FHA vs. Conventional Loan: Which One Should You Apply For?

Oct 15, 2026

The type of mortgage you choose sets your down payment, your monthly cost, and which homes you can realistically make an offer on. If you're buying without a large down payment or a high credit score, you'll likely be weighing a Federal Housing Administration (FHA) vs. conventional loan, because one has easier requirements and the other tends to cost less over time. Both can get you into a home, but the right fit depends on your credit score, your savings, and your long-term goals. This guide compares the two side by side and shows which one fits your situation.

The Difference Between FHA and Conventional Loans

An FHA loan is a government-backed loan insured by the Federal Housing Administration. Because that insurance protects the lender if a borrower defaults, FHA loan requirements are more flexible on credit and down payment, which makes it popular with first-time homebuyers.

A conventional loan comes from a private lender following standards set by Fannie Mae and Freddie Mac, with no government insurance behind it. Because the lender takes on more risk, it generally looks for a higher credit score than an FHA loan. In exchange, a conventional loan can cost less in the long term, as you can skip mortgage insurance by putting 20% down or have it removed once you've built enough equity. That's the core difference between FHA and conventional loans.

Comparing FHA and Conventional Loans

You'll notice the difference in an FHA vs. conventional mortgage when you apply, when a seller weighs your offer, and every month you make a payment. That's because each loan sets its own rules for the borrower.

Credit Score Requirements

Credit is usually the first factor that points you toward one loan or the other, so it helps to know where your FICO score stands before you compare anything else.

• FHA: The credit score threshold is 580 to qualify for the minimum down payment. Scores from 500 to 579 can still qualify with a larger down payment, though individual lenders may set their own minimums higher.¹
• Conventional: The conventional loan credit score benchmark has long been 620. Fannie Mae dropped its fixed 620 minimum in November 2025 in favor of reviewing your full financial profile,² but many lenders still look for a score in that range, and higher scores earn better pricing. If you're not there yet, building a stronger credit profile before you buy can widen your options.

Down Payment Requirements

For many buyers, saving for a down payment is the hardest part of buying a home. Each loan's down payment requirements set the least you can put down.

• FHA: You need 3.5% down with a score of 580 or higher, or 10% down with a score of 500 to 579.¹ On a $300,000 home, 3.5% works out to $10,500.
• Conventional: Some programs accept as little as 3% down, though the standard option requires at least one borrower to be a first-time homebuyer.³ Putting 20% down lets you skip mortgage insurance entirely.

Either way, your down payment is separate from closing costs and the funds collected for escrow at closing.

Mortgage Insurance

Mortgage insurance is the cost difference with the longest reach. It affects your monthly payment and what the loan costs you over its life.

• FHA: You pay a mortgage insurance premium (MIP) in two parts: an upfront premium of 1.75% of the loan amount, plus an annual premium folded into your monthly payment.¹ With less than 10% down, the annual mortgage insurance premium lasts for the life of the loan. With 10% or more down, it ends after 11 years.⁴ This is the main downside of an FHA loan, and it's why FHA can mean higher monthly payments over time than a comparable conventional loan.
• Conventional: Private mortgage insurance (PMI) applies only when you put down less than 20%. You can ask your servicer to cancel private mortgage insurance once your balance reaches 80% of the home's original value, and it must end automatically at 78%.⁵

Many FHA borrowers later explore refinancing options, such as a mortgage refinance into a conventional loan, to drop MIP once they have enough equity.

Loan Limits

Borrowing caps decide whether a loan type is even on the table for the home and area you're shopping in.

• FHA: FHA loan limits are set county by county. For 2026, the limit on a one-unit home runs from $541,287 in lower-cost areas to $1,249,125 in high-cost areas.⁶
• Conventional: Conforming loan limits are higher in most of the country. The 2026 baseline is $832,750 for a one-unit home, with the same $1,249,125 ceiling in high-cost areas.⁷ Those higher conventional loan limits leave more room at higher price points.

Seller Perceptions and Appraisal Standards

Your loan type affects more than your approval odds. It can also shape how competitive your offer looks to a seller.

• FHA: FHA appraisal requirements cover the home's condition as well as its value. The appraiser checks that the property meets minimum safety standards,¹ and the seller may need to make repairs before closing. Some sellers see that as extra work, which can make an FHA offer less competitive when several buyers are bidding. On closing costs, FHA gives you more room. A seller can agree to pay part of your closing costs for you, and the seller concessions FHA allows go up to 6% of the home's price.¹
• Conventional: Appraisal standards focus mainly on market value, so sellers often see these offers as having fewer hurdles. Seller concessions are capped lower when your down payment is small.⁸

Which Loan Makes More Sense?

In the conventional loan vs. FHA comparison, FHA is easier to qualify for, while conventional usually costs less over time if your credit and savings are strong.

FHA may be the better fit if you:

• Have a credit score below about 620
• Have limited savings for a down payment
• Are a first-time buyer with a higher debt-to-income ratio, since FHA guidelines tend to be more forgiving on DTI ratio for mortgage approval

Conventional may be the better fit if you:

• Have a stronger credit score
• Can put 20% down and avoid mortgage insurance
• Are buying in a competitive market where sellers compare offers
• Want to build equity quickly and perhaps tap that home equity with a HELOC later

Talk to a Lendward Mortgage Specialist

The right choice between an FHA and a conventional loan depends on your credit score, how much you can put down, and how long you plan to stay in the home. A Lendward mortgage specialist can walk through both loans with you and show what each would mean for your down payment, mortgage insurance, and monthly payment. You'll work with a real person who has lending experience and doesn't earn commission, and a dedicated account manager stays with you through closing. Talk to a Lendward mortgage specialist to see how the two loans compare for your situation.

 

Sources

1. Affordable Mortgage Lending Guide: 203(b) Mortgage Insurance Program. (n.d.). In https://www.fdic.gov/resources/bankers/affordable-mortgage-lending-center/guide/part-1-docs/203b-mortgage-insurance-program.pdf. FHA. 
2. Selling Guide Announcement(SEL-2025-09). (2025, November 5). Fannie Mae Single Family. https://singlefamily.fanniemae.com/media/44146/display 
3. Originating & Underwriting: 97% Loan to Value Options. (n.d.). Fannie Mae. https://singlefamily.fanniemae.com/originating-underwriting/mortgage-products/97-loan-value-options 
4. Mortgagee Letter 2023-05. (2023, February 22). United States Department of Housing and Urban Development. https://www.hud.gov/sites/dfiles/OCHCO/documents/2023-05hsgml.pdf 
5. When can I remove private mortgage insurance (PMI) from my loan? | Consumer Financial Protection Bureau. (2026, August 28). Consumer Financial Protection Bureau. https://www.consumerfinance.gov/ask-cfpb/when-can-i-remove-private-mortgage-insurance-pmi-from-my-loan-en-202/ 
6. HUD’s Federal Housing Administration Announces 2026 Loan Limits | HUD.gov / U.S. Department of Housing and Urban Development (HUD). (n.d.). https://www.hud.gov/news/hud-no-25-145 
7. FHFA announces conforming loan limit values for 2026. (November 25, 2025). FHFA.gov. https://www.fhfa.gov/news/news-release/fhfa-announces-conforming-loan-limit-values-for-2026 
8. Interested Party Contributions (IPCs) | Fannie Mae. (n.d.). https://selling-guide.fanniemae.com/sel/b3-4.1-02/interested-party-contributions-ipcs 
9. Fannie Mae Selling Guide, "B3-4.1-02, Interested Party Contributions (IPCs)": https://selling-guide.fanniemae.com/sel/b3-4.1-02/interested-party-contributions-ipcs