For most Bloomington buyers, the real question isn't which loan is "better" — it's which one fits your credit score and down payment, because those two factors decide which program costs less over the long run. An FHA loan wins for buyers with credit below roughly 680 who need to put down just 3.5%, while a conventional mortgage usually wins for buyers with stronger credit who can put 5% or more down and want mortgage insurance they can eventually cancel. The gap comes down to one number: how much insurance you pay and for how long.
I'm Dan Smith, a Senior Loan Officer with Ruoff Mortgage in Indiana. I've walked dozens of Monroe County families through this exact choice, and the short version is that there's no universal answer — but there is a right answer for your specific situation. Here's how to find it.
The bottom line: who should pick which
If your credit score is below 680 and you don't have 10% to put down, an FHA loan is usually the cheaper way in — the fixed 0.55% annual premium doesn't penalize lower scores the way conventional private mortgage insurance does (Valley West Mortgage). If your score is 720 or higher and you can manage a 5% down payment, a conventional loan almost always wins long-term, because its PMI is cheaper for strong credit and can be removed at 20% equity (Capital Home Mortgage).
The table below stacks the two programs side by side so you can see which rows matter most to you.
FHA vs. conventional at a glance
Buyer concern | FHA loan | Conventional loan |
|---|---|---|
Minimum down payment | 3.5% with a 580+ credit score | 3% for some programs, 5% typical; 20% to avoid insurance (Lower) |
Minimum credit score | 500 to qualify, 580 for the 3.5% down option | 620 is the usual floor, with better rates at 740+ (Altitude Home Loans) |
Mortgage insurance cost | Fixed 0.55% annual premium regardless of score, plus a 1.75% upfront fee (Valley West Mortgage) | PMI that scales with credit and down payment — cheaper for strong credit, costlier for weak |
How long insurance lasts | Life of the loan when the down payment is under 10%; ends at 11 years at 10% or more (Valley West Mortgage) | Can be canceled at 20% equity and ends automatically at 78% LTV (Reach Home Loans) |
2026 borrowing ceiling | $541,287 for a single-family home in every Indiana county (Lower) | $832,750 national conforming baseline, which applies to Monroe County (Valley West Mortgage) |
Best for | First-time buyers, lower credit scores, and anyone stretching to a small down payment | Buyers with good credit, larger down payments, and anyone who wants insurance they can drop |
Main limitation | Mortgage insurance rarely goes away on its own when you put down under 10% | Stricter credit bar, and lower scores face expensive PMI |
The mortgage insurance question is where costs split
Mortgage insurance is the single biggest cost difference between the two programs. FHA charges a 1.75% upfront premium (usually financed into the loan) plus an annual premium of 0.55% on most 30-year loans with the minimum 3.5% down (Valley West Mortgage). On a $300,000 loan, that's roughly $5,250 upfront and about $138 a month in ongoing insurance (Valley West Mortgage).
Conventional loans flip the equation. Private mortgage insurance (PMI) applies only when you put down less than 20%, and its rate is set by your credit score and down payment rather than a single government figure (Reach Home Loans). A borrower with a 760+ score and 5% down typically pays around 0.48% a year, while a borrower in the 640–659 band on the same loan faces about 1.55% — the same home, nearly triple the monthly insurance (Capital Home Mortgage).
Why FHA insurance is friendlier to lower credit scores
The reason FHA tends to win for buyers below 680 is that FHA's annual premium is the same whether your score is 580 or 780 — it's priced by down payment, not credit (Valley West Mortgage). Conventional PMI is the opposite: insurers raise the rate sharply as credit drops, with the steepest jump below a 740 and again below 660 (Capital Home Mortgage).
For a strong-credit buyer, that cuts the other way. Someone with a 760+ score pays less in PMI than in FHA's 0.55% MIP, and that conventional insurance also goes away — so the long-term advantage for good credit is real (Capital Home Mortgage).
Credit requirements: where the qualifying bar differs
FHA is built for flexibility. You can qualify with a 580 credit score for the 3.5% down payment, and scores as low as 500 are possible with a 10% down payment (Lower). Conventional loans carry a higher bar — a 620 minimum is the typical floor, with most lenders preferring 640 or higher and the best rates going to buyers at 740 and above (Altitude Home Loans).
The practical takeaway: if your score sits in the mid-600s, an FHA loan can still get you into a home at 3.5% down, while the same credit on a conventional path means a bigger down payment and expensive PMI.
Down payment options and local loan limits
Both programs let you buy with a small down payment, which matters in a market where saving 20% can take years. FHA allows 3.5% down with a 580+ score; conventional programs like HomeReady and Home Possible allow 3% down for qualified first-time buyers, though 5% is the more common standard (Altitude Home Loans).
For Bloomington and every other Indiana county, the 2026 FHA ceiling is $541,287 for a single-family home — comfortably above the typical local purchase price (Lower). The conventional conforming baseline is $832,750, and Indiana's Monroe County sits at that standard level rather than a high-cost ceiling (Valley West Mortgage). For most homebuyers in Monroe County, the loan limit isn't the deciding factor — but it's worth knowing you have headroom either way.
Here's the equity math that tips most local decisions. On a roughly $300,000 home with 3.5% down, an FHA loan carries about $138 a month in mortgage insurance that stays for the life of the loan (Valley West Mortgage). A conventional buyer with a 760+ score and 5% down pays closer to $152 a month in PMI on the same home — but can request its removal at 20% equity, while the FHA premium never drops on its own (Capital Home Mortgage). The crossover is the equity gap: FHA insurance ends at 11 years only with 10% down, whereas conventional ends whenever you reach 20% equity.
Where each loan genuinely falls short
No honest comparison hides the tradeoffs. FHA's main weakness is that its mortgage insurance rarely goes away on its own — with under 10% down, the 0.55% premium runs for the life of the loan, and the only ways to remove it are to refinance into conventional or sell (Valley West Mortgage). It also carries a 1.75% upfront fee that you usually finance, adding interest cost over time (AmeriSave).
Conventional's weakness is the flip side: it's harder to qualify for and punishing at lower credit scores. Below roughly 680, PMI rates climb fast enough that FHA's flat premium is often the cheaper monthly choice, and a score in the 620s can push the conventional payment well above the FHA equivalent (Capital Home Mortgage). Strong-credit buyers dodge this, but it's the reason the "conventional is always better" advice falls apart.
Choose an FHA loan if you…
Have a credit score below 680 and want to buy with 3.5% down (Altitude Home Loans)
Don't have 10% or more saved for a down payment
Carry higher debts, since FHA is often more forgiving on debt-to-income
Plan to refinance to conventional once you've built equity and improved credit
Choose a conventional loan if you…
Have a credit score of 720 or higher
Can put 5% or more down, ideally toward 20% to skip PMI entirely
Want mortgage insurance you can cancel at 20% equity rather than a lifetime premium
Plan to hold the home long-term, so the removable insurance saves the most
Many Bloomington buyers start on an FHA loan to get in sooner, then refinance into conventional once they've reached 20% equity — a strategy that trims the long-term insurance cost without delaying the purchase (Altitude Home Loans).
1Can I remove mortgage insurance from either loan?
Yes, in most cases. Once you reach 20% equity, you can request PMI removal in writing; it also ends automatically at 78% loan-to-value. FHA mortgage insurance, by contrast, does not drop off on its own when you put down under 10% — removing it means refinancing to a conventional loan.
2Which loan needs the smallest down payment?
FHA allows a 3.5% down payment with a 580 credit score; conventional programs like HomeReady and Home Possible allow 3% down for qualified first-time buyers, though 5% is more typical. If your score is below about 680, FHA's flat insurance premium is usually the cheaper route.
3How do I decide when I qualify for both?
If a buyer can qualify for both, run the full picture — monthly payment, upfront cost, and how long insurance lasts. A strong-credit buyer at 720+ with 5% down usually pays less and can cancel PMI on conventional. A buyer below 680 usually finds FHA cheaper. Most lenders can model both same-day.
Get the right answer for your situation
The right loan depends on your credit, your savings, and how long you plan to stay in the home — not on a general rule. If you're looking in Bloomington, Monroe County, or elsewhere in Southern Indiana, I can run the FHA and conventional numbers side by side for your specific situation and help you see which one fits.
If you have questions about which mortgage makes sense for you, reach out — I'm here to help you sort through it, no pressure and no obligation. Dan Smith | Senior Loan Officer | Ruoff Mortgage — https://ruoff.com/dansmith
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