FHA vs Conventional Mortgage 2026

U.S. Department of Housing and Urban Development (HUD) — Federal Housing Administration

FHA 203(b) Mortgage

The most flexible entry path for buyers with imperfect credit — 3.5% down at 580 FICO, backed by the federal government.

• Min. down payment: 3.5%
• Min. FICO: 500
• 2026 loan limit (single-unit): $524,225
• Key restriction: Primary residence only

Pros

• 3.5% minimum down payment — one of the lowest thresholds for buyers with 580+ FICO
• Flexible credit requirements — accepts lower scores than conventional programs
• Gift funds allowed for the entire down payment (from family, employers, nonprofits)
• Manually underwritten loans available for borrowers without a traditional credit score

Apply at U.S. Department of Housing and Urban Development (HUD) — Federal Housing Administration →

Fannie Mae (FNMA) — available through any Fannie Mae-approved lender

Conventional 97 (3% Down Conventional)

3% down on a conventional loan with no income cap and PMI that cancels at 20% equity — the flexible alternative to FHA.

• Min. down payment: 3%
• Min. FICO: 620
• 2026 loan limit (single-unit): $806,500
• Key restriction: At least one first-time buyer

Pros

• No income cap — available to any qualifying first-time buyer regardless of income
• PMI cancellable at 80% LTV — no lifetime mortgage insurance like FHA
• Competitive rates at 680+ FICO vs. FHA; at 720+ FICO, often the lowest total-cost option
• Single or multiple-unit properties eligible (2–4 unit with additional requirements)

Apply at Fannie Mae (FNMA) — available through any Fannie Mae-approved lender →

FHA requires 3.5% down for borrowers with 580+ FICO, or 10% down for 500–579 FICO. Conventional loans through Fannie Mae's HomeReady and Freddie Mac's Home Possible programs require as little as 3% down for qualifying first-time homebuyers (620+ FICO). The Conventional 97 product also allows 3% down for borrowers within conforming loan limits. Source: HUD FHA guidelines at hud.gov; FHFA conforming loan limits at fhfa.gov; Fannie Mae at fanniemae.com.

FHA minimum: 580 FICO for 3.5% down; 500–579 FICO with 10% down (lender overlays often set the practical floor higher at 620). Conventional minimum: 620 FICO for most conforming products. The key practical difference: for borrowers at 580–619 FICO, FHA is typically the only path to 3.5% down. At 620+, the choice turns on mortgage insurance cost. Source: HUD at hud.gov; Fannie Mae guidelines at fanniemae.com; Freddie Mac at freddiemac.com.

This is the key long-run cost difference. Conventional PMI cancels automatically once you reach 20% equity (Homeowners Protection Act, 12 U.S.C. § 4902). FHA MIP cannot be canceled for loans with less than 10% down originated after June 3, 2013 — it lasts the life of the loan. For 10%+ down FHA loans originated after 2013, MIP lasts 11 years. Borrowers at 620+ FICO who qualify for either loan should run the lifetime MIP vs PMI math to find the lower total-cost path. Source: HUD Mortgagee Letter 2013-04; CFPB at consumerfinance.gov.

FHA loan limits are set by HUD annually by county, ranging from the national floor ($524,225 for a single-unit home in most areas in 2025) to the ceiling in high-cost markets (up to $1,209,750). Conventional conforming loan limits are set by FHFA annually — the 2025 baseline conforming limit is $806,500 for a single-unit home in most areas, with higher limits in designated high-cost counties. For loan amounts above conforming limits, a jumbo loan (conventional or non-conforming) is required; FHA does not have a jumbo equivalent. Source: HUD FHA mortgage limits at hud.gov; FHFA conforming loan limits at fhfa.gov.

Both FHA and conventional loans allow financing for 2–4 unit properties (duplexes, triplexes, four-plexes) if you occupy one unit as your primary residence. FHA loan limits increase for multi-unit properties — a 4-unit FHA loan in most areas has a higher limit than a single-family FHA loan. Conventional multi-unit loans require meeting the applicable conforming limit. Rental income from the other units can sometimes be used to help qualify for either loan type, subject to lender and GSE guidelines. Source: HUD FHA guidelines at hud.gov; Fannie Mae at fanniemae.com.

FHA mortgage rates are generally slightly lower than conventional rates on the surface because of the government guarantee — but the total cost comparison must include FHA MIP (upfront 1.75% + annual 0.55–0.85%). For borrowers with 620–679 FICO and less than 20% down, FHA often produces a lower payment despite MIP. For borrowers with 680+ FICO, conventional with PMI may be cheaper over the life of the loan because PMI cancels at 20% equity while FHA MIP does not. The Freddie Mac Primary Mortgage Market Survey (freddiemac.com) publishes weekly benchmark rates. Source: CFPB mortgage rate guidance at consumerfinance.gov.