FHA vs Conventional Loans: Which Is Right for You?

When you're buying your first home, the choice between FHA and conventional financing is one of the most impactful decisions you'll make — and it's one most buyers don't spend enough time on.

FHA loans are backed by the Federal Housing Administration. Because the government insures lenders against default, lenders can extend credit to buyers with lower credit scores and smaller down payments than they'd otherwise accept. The tradeoff: you pay mortgage insurance premiums (MIP) for the life of the loan in most cases.

Conventional loans are not government-backed. They're sold to Fannie Mae or Freddie Mac on the secondary market and must meet conforming loan guidelines. Without government insurance, lenders require stronger credit profiles — but if you qualify, conventional loans often cost less over time and offer more flexibility.

Here's the short version: FHA is more accessible upfront (lower credit bar, smaller down payment), but more expensive long-term (mortgage insurance that doesn't go away). Conventional is harder to qualify for initially but can save you thousands over the life of the loan.

In 2026, the decision has gotten more nuanced because mortgage insurance costs have shifted and conforming loan limits have increased. The "conventional is always better if you can qualify" rule of thumb still holds in most cases — but there are scenarios where FHA wins. Let's break them down.

This is where FHA shines for first-time buyers who haven't had years to accumulate savings or build a pristine credit history.

FHA Down Payment: As low as 3.5% if your credit score is 580 or above. If your score is 500–579, you can still get an FHA loan — but you'll need 10% down. The 3.5% minimum is a huge advantage for buyers who've been renting and don't have a large savings cushion.

FHA Credit Score: Minimum 500 (with 10% down) or 580 (with 3.5% down). In practice, most FHA lenders have overlays and want 620+, but it's still considerably more forgiving than conventional.

Conventional Down Payment: As low as 3% through programs like Fannie Mae HomeReady or Freddie Mac Home Possible — designed specifically for first-time and low-to-moderate income buyers. The standard conventional down payment is 5%, with 20% eliminating mortgage insurance entirely.

Conventional Credit Score: Most conventional lenders want a 620 minimum, with pricing improving significantly at 680, 720, and 740+. If your score is 740+ and you have 5–10% down, a conventional loan is almost certainly the better deal.

The gray zone: buyers with scores between 620–679 and less than 10% down. This is where you need to run the actual numbers — compare the total cost of both loans over your expected hold period. The answer isn't always obvious.

Mortgage insurance is the biggest factor that tips the math one way or the other, and it's the area where most buyers underestimate the long-term cost.

FHA Mortgage Insurance: Two components — upfront MIP and annual MIP. The upfront premium is 1.75% of the loan amount, rolled into the loan (so on a $350,000 loan, that's $6,125). Annual MIP runs 0.55–0.85% of the loan balance, paid monthly. And here's the critical point: for FHA loans with less than 10% down, MIP stays for the LIFE of the loan. You cannot cancel it once you hit 20% equity. To get rid of it, you must refinance into a conventional loan.

Conventional PMI: Private mortgage insurance on a conventional loan cancels automatically when you reach 22% equity, and you can request cancellation at 20%. PMI rates vary based on credit score and LTV, but for a borrower with a 720 credit score and 10% down, PMI might run 0.5–0.7% annually — similar to FHA. The big difference: it goes away when you have equity.

For a buyer putting 3.5% down with a 660 credit score: FHA likely wins in the short term because the rate may be lower and qualification is easier. But if you stay in the home 5+ years and gain equity, you'll eventually want to refinance to shed that MIP.

For a buyer putting 10% down with a 720 credit score: Conventional almost always wins. PMI will cancel once you hit 80% LTV, the rate will be competitive, and you'll save on the upfront 1.75% MIP premium.

FHA Loan Limits: In 2026, FHA loan limits vary by county. In Maricopa County (Phoenix metro), the FHA limit for a single-family home is $530,150. If the home you're buying exceeds this, FHA won't work — you'll need conventional or jumbo financing.

Conventional Loan Limits: The 2026 conforming loan limit for most of the country is $806,500 for a single-family home (higher in high-cost areas). This gives conventional buyers considerably more room.

Property Condition: FHA appraisers flag health and safety issues — chipped paint, missing handrails, water damage, and deferred maintenance can trigger required repairs before closing. This can complicate purchases of older homes or fixer-uppers. Conventional appraisals are less scrutinous about condition (though still valuation-focused).

Seller Concessions: Both loan types allow sellers to contribute toward closing costs. FHA allows up to 6% seller concessions; conventional varies by LTV (3% at 90–95% LTV, 6% at 90% and below).

DTI (Debt-to-Income) Limits: FHA is generally more flexible here, allowing DTI up to 57% in some cases. Conventional typically caps at 45–50%. If you have significant student loans or car payments, FHA may approve you where conventional won't.

Which one should you choose? The honest answer is: run the numbers with a loan officer you trust. The right choice depends on your credit score, down payment, the specific property, your timeline, and your plans for the home. I work through this analysis with every buyer I work with — contact your loan officer and let's figure out which loan makes the most financial sense for your situation.