When you’re preparing to buy a home, choosing the right mortgage is one of the most important decisions you’ll make. For many homebuyers, the choice often comes down to two major options: Conventional vs. FHA loans.
Both loan types have unique benefits—and potential drawbacks—depending on your credit score, income, down payment savings, and long-term goals.
Here are the differences between Conventional loans and FHA loans.
First-time homebuyers discussing FHA vs. Conventional mortgage options
An FHA loan is a government-backed mortgage insured by the Federal Housing Administration. It was designed during the Great Depression to help people with limited financial means become homeowners.
Today, FHA loans remain a popular choice for first-time homebuyers, those with low credit scores, and people who don’t have a large down payment saved.
Lower Credit Score Requirements
FHA accepts credit scores as low as 500 (with 10% down).
With a credit score of 580 or higher, you can qualify with just 3.5% down.
Ideal for buyers recovering from past financial challenges (bankruptcy, collections, etc.).
Low Down Payment
Put down as little as 3.5%, compared to the typical 5%–20% required for Conventional loans.
Flexible Debt-to-Income (DTI) Ratios
FHA allows DTI ratios up to 57%, depending on your credit and compensating factors.
Easier Qualification Standards
More forgiving when it comes to past delinquencies, gaps in employment, or lower income levels.
Streamline Refinance Option
FHA offers a quick refinance process with reduced documentation and no appraisal in some cases.
Mortgage Insurance Is Required
Includes an Upfront Mortgage Insurance Premium (UFMIP) of 1.75% of the loan amount which is financed into the loan.
Plus a monthly MIP payment, usually for the life of the loan unless you refinance into a Conventional loan later.
Property Must Meet FHA Guidelines
FHA appraisals are stricter and require homes to be in safe, livable condition.
Not ideal for fixer-uppers unless using an FHA 203(k) rehab loan.
Loan Limits Apply
FHA has regional loan caps. For 2025, the national limit is around $498,257 for a single-family home (higher in high-cost areas).
Primary Residence Only
FHA loans can only be used to buy or refinance owner-occupied homes.
FHA loan options with low down payment and credit requirements
A Conventional loan is a mortgage not insured by the federal government. Most Conventional loans conform to guidelines set by Fannie Mae and Freddie Mac and are offered through private lenders.
They’re a great fit for buyers with strong credit, steady income, and the ability to put down more money upfront.
No Mortgage Insurance With 20% Down
If you put down 20% or more, you can avoid monthly private mortgage insurance (PMI).
PMI can also be removed once you build 20% equity in the home.
Lower Long-Term Costs
Conventional loans often have lower total cost of borrowing if you can qualify for better rates and avoid mortgage insurance.
Higher Loan Limits
For 2025, the conforming loan limit is around $766,550 (higher in high-cost areas).
For properties above that limit, you can apply for jumbo loans.
Use for Second Homes or Investment Properties
Unlike FHA, Conventional loans are available for vacation homes and rental properties.
More Loan Program Options
Fixed-rate and adjustable-rate options.
Specialty programs for professionals (doctors, teachers, etc.) or high-income borrowers.
Stricter Credit Score Requirements
Minimum required credit score is usually 620.
For the best rates, a score of 740+ is ideal.
Higher Down Payment for Some Borrowers
First-time buyers can qualify with 3% down, but most loans require at least 5%.
Tighter Debt-to-Income Limits
Standard DTI cap is around 43%, although some lenders may allow more with strong compensating factors.
More Documentation and Underwriting
May require more thorough financial vetting, especially for self-employed borrowers.
New suburban home just sold.
Feature
Minimum Credit Score
Minimum Down Payment
Mortgage Insurance
Loan Purpose
Debt-to-Income Ratio (DTI)
Property Standards
FHA Loan
500-580
3.5% (580+ score)
Required (MIP)
Primary Residence Only
More Flexible
Strict FHA Appraisal Guidelines
Conventional Loan
620+
3-5% or 20% to avoid PMI
Required under 20% down
Primary, Second, Investment
Stricter
Standard market appraisal
Your credit score is under 620
You have limited savings for a down payment
You’re a first-time buyer or have past credit issues
You need flexible qualification on income or DTI
You have strong credit and steady income
You want to avoid mortgage insurance
You’re buying a second home or investment property
You want more long-term savings over the life of the loan
Conventional vs. FHA Loans
The decision between Conventional vs. FHA loans comes down to your financial picture and future goals.
If you’re a first-time homebuyer with a lower credit score or small down payment, FHA loans offer an easier path to homeownership.
If you have good credit and are aiming to build long-term equity with less cost, a Conventional loan could be the smarter move.
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There’s no one-size-fits-all answer. FHA loans are better for borrowers with low credit scores or limited savings. Conventional loans are often a better long-term choice if you have strong credit and can afford a higher down payment, as they may offer lower overall costs.
Yes. Many borrowers refinance their FHA loan into a Conventional loan later, especially to remove monthly mortgage insurance (MIP) once they build enough equity.
Only if your down payment is less than 20%. This is called Private Mortgage Insurance (PMI). The good news is that PMI on a Conventional loan can be canceled once you reach 20% equity, unlike FHA loans where MIP often lasts the life of the loan.
You can qualify for an FHA loan with a credit score as low as 500 (with a 10% down payment). If your score is 580 or higher, you may only need to put down 3.5%.
Most Conventional lenders require a minimum credit score of 620. For the best interest rates and lowest PMI, a score of 740+ is preferred.
Yes. Conventional loans allow you to finance primary residences, vacation homes, and even investment properties. FHA loans are only available for primary residences.
No, neither FHA nor Conventional loans have income limits. However, your income must be sufficient to meet debt-to-income (DTI) ratio guidelines for the loan type you’re applying for.
No. While FHA loans are popular with first-time buyers, they are available to anyone who meets the credit, income, and down payment requirements. You can use an FHA loan even if you’ve owned a home before.
Yes. Both FHA and Conventional loans allow borrowers with student loan debt, though the way that debt is calculated into your DTI ratio differs. FHA is often more flexible if your payments are deferred or income-based.
The biggest difference is government insurance. FHA loans are backed by the federal government and allow more flexible credit and income requirements. Conventional loans are privately backed, typically for borrowers with stronger credit profiles and higher down payments.
Chris Luis
Chris is the owner of Mortgage-World and loan officer as well. Chris has over 20 years experience in the mortgage industry. See full bio.
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