Loan comparison
FHA vs Conventional Loan
Side-by-side breakdown of FHA Loans and Conventional Loans — credit, down payment, mortgage insurance, and who each one fits.
At a glance
| Feature | FHA | Conventional |
|---|---|---|
| Minimum credit score | 580+ | 620+ |
| Minimum down payment | 3.5% | 3% |
| Mortgage insurance | MIP for the life of the loan (0.55% annual on most 30-year loans, plus 1.75% upfront) | PMI required if <20% down, but drops off automatically at 78% LTV |
| Loan limit (2026, standard county) | $524,225 | $806,500 |
| Best for | buyers with credit scores 580–680 or limited down payment savings | buyers with 680+ credit and 5%+ down who want to avoid FHA's lifetime MIP |
| Property types | Primary residence only | Primary, second home, and investment |
FHA Loan
FHA loans are insured by the Federal Housing Administration and originated by approved lenders. They exist to make homeownership reachable for borrowers who don't fit conventional guidelines — lower credit scores, higher DTIs, or thin down payments.
- 580+ FICO for 3.5% down; 500–579 for 10% down
- 43% DTI standard, up to 56.9% with compensating factors
- Primary residence only (no investment properties)
- Property must meet FHA minimum property standards
- 2-year employment history in the same field
Conventional Loan
Conventional loans conform to Fannie Mae / Freddie Mac guidelines and aren't backed by the government. They're the most common loan type in the U.S. and offer the widest range of terms, property types, and borrower profiles.
- 620+ FICO minimum (740+ for best pricing)
- 45% DTI standard, up to 50% with strong compensating factors
- 3% down for first-time buyers (HomeReady/Home Possible) or 5% otherwise
- Primary, second home, and investment properties all eligible
- Two years of employment history preferred
When to choose FHA over Conventional
Choose FHA when you're buyers with credit scores 580–680 or limited down payment savings. Choose Conventional when you're buyers with 680+ credit and 5%+ down who want to avoid FHA's lifetime MIP. The scorecard shows exactly which programs price best for your credit, DTI, and down payment in about 90 seconds.
Frequently asked questions
Is a FHA or Conventional loan better?
Neither is universally better — it depends on your profile. FHA Loans are buyers with credit scores 580–680 or limited down payment savings. Conventional Loans are buyers with 680+ credit and 5%+ down who want to avoid FHA's lifetime MIP. Run your numbers in the ReadinessIQ scorecard to see which one you actually qualify for at the best pricing.
Can I switch from a FHA loan to a Conventional loan later?
Yes — refinancing from FHA to Conventional (or vice versa) is common once you build equity or improve credit. Many borrowers start on FHA and refinance to Conventional to drop mortgage insurance.
Which has lower monthly payments, FHA or Conventional?
Base P&I depends on rate, not program. The difference shows up in mortgage insurance: MIP for the life of the loan (0.55% annual on most 30-year loans, plus 1.75% upfront); PMI required if <20% down, but drops off automatically at 78% LTV. Over a 30-year loan that gap can total tens of thousands.
What credit score do I need for FHA vs Conventional?
FHA Loan: 580+. Conventional Loan: 620+. Lenders often add overlays above these floors — most originators want 620+ for FHA and 640+ for Conventional in practice.
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