FHA and conventional loans are the two most common paths first-time buyers consider, and the right one isn’t the same for everyone. The difference comes down to a handful of factors: your credit score, your down payment, and, often overlooked, how mortgage insurance works on each one over the life of the loan.
Here’s how to actually compare them.
The Core Difference Between FHA and Conventional Loans
An FHA loan is insured by the Federal Housing Administration, which allows lenders to offer more flexible credit and down payment requirements, since the government backs part of the risk. A conventional loan isn’t government-insured, and typically rewards stronger credit with better pricing, and requires more from borrowers who don’t have it yet.
Down Payment Requirements
FHA loans allow down payments as low as 3.5%. Conventional loans offer similarly low options, with some programs allowing as little as 3% down for qualified first-time buyers. On down payment alone, the two are closer than most people expect. The bigger difference shows up elsewhere.
Here’s a quick example. Assume a $300,000 home. With FHA, the down payment is 3.5%, or $10,500. The conventional, 3% down first-time homebuyer program comes in at $9,000 in down payment. A $1,500 difference can be significant to many people, but there is more under the hood that should be explored.
Credit Score Requirements
FHA loans are generally more forgiving of lower credit scores, with some lenders accepting scores as low as 580, and occasionally lower with a larger down payment. Conventional loans typically start around 620. That score will show up in higher rates and require other strengths in the loan file. Also for conventional loans, stronger credit unlocks meaningfully better pricing. If your credit is still being built, FHA often opens the door sooner.
Mortgage Insurance: The Cost Most Buyers Underestimate
This is where the two programs genuinely diverge, and it’s the detail that matters most over time.
FHA loans require an upfront mortgage insurance premium, currently 1.75% of the loan amount. This is typically rolled into the loan, plus there is an ongoing annual premium paid monthly. If your down payment is below 10%, FHA mortgage insurance generally lasts for the life of the loan, and the only way to remove it is to refinance into a different loan later.
Conventional loans use private mortgage insurance (PMI) instead, only required if your down payment is below 20%. Unlike FHA, PMI cancels once your loan balance reaches 78% of your home’s original value. You can typically request cancellation once you reach 80%. For buyers who expect their equity to grow, through payments or appreciation, PMI is often the shorter-term cost of the two.
What Does Mortgage Pre-Approval Really Mean? →
Debt-to-Income Flexibility
FHA loans tend to allow more flexibility on debt-to-income ratio, which can matter for buyers carrying other debt like student loans or a car payment. (Student loans, even if in deferment, must be counted.) Conventional loans are typically more conservative here, though strong compensating factors, like a larger down payment or significant reserves, can open up more room.
How Lenders Calculate Debt-to-Income Ratio →
Loan Limits in 2026
For 2026, the conforming loan limit for conventional loans is $832,750 for most of the country, with higher limits in certain high-cost areas. FHA loan limits are set separately and vary by county, with a floor of $541,287 in most areas, though this can be considerably higher in certain metro areas. Both limits are worth confirming for your specific county, since they can shift what’s actually in reach with each program.
Which Tends to Fit Which First-Time Buyer
FHA tends to fit buyers with a lower credit score, less established credit history, or a smaller down payment, especially if the plan is to refinance out of FHA mortgage insurance down the road. Conventional tends to fit buyers with stronger credit who can put down at least a little more, since PMI’s temporary nature and typically lower cost per dollar of coverage can make it the better long-term option. Neither is universally “better.” The right one depends on your actual credit, down payment, and how long you expect to stay in the loan before refinancing or paying down enough to remove mortgage insurance.
Common Mistakes When Choosing Between Them
The most common mistake is comparing only the down payment requirement, without factoring in how differently mortgage insurance behaves on each program over time. A close second is assuming FHA is always the “easier” or “cheaper” option purely because of its credit flexibility, without running the actual long-term cost comparison against a conventional loan with PMI.
Mortgage Planner’s Perspective
FHA and conventional loans solve different problems for different borrowers. The comparison worth making isn’t which one sounds more accessible today, it’s which one costs less over the years you actually expect to hold the loan, credit, down payment, and mortgage insurance included.
NEXT STEP
Curious how FHA and conventional compare on your actual numbers? Run your scenario through our First-Time Homebuyer PITI Calculator.
And be sure to download our Homebuyers Guide.
RELATED ARTICLES
The Complete Guide to Buying Your First Home in Texas
What Does Mortgage Pre-Approval Really Mean?
Lenders Calculate Debt-to-Income Ratio
First-Time Homebuyer Mistakes to Avoid
FREQUENTLY ASKED QUESTIONS
Down Payment and Credit
Q: Is the down payment really different between FHA and conventional loans?
A: Not by much. FHA allows as low as 3.5% down, while some conventional programs allow as little as 3% for qualified first-time buyers. The bigger differences show up in credit requirements and mortgage insurance.
Q: What credit score do I need for each?
A: FHA loans can accept scores as low as 580, sometimes lower with a larger down payment. Conventional loans typically start around 620, with stronger credit unlocking better pricing.
Mortgage Insurance and Cost
Q: Does FHA mortgage insurance ever go away?
A: If your down payment is below 10%, FHA mortgage insurance generally lasts for the life of the loan and can only be removed by refinancing. With 10% or more down, it can be removed after a set period.
Q: Does conventional PMI go away automatically?
A: Yes. PMI on a conventional loan cancels automatically once your balance reaches 78% of the home’s original value, and you can typically request cancellation once you reach 80%.
Q: Which loan is cheaper over time?
A: It depends on your credit, down payment, and how long you plan to keep the loan. Conventional financing with PMI is often cheaper over time for buyers with decent credit, since PMI is temporary, while FHA mortgage insurance can last the life of the loan with a smaller down payment.
Texas Mortgage Plan – 50+ years of combined mortgage experience, serving homeowners and homebuyers across Flower Mound and the DFW Metroplex. Elizabeth Rose, NMLS 252686, CDLP® Certified Divorce Lending Professional | Shea Patton, Mortgage Advisor, NMLS #251397, Licensed Realtor. Texas Mortgage Plan is a d/b/a of Legacy Mortgage, NMLS #1759275 | Equal Housing Lender
