FHA vs. conventional loan: which is right for you?
FHA loans are built for buyers with lower credit scores or smaller down payments — they allow down payments as low as 3.5% and are more forgiving on credit, but they carry mortgage insurance (MIP) that, with a low down payment, stays on the loan for its life. Conventional loans start at 3% down, use private mortgage insurance (PMI) that cancels once you reach 20% equity, and reward stronger credit with better pricing. The right choice comes down to your credit profile, how much you can put down, and how long you plan to keep the loan: FHA to get in the door, conventional to minimize long-run insurance cost.
Best for: First-time and credit-building buyers weighing whether FHA's easier entry or conventional's lower long-run insurance cost fits their situation.
The FHA vs. conventional question comes up in virtually every first-time buyer conversation, and the answer isn't always obvious. Both are legitimate paths to homeownership, but they're designed for different situations. Understanding where each shines — and where each falls short — will help you choose the right tool for your purchase.
Down Payment Requirements
FHA loans require as little as 3.5% down if your credit score is 580 or higher, or 10% down with scores between 500–579. Conventional loans have a 3% down option (HomeReady and Home Possible programs), but those programs have income limits. Without income restrictions, conventional typically starts at 5% down, with 20% being the threshold that eliminates Private Mortgage Insurance (PMI). For a $500,000 home: FHA at 3.5% = $17,500 down. Conventional at 5% = $25,000. But the real comparison needs to include the ongoing costs.
Mortgage Insurance: The Critical Difference
This is where the two programs diverge most dramatically. FHA loans require two forms of mortgage insurance: an Upfront Mortgage Insurance Premium (UFMIP) of 1.75% of the loan amount (typically rolled into the loan), and an Annual MIP that ranges from 0.55% to 1.05% of the loan balance per year, paid monthly. The key issue: FHA mortgage insurance is permanent for the life of the loan if you put less than 10% down. With conventional PMI, once you reach 20% equity — either through appreciation, paydown, or both — the PMI drops off automatically at 22%, or you can request removal at 20%. Over a 5–7 year ownership horizon, this can represent $20,000–$40,000 in savings on a conventional loan.
Credit Score and Underwriting
FHA is more forgiving on credit. Borrowers with scores in the 580–639 range who have been turned down for conventional may still qualify for FHA. FHA also allows higher debt-to-income ratios — up to 57% in some cases vs. 45–50% for conventional. FHA underwriting is also generally more flexible around past derogatory events: a 2-year waiting period after bankruptcy (Chapter 7) vs. 4 years for conventional, and 3 years after foreclosure vs. 7 years conventional.
Loan Limits
FHA loan limits are set by county and change annually. For 2026, the floor is $541,287 for a single-family home in lower-cost areas, and the ceiling is $1,249,125 in high-cost areas like the San Francisco Bay Area. Oregon county limits vary — most counties sit at the $541,287 floor, ranging up to about $701,500 in the Portland metro (Multnomah, Washington, Clackamas) and $762,450 in Hood River County. Conventional conforming limits are $832,750 for most of the country in 2026, with high-balance limits up to $1,249,125 in designated high-cost markets. For loans above these limits, a jumbo loan is required.
Property Condition Requirements
FHA has stricter property condition standards than conventional. The home must meet HUD's Minimum Property Requirements — things like functioning utilities, no exposed wiring, safe ingress/egress, and a structurally sound roof. This matters in competitive markets: some sellers actively refuse FHA offers because they don't want to deal with repair requirements or potential appraisal issues. Conventional appraisers use Fannie Mae guidelines, which are somewhat more lenient. If you're targeting a fixer-upper or an older home with deferred maintenance, conventional is often the smoother path.
Run the Numbers First
FHA Loan & MIP Calculator
Abstract percentages are easy to read past. Seeing your actual monthly number — principal, interest, and FHA mortgage insurance — is something different. A good loan calculator turns a rate quote into a real budget you can stress-test before you ever talk to a lender.
With our FHA calculator you can model the full picture: vary your purchase price and interest rate, choose any down payment from 3.5% to 20%, and instantly see how each choice affects your monthly payment, total MIP cost, and whether your mortgage insurance cancels at 11 years or stays for the life of the loan. Layer in property taxes and homeowners insurance to arrive at a true all-in monthly budget.
Down payment impact
See how 3.5% vs. 10% vs. 20% affects your MIP rate, monthly payment, and total mortgage insurance cost.
MIP duration
Understand exactly when (or whether) your FHA mortgage insurance cancels — often a $200–$300/mo difference.
All-in monthly budget
Add property taxes and homeowners insurance to get a complete PITIA picture before you start shopping.
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Bottom Line
The right choice depends on your credit profile, available cash, and the property you're buying. For buyers with lower credit scores or limited down payment savings, FHA's flexibility is genuinely valuable. For buyers with solid credit (680+) and the ability to put 5%+ down, conventional usually wins on long-term cost — especially once you factor in the elimination of PMI. Our team at Lumen will run side-by-side projections for your specific scenario so you can see exactly what each path costs over your expected ownership timeline.
