FHA and conventional loans are the two most common ways to finance a home purchase in the United States, and the right choice depends heavily on your credit profile, available down payment, and how long you plan to keep the loan. Both can finance the same home, but the underlying rules — especially around mortgage insurance — are different enough that the total cost can vary substantially between the two.
What makes a loan "FHA" or "conventional"
A conventional loan is not backed by a government agency; it is typically originated to meet underwriting standards set by Fannie Mae or Freddie Mac (a "conforming" loan) or held outside those standards ("non-conforming"). An FHA loan is insured by the Federal Housing Administration, which reduces the lender's risk and allows more flexible qualification standards in exchange for mandatory mortgage insurance premiums.
Down payment requirements
FHA loans allow a minimum down payment as low as 3.5% for borrowers who meet the program's credit score threshold, making it one of the more accessible paths to homeownership. Conventional loans can go even lower for well-qualified first-time buyers under certain programs, sometimes as low as 3%, but often require stronger credit to access those minimums. Above roughly 5% to 10% down, conventional financing becomes the more common route for buyers with solid credit.
Mortgage insurance: the biggest structural difference
This is where the two loan types diverge most. Conventional loans require PMI only when the down payment is below 20%, and that PMI is designed to be removed once the loan reaches 80% loan-to-value (by request) or 78% (automatically) — see our PMI removal guide for the details.
FHA loans work differently. They require both an upfront mortgage insurance premium (MIP), typically financed into the loan, and an ongoing annual MIP paid monthly. Critically, for FHA loans originated with a down payment under 10%, annual MIP generally stays in place for the life of the loan rather than automatically dropping off at a specific equity threshold. Borrowers who put down 10% or more on an FHA loan can typically have MIP removed after a set number of years. This is the single biggest long-term cost difference between the two loan types, and it is why many FHA borrowers eventually refinance into a conventional loan once they have built enough equity — see our refinancing guide for how to evaluate that move.
Credit score flexibility
FHA loans are generally more forgiving of lower credit scores and past credit issues than conventional loans, which is a major reason first-time buyers and buyers rebuilding credit often start there. Conventional loans, particularly at the lowest down payment tiers, tend to require stronger credit to qualify for competitive rates, and pricing adjustments based on credit score and LTV can meaningfully affect the rate you are offered.
Loan limits
Both FHA and conventional conforming loans are subject to maximum loan amounts set annually, which vary by county based on local housing costs — higher-cost counties have higher limits than the national baseline. Loans above the conventional conforming limit are considered "jumbo" loans and typically carry stricter underwriting and different rate structures. Because these limits are updated annually, confirm the current limit for your specific county with your lender rather than relying on a prior year's figure.
Property requirements
FHA loans require the property to meet minimum safety and habitability standards verified through an FHA-specific appraisal, which can occasionally complicate purchases of homes needing repairs. Conventional appraisals are generally less restrictive on property condition, though lenders will still require a home to appraise at or above the purchase price to support the loan amount.
Which one costs less overall?
There is no universal answer — it depends on your down payment, credit score, and how long you keep the loan. A borrower with a small down payment and strong credit may find conventional PMI cheaper than FHA MIP over time, since PMI can be removed once equity builds. A borrower with a lower credit score may find FHA offers a lower rate and easier approval, even accounting for the ongoing MIP. Model both scenarios with your actual quoted rate and mortgage insurance cost in the calculator before deciding — see also our guide to comparing loan scenarios.