The two loans first-time buyers compare most often, laid out side by side: down payment minimums, credit score thresholds, and the mortgage insurance rules that can decide which one costs less over time.
Most first-time buyers narrow the field to two loans: an FHA loan insured by the Federal Housing Administration, or a conventional loan with no government insurance behind it. The two treat the down payment, the credit check and mortgage insurance differently, and those differences can add up to thousands of dollars. Here is how they compare.
The Two Loans at a Glance
“Conventional” just means the loan sits outside government programs such as FHA, VA and USDA. Conforming loans are backed by Fannie Mae or Freddie Mac and carry loan maximums set by the government. FHA loans come from private lenders but are insured by the FHA, part of HUD. Because that insurance shields lenders from loss, FHA qualification standards can be more forgiving.
| Feature | FHA loan | Conventional loan |
|---|---|---|
| Backing | Insured by the FHA, part of HUD | Backed by Fannie Mae or Freddie Mac (conforming) |
| Down payment | 3.5% with a 580+ score; 10% with 500 to 579 | No set minimum; under 20% down usually means PMI |
| Credit score | National baseline of 500; many lenders require more | No government floor; usually average or better credit |
| Mortgage insurance | Required on all FHA loans; upfront plus monthly | PMI when you put less than 20% down |
| Insurance ending | Rules differ from PMI; ask your servicer | Request at 80% of original value; automatic at 78% |
| Loan limits | For 2026: $541,287 to $1,249,125 (single-unit, by area) | $766,550 in most counties; up to $1,149,825 in high-cost areas |
Neither loan wins in every situation. The right choice depends on your savings, your credit and how long you plan to stay. Our comparison of conventional, FHA, VA and USDA loans covers the other programs.
Down Payments and Credit Scores
The FHA sets national baselines. With a credit score of 580 or higher, you can put as little as 3.5% down on a 1 to 4 unit property. With a score between 500 and 579, you need at least 10% down. A bankruptcy discharged at least two years ago, or a foreclosure or FHA default at least three years back, generally does not block eligibility.
Those are floors, not guarantees. Lenders can add their own rules, called overlays, and many require a 580 minimum even though the FHA technically allows less. Conventional loans have no government-set score floor, but the CFPB notes that they can be harder to get, usually requiring average or better credit. Yet a conventional loan typically costs less once you have it.
Mortgage Insurance: FHA MIP vs. Conventional PMI
This is where the loans diverge most. FHA mortgage insurance is required on every FHA loan, whatever your credit score or down payment. It has two parts: a one-time fee folded into your closing costs and a monthly charge added to your payment. The price does not track your credit score, though down payments under 5% cost slightly more. Short on cash? The upfront fee can be rolled into the loan, though that raises the loan amount and total borrowing cost.
Conventional PMI is priced differently. Its cost varies with your down payment and credit score, and it is generally cheaper than FHA mortgage insurance for borrowers with good credit. It can also end. On single-family principal residences, you can ask your servicer to cancel PMI once your balance is scheduled to reach 80% of the home’s original value, if you are current, carry no junior liens and the value has not declined. Your servicer must end PMI automatically at 78%, and generally by the halfway point of the loan term. FHA insurance follows different rules.
Worth knowing
Ask each lender to price your mortgage insurance over a few realistic timeframes for how long you expect to stay in the home.
Which Loan Fits Which Buyer
Because the FHA insures the loan, lenders take on less risk, which makes them more flexible with lower credit scores, smaller down payments or higher debt-to-income ratios. FHA loans can only be used for a primary residence, though 1 to 4 unit properties qualify, which lets buyers live in one unit and rent out the others.
The saver with a thin credit file. A score in the 500s and a small bank balance points toward FHA. With 580, the down payment is 3.5%; below that, plan on 10% down.
The buyer with good credit and less than 20% down. Strong scores usually get cheaper conventional PMI, and you can cancel it once you reach 80% of the home’s original value.
The buyer with higher monthly debts. If a conventional lender turns you down, an FHA approval may still be within reach.
How to Compare the Total Cost
Ask two or three lenders to price both loan types for the same home and down payment. Getting pre-approved makes this concrete, and our walkthrough of getting pre-approved for a mortgage lists the documents to gather. Then set the official Loan Estimates side by side.
The CFPB cautions borrowers not to settle on a loan until official Loan Estimates are in hand. Add up the mortgage insurance over the years you actually expect to keep the loan, not just the first year, and the cheaper option usually becomes clear. Our guide to APR, points and closing costs shows how to read the fee lines.
Related guides
- How Much Down Payment You Need, and When PMI Ends: down payment sizes and the rules for ending PMI.
- Getting Pre-Approved for a Mortgage, Step by Step: how to document income and credit before you shop.
- How Much Cash Do You Need to Close on a House?: what to budget beyond the down payment, from fees to prepaid costs.
The short version
- FHA loans allow a down payment as low as 3.5% of the purchase price with a credit score of 580 or higher; scores of 500 to 579 require at least 10% down.
- Every FHA loan carries mortgage insurance with both an upfront fee and a monthly charge, priced without regard to your credit score.
- Conventional loans require private mortgage insurance when your down payment is under 20%, but you can request cancellation at 80% of the home’s original value.
- Conventional loans generally cost less than FHA loans, but qualifying is harder, especially with average or below-average credit.
- The reliable way to compare the two is to get official Loan Estimates for both and total the mortgage insurance over the years you plan to keep the loan.
Readers also ask
Can I get an FHA loan with a credit score under 580?
FHA guidelines allow borrowers with scores between 500 and 579 to qualify if they put at least 10% down. Many lenders add their own requirements on top of the FHA minimums, so some will only approve scores of 580 or higher.
Does FHA mortgage insurance ever go away?
FHA mortgage insurance follows different rules from conventional PMI, and the Consumer Financial Protection Bureau directs borrowers with FHA or VA loans to their servicer for answers about cancellation. Conventional PMI, by contrast, can be cancelled at 80% of the home’s original value and ends automatically at 78%.
Which loan is cheaper for a buyer with good credit?
The CFPB notes that conventional loans generally cost less than FHA loans, and PMI usually prices below FHA mortgage insurance for borrowers with good credit. Get Loan Estimates for both to see the difference on your own numbers.
Can I use an FHA loan for a vacation home?
No. An FHA loan can only be used to purchase a primary residence, though it is available on 1 to 4 unit properties.
This guide is general information about U.S. mortgages, not financial, tax or legal advice. Loan terms depend on the lender and on your credit, income and property, so confirm the details with your lender, and see consumerfinance.gov for official guidance.
