurance and upfront charges can change the result.
Imagine two buyers purchasing similar homes. Buyer A has strong credit and receives a competitive conventional rate with modest PMI that can later be canceled. Buyer B has a lower score and receives a noticeably better FHA rate than available conventional offers. Conventional may cost less for Buyer A, while FHA may produce the more manageable payment for Buyer B.
Request official Loan Estimates for both options on the same day, using the same purchase price, down payment, and rate-lock assumptions. Compare cash to close, monthly payment, and the “In 5 years” figures instead of judging the loans by interest rate alone.
Property Standards and Loan Limits
Both loan types require an appraisal, but FHA appraisals also address minimum property requirements related to safety, security, and soundness. Significant condition issues can sometimes require repairs before FHA financing can close.
FHA and conforming conventional loan limits can change yearly and vary by location, so buyers near local limits should verify current county figures.
When Conventional May Be Better
A conventional loan often deserves the first look if you have strong credit, qualify comfortably, or can make a larger down payment. It can be especially attractive if you can put 20% down and avoid PMI, or if your PMI is relatively inexpensive and likely to be removed as you build equity.
When FHA May Be Better
FHA can be a strong choice when your credit profile makes conventional pricing expensive, when you have limited cash for a down payment, or when FHA underwriting gives you a more realistic approval path. The trade-off is mortgage insurance. Refinancing later may be possible if your credit and equity improve, but it is never guaranteed.
FAQ
Is an FHA loan always easier to get than a conventional loan?
No. FHA guidelines can be more accommodating for some credit profiles, but approval still depends on income, debts, property eligibility, lender standards, and the full application.
Can I put 3% down on a conventional loan?
Yes, certain conventional programs allow qualified borrowers to put as little as 3% down. Eligibility depends on the specific program and borrower circumstances, so 3% is not a universal minimum.
Does FHA mortgage insurance go away at 20% equity?
Usually not for newer FHA loans that started above 90% LTV. For many of those loans, annual MIP lasts for the loan term. Loans starting at 90% LTV or less generally have an 11-year MIP duration.
Which is cheaper, FHA or conventional?
Neither is always cheaper. FHA may price better for some borrowers with weaker credit, while conventional financing can be less expensive for borrowers with stronger credit and removable or no PMI. Compare same-day Loan Estimates to see the difference.
Choosing Between FHA and Conventional
The decision should come down to total cost and approval strength, not one headline feature. FHA can help borrowers who need more flexible credit standards, while conventional financing often rewards stronger credit and can offer a better route out of mortgage insurance.
Get both loans priced with identical assumptions, compare cash to close and five-year cost, and consider how long you expect to own the home or keep the mortgage. That side-by-side comparison will tell you more than choosing FHA vs conventional based only on the minimum down payment.
