Pick FHA if your credit score is below 620 or you can only manage a 3.5% down payment — the program's 580-score, low-down-entry rules exist precisely for that situation. Pick conventional if you have a 620+ score and can put 10% or more down, because private mortgage insurance (PMI) drops off once you hit 20% equity, while FHA's mortgage insurance premium can last the life of the loan. After more than a decade of writing these loans at a credit union, the pattern I see is consistent: borrowers who pick the path that matches their credit and down payment today end up far better off than those who chase the 'best' loan in the abstract.
Decision Matrix: Which Loan Fits Your Profile?
The table below maps the two programs against the concerns that actually decide a purchase — not vendor features. Find your situation, then read the sections that follow for the details behind each row. The row that matters most is insurance drop-off: FHA never lets its annual premium go away on a loan with less than 10% down, while conventional sheds PMI at 20% equity — that single difference drives most of the long-term cost gap.
Buyer concern | FHA | Conventional |
|---|---|---|
Minimum credit score | 580 with 3.5% down; 500 with 10% down | 620 in most cases |
Minimum down payment | 3.5% (or 10% below a 580 score) | 3% for first-time buyers, 5% for repeat |
Mortgage insurance | 1.75% upfront plus an annual premium of 0.15%–0.75% | PMI of 0.58%–1.86% annually until 20% equity |
Does insurance ever drop off? | No, if you put down under 10% | Yes, cancel at 20% equity |
Best for | First-time buyers, credit rebuilders, low-savings buyers | Strong-credit buyers, investors, second-home buyers |
Main limitation | Lifetime mortgage insurance premium on low-down loans | Stricter 620 credit gate and higher PMI cost at low down payments |
These figures come from the 2026 minimum requirements comparison covering all four major loan programs at a glance. A 3% down payment on conventional is reserved for first-time buyers, while repeat buyers typically start at 5% (AD Mortgage).
The FHA Path: Low Entry, But Insurance for Life
An FHA loan is a mortgage insured by the Federal Housing Administration (FHA), a government agency that guarantees lenders against loss if you default. You don't borrow from the FHA directly — you apply through an FHA-approved lender, and that guarantee is what lets lenders accept lower credit scores and smaller down payments than they would otherwise (Lower Mortgage).
The headline draw is the 3.5% down payment. A credit score of 580 or higher qualifies you for maximum financing at 3.5% down; scores from 500 to 579 are generally limited to 90% loan-to-value, meaning at least 10% down. Scores below 500 aren't eligible under FHA's standard policy at all. Those thresholds come straight from FHA policy (Lower Mortgage).
That generous entry comes with a permanent catch. FHA requires an upfront mortgage insurance premium of 1.75% of the loan amount, which can be rolled into the loan, plus an annual premium that runs 0.15% to 0.75% (LendingTree). If your down payment is under 10%, that annual premium lasts the life of the loan — it never drops off the way conventional PMI does (Lower Mortgage).
FHA also lets you carry more debt. Because of the government backing, FHA manual underwriting allows higher debt-to-income ratios — up to 40% housing / 50% total debt with two compensating factors for borrowers at 580+ — than conventional typically permits (Lower Mortgage).
Mini-verdict: FHA wins on accessibility. If a 580 score and a 3.5% down payment are your realistic entry point, the lifetime MIP is a price worth paying to get in — but plan to refinance into conventional once your equity and credit improve.
The Conventional Path: Stronger Buyers Pay Less Over Time
A conventional loan is a mortgage not backed by any government agency. Most conforming conventional loans follow the guidelines of Fannie Mae and Freddie Mac — the two government-sponsored enterprises that buy and package these loans — which is why they're the most popular mortgage option in the country (LendingTree).
The standard credit gate is a 620 score. Conventional guidelines generally require a minimum 620, and you'll get the best interest rates and lowest PMI with a 780 or higher. Note that lenders apply their own 'overlays' on top of Fannie and Freddie's baseline — some may demand 640 or 660 — so the published minimum is a floor, not a promise (AD Mortgage).
Down payments start at 3% for first-time buyers. Fannie Mae's HomeReady and Freddie Mac's Home Possible programs let qualified first-time buyers put as little as 3% down, though repeat buyers typically start at 5%. Put 20% or more down and you avoid private mortgage insurance (PMI) entirely (AD Mortgage).
When you do carry PMI — which you must if your down payment is under 20% — it costs roughly 0.58% to 1.86% of the loan amount annually, translating to about $30 to $70 per $100,000 borrowed (LendingTree). The key difference from FHA: PMI automatically drops off once you reach 20% equity. You can also request cancellation earlier as your loan-to-value improves, which is why conventional loans get cheaper the longer you hold them.
Conventional loans are also far more flexible on property type. Unlike FHA, which is limited to a primary residence, conventional financing allows second homes and investment properties (LendingTree).
Mini-verdict: Conventional rewards strength. If you clear 620 and can put 10% or more down, the ability to shed PMI at 20% equity usually makes it the cheaper long-term loan — and it's the only way to finance an investment property.
Where Each Loan Genuinely Falls Short
No honest comparison hides the downside. For FHA, the single biggest long-term cost is the lifetime mortgage insurance premium on any loan with less than 10% down. That 0.15%–0.75% annual charge never leaves your payment, so a borrower who stays in the home for years pays insurance long after a conventional borrower would have shed PMI. FHA is also locked to a primary residence — you can't use it for an investment property or second home (LendingTree).
For conventional, the weakness shows up at the low end of the market. PMI gets expensive fast when your down payment is small — at the 3% level the annual premium can run toward the top of the 0.58%–1.86% range, which can actually make FHA the cheaper monthly payment for a weak-credit, low-down borrower (LendingTree). A 620 score is also a gate that many first-time buyers simply don't clear. And because conforming limits cap at $832,750 in most counties, anything above that is a jumbo loan with stricter underwriting and larger reserve requirements (LendingTree).
The pattern is clear: FHA's weakness is the tail (lifetime insurance), while conventional's weakness is the head (steeper entry). Choose accordingly.
Making the Choice: Match the Loan to Your Situation
Choose FHA if… you have a score between 580 and 619, your savings cover only a 3.5% down payment, or you're rebuilding credit after a rough stretch. The 10%-or-lower-down path is designed for exactly these buyers, and the higher DTI allowance means you can qualify for more home on a modest income. Just know the MIP is yours for the life of the loan and plan a refinance once your credit and equity improve.
Choose conventional if… you have a 620+ score, can put at least 10% down (ideally 20% to skip PMI entirely), or you're buying an investment property or second home, which FHA doesn't allow. Even at 3% down, if your credit is strong the PMI will be modest and will drop off at 20% equity — the financially better long-term outcome.
The credit rebuilder's playbook: if your score sits below 580, FHA is effectively your only insured option right now. Rather than force a loan, consider a short season of credit repair — the higher your score, the better your rate and the lower your insurance premium, and that compounds into a much smaller payment (Lower Mortgage).
The credit rebuilder's playbook: if your score sits below 580, FHA is effectively your only insured option right now. Rather than force a loan, consider a short season of credit repair — the higher your score, the better your rate and the lower your insurance premium, and that compounds into a much smaller payment (Lower Mortgage). And if your score sits in the 500–579 band but you only have 3.5% saved, the realistic route is a co-borrower with stronger credit — on your own you'd need 10% down to qualify.
The right loan isn't about which program is 'better' in the abstract. It's about where you sit on the credit and down-payment spectrum right now — and where you plan to be in five years. If you're shopping in a high-cost county and a home runs past the $832,750 conforming limit, ask your lender about the $1,249,125 FHA high-cost cap before assuming you need a jumbo loan (LendingTree).
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