FHA vs. Conventional Loans: Which Is Right for You?
6 min read · by the FindLocalBrokers team
For most first-time buyers, the real decision comes down to FHA versus conventional. The right answer depends almost entirely on two numbers: your credit score and your down payment.
The quick comparison
- Down payment: FHA 3.5% minimum · Conventional as low as 3% for qualifying buyers
- Credit score: FHA workable from ~580 · Conventional generally 620+, priced best at 740+
- Mortgage insurance: FHA has an upfront premium plus monthly premiums that usually last the life of the loan · Conventional PMI is monthly only and cancels around 20% equity
- Debt-to-income: FHA is generally more flexible on higher ratios
- Property standards: FHA appraisals enforce stricter condition/safety standards; some condos aren't FHA-approved
Why credit score decides it
Conventional loan pricing is heavily score-tiered: a 640-score borrower pays substantially more in rate and PMI than a 760-score borrower. FHA pricing is much flatter across scores. The practical result: below roughly 680, FHA often produces the lower total monthly payment; above it, conventional usually wins — but the crossover point moves with the market, which is why running both quotes matters.
The mortgage insurance math
FHA charges an upfront mortgage insurance premium of 1.75% of the loan (usually financed into the balance) plus an annual premium paid monthly. With minimum down payment, those monthly premiums never fall off — you carry them until you refinance or pay off the loan.
Conventional PMI has no upfront charge, is priced by your score and down payment, and cancels: automatically at 78% loan-to-value, or on request at 80%. A strong-credit borrower's PMI can be surprisingly cheap; a weak-credit borrower's can be brutal.
Property matters too
FHA appraisals enforce minimum property standards — peeling paint, missing handrails, roof issues can all trigger required repairs before closing. Sellers in hot markets sometimes prefer conventional offers for this reason. Condos add another wrinkle: the building itself must be FHA-approved.
The strategy most buyers miss
FHA now, conventional later. Buy with FHA while your credit is mid-tier, build equity for a few years, then refinance to conventional once you're near 20% equity — killing FHA insurance in the process. It's one of the most reliable money-saving moves in the mortgage world.
Get both quotes
The honest answer to "FHA or conventional?" is arithmetic, not opinion. A broker can price both against your actual score and savings in a single sitting. Find an FHA-experienced broker in your city and make them show you the side-by-side.
Frequently asked questions
When is an FHA loan better than conventional?
Generally when your credit score is below roughly 680, your debt-to-income ratio is high, or you have limited down payment savings. FHA pricing and insurance costs are more forgiving of lower scores than conventional loans are.
Does FHA mortgage insurance ever go away?
With the standard 3.5% down payment, FHA mortgage insurance premiums last for the life of the loan. Most borrowers remove it later by refinancing into a conventional loan once they have about 20% equity and stronger credit.
Can I switch from FHA to conventional later?
Yes — refinancing FHA-to-conventional is one of the most common refinances. Once you have roughly 20% equity and your credit has improved, it eliminates FHA insurance premiums entirely, which can cut hundreds of dollars a month.
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