FHA loans accept 580 FICO and 3.5% down — but charge lifetime mortgage insurance on most loans. Conventional requires 620+ FICO but lets you drop PMI at 20% equity. The right pick depends on your credit score, down payment, and how long you plan to stay.
Choose FHA if your credit score is below 620 or your down payment is tight — it accepts 580 FICO and 3.5% down, and rates are competitive at lower scores. Choose conventional if your score is 620+ and you can build equity to 80%, because conventional PMI eventually drops off while FHA mortgage insurance stays for most loans. If you put 20% down, conventional wins on total cost in nearly every scenario.
The choice between an FHA loan and a conventional loan comes down to one practical question: does your credit score and down payment get you into conventional territory, or do you need the government-backed flexibility of FHA?
Both products are widely available from the same lenders. Both can be 30-year fixed loans. The difference is who guarantees the loan, what credit standards apply, and how mortgage insurance works — specifically whether it goes away.
An FHA loan is insured by the federal government through the Department of Housing and Urban Development. That insurance lets lenders accept borrowers with lower credit scores and smaller down payments than conventional underwriting allows. A conventional loan is not government-backed — it meets standards set by Fannie Mae or Freddie Mac and requires stronger credit, but its mortgage insurance rules are more favorable for borrowers who build equity.
HUD's FHA eligibility guidelines set the minimum at 580 FICO for the standard 3.5% down payment. Borrowers with scores between 500 and 579 can still apply but must bring at least 10% down. Below 500, FHA is not available.
Conventional loans backed by Fannie Mae or Freddie Mac require a minimum 620 FICO score for most products. The best advertised rates — prime tier — typically require 740+ with at least 20% down. Between 620 and 739, the rate increases in steps, but conventional remains available.
What this means: If your score is below 620, FHA is your primary conforming path. At 620–679, both are available but FHA may offer better pricing at lower scores. At 740+ with 20% down, conventional almost always produces lower total cost.
FHA minimum is 3.5% with a 580+ credit score. At 500–579, the minimum jumps to 10%.
Conventional 3% down is available through Fannie Mae HomeReady and Freddie Mac Home Possible for qualifying borrowers. Standard conventional requires 5% with private mortgage insurance; 20% down eliminates PMI entirely.
Both loan types allow the down payment to come from gifts, grants, or down payment assistance programs, though lenders document gift funds differently.
This is where the two products diverge most consequentially.
FHA mortgage insurance premium (MIP):
The CFPB's owning-a-home guide covers FHA MIP as a standard feature of the program. Two components apply:
The permanent nature of FHA MIP on low-down-payment loans is the single biggest long-term cost difference between FHA and conventional.
Conventional private mortgage insurance (PMI):
PMI is required when you put less than 20% down on a conventional loan. The annual rate typically runs 0.2%–1.5% depending on credit score and loan-to-value — at the higher end for lower scores and smaller down payments.
The defining advantage: the Homeowners Protection Act gives you the right to request PMI cancellation once your loan balance reaches 80% of the original purchase price, and lenders must cancel it automatically at 78% LTV. As your home appreciates and you pay down principal, PMI disappears. FHA MIP — on most loans — does not.
Illustrative comparison on a $350,000 purchase with 3.5% down:
FHA: 1.75% upfront MIP ($5,957 financed) + 0.55% annual MIP (~$1,893/year). MIP stays for the life of the loan.
Conventional (at comparable 3.5% down): no upfront PMI, but annual PMI might run ~0.85%–1.0% (~$2,975–$3,500/year at this LTV). PMI cancels once equity reaches 20% — with normal appreciation and principal payments, often within 7–10 years.
The conventional PMI can cost more per month initially in this example, but once it cancels, conventional becomes clearly cheaper. For borrowers who plan to hold the home long-term, conventional often wins on total cost once the PMI elimination is factored in.
FHA loan limits vary by county and are set annually by HUD. HUD publishes current FHA mortgage limits by county — check your area before assuming FHA covers your purchase price, particularly in high-cost metro markets.
Conventional loans follow the conforming loan limits set by the Federal Housing Finance Agency (FHFA). Loans above the conforming limit require a jumbo loan, which has its own underwriting standards separate from both FHA and standard conventional.
FHA requires that properties meet HUD's Minimum Property Requirements (MPRs) — the home must be structurally sound and free of health or safety hazards. An FHA appraisal will flag conditions that conventional appraisals typically don't, which creates complications in distressed, as-is, or fixer-upper sales.
Conventional appraisals focus on value, not habitability standards. This makes conventional more workable for older homes with deferred maintenance or properties sold as-is, where an FHA appraiser would require repairs before closing.
For renovation financing specifically, the FHA 203(k) program wraps renovation costs into the loan — a different product from the standard FHA purchase loan, and the right tool if you're buying a home that needs significant work.
Your credit score is below 620 and conventional is not available. You have limited savings and need the 3.5% minimum down payment. You have past credit events — bankruptcy, foreclosure — where government backing is the path to qualification. You plan to stay fewer than 5–7 years, where the upfront cost spread matters more than the long-term MIP burden. Your purchase price is within FHA loan limits for your county.
Your credit score is 620 or higher, especially 740+. You can put 20% down and avoid PMI entirely. You plan to stay long enough that PMI elimination saves you versus permanent FHA MIP. The property has condition issues that might fail an FHA appraisal. Your purchase price exceeds FHA limits for your county.
Some buyers start with FHA — using it to get into a home before their credit and equity are strong enough for conventional — then refinance to conventional once the situation changes. The break-even on the refinance depends on closing costs (typically 2–5% of the loan amount) versus the monthly savings from dropping MIP. Run the math before assuming it's always worth it.
For a deeper look at how mortgage term affects your total cost, see 15-Year vs. 30-Year Mortgage: Which Term Fits Your Situation in 2026. For first-time buyer loan programs beyond FHA, our first-time homebuyer mortgage guide covers down payment assistance options, state programs, and conventional alternatives side by side.
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*This content is educational and does not constitute mortgage or financial advice. Loan availability, rates, and terms depend on your individual credit profile, lender, and property. Consult a licensed mortgage professional before selecting a loan program.*
Yes — this is a common strategy. Once your home equity reaches 20% and your credit improves, you can refinance from an FHA loan into a conventional loan, which removes the permanent FHA MIP. The break-even depends on closing costs (typically 2–5% of the loan amount) versus the monthly savings from dropping MIP. If your FHA MIP is $160/month and refinance closing costs are $7,000, the break-even is roughly 44 months. It only pencils out if you plan to stay past that break-even and if rates haven't risen enough to offset the savings.
No — FHA does not set income limits. Any borrower can apply regardless of how much they earn, as long as they meet the credit, down payment, and debt-to-income requirements. This is different from USDA loans or some state down payment assistance programs that do cap borrower income. The only FHA limit that matters is the loan amount ceiling, which varies by county and is published annually by HUD.
No — FHA loans are for primary residences only. HUD requires owner-occupancy, meaning you must intend to live in the home as your primary residence within 60 days of closing. FHA cannot be used for investment properties, vacation homes, or fix-and-flip projects. For rental or investment property financing, conventional loans, DSCR loans, or portfolio lenders are the applicable products.
Fannie Mae and Freddie Mac price conventional loans in tiers. The best rates — what lenders advertise — typically require a 740–760+ FICO score with at least 20% down. At 700–739, expect a modest rate adjustment. At 660–699, the adjustment is more noticeable. Below 620, conventional loans through Fannie Mae or Freddie Mac are generally unavailable, and FHA becomes the standard path. The single highest-leverage move before applying: pay credit card balances below 30% of each card's limit, which can add meaningful FICO points over 60–90 days.
Not automatically. FHA makes sense when your credit score is below 620 or your savings only cover the minimum down payment. But if you have a 680+ credit score and 5–10% saved, conventional PMI is often cheaper over time because it cancels at 80% LTV while FHA MIP stays for the life of most loans. Run both scenarios with your actual credit score, down payment, and expected hold period. The break-even varies by loan amount, PMI rate, and appreciation — there is no universal answer.