FHA vs. Conventional Loan: Which Should You Choose?
An FHA loan requires just 3.5% down and accepts credit scores from 580, but charges mortgage insurance for the life of the loan. A conventional loan requires 3-5% down with a 620+ credit score, but PMI cancels at 20% equity — saving thousands over time. FHA is generally better for buyers with lower credit scores or limited savings. Conventional is better for buyers with 680+ scores who want to eliminate mortgage insurance sooner.
Key Facts
When FHA Is the Better Choice
Choose FHA if your credit score is below 680, you have limited savings for a down payment, or you have a higher debt-to-income ratio. FHA's flexible guidelines make homeownership accessible to borrowers who may not qualify for conventional financing. The trade-off is permanent mortgage insurance — but for many first-time buyers, getting into the home now and refinancing later is the right financial move.
When Conventional Is the Better Choice
Choose conventional if your credit score is 680 or above and you can put down at least 5%. With a strong credit profile, conventional rates are often lower than FHA, and PMI cancels automatically at 20% equity — meaning your payment drops over time. Conventional also offers more property type flexibility, including second homes and investment properties.
The Mortgage Insurance Difference
This is the biggest financial distinction. FHA charges an upfront premium of 1.75% (financed into the loan) plus an annual premium of 0.55% that stays for the life of the loan unless you refinance. Conventional PMI varies by credit score and LTV (typically 0.3%-1.5%) and automatically cancels when you reach 78% LTV. Over 10-15 years, this difference can amount to $10,000-$30,000+ in savings for conventional borrowers.
Can You Switch Later?
Yes. Many borrowers start with FHA to get into their home, build equity, and then refinance into a conventional loan to eliminate the permanent mortgage insurance. This FHA-to-conventional refinance strategy is one of the most common moves in residential lending. We help borrowers evaluate the right timing based on their equity position, credit improvement, and current rates.
FHA vs. Conventional — Full Comparison
Side-by-side for a primary residence purchase
| FHA | Conventional | |
|---|---|---|
| Min. Down Payment | 3.5% (580+ credit) | 3% (620+ credit) |
| Min. Credit Score | 580 (500 w/ 10% down) | 620 |
| Upfront Insurance | 1.75% UFMIP (financed) | None |
| Annual Insurance | 0.55% MIP — life of loan | PMI — cancels at 20% equity |
| Max DTI | Up to 57% | 43–50% |
| Seller Concessions | Up to 6% | 3–9% (varies by LTV) |
| Property Types | Primary only (1–4 unit) | Primary, 2nd home, investment |
| Loan Limit (2026) | Varies by county (floor ~$498K) | $832,750 conforming |
| Best For | Lower credit, limited savings | 680+ credit, PMI cancellation |
Licensed in Oregon & California · NMLS #1498678
From the Blog
Further Reading
Loan TypesFHA vs. Conventional Loans: Which Is Right for You?
These two loan types cover the majority of home purchases in the U.S. — but they work very differently. Here's a side-by-side breakdown to help you make the right call.
First-Time BuyersWhat Credit Score Do You Need to Buy a Home in 2026?
Your credit score is one of the first things lenders look at — but the minimum varies by loan type. Here's a clear breakdown of what's required and how to improve your score before you apply.
OregonOregon First-Time Homebuyer Programs You May Not Know About
Oregon has several programs specifically designed to help first-time buyers get into a home with less money down and better rates. Here's what's available and how to qualify.