Choosing between an FHA loan and a conventional loan is one of the most common decisions homebuyers face. Both are solid options, but they serve different borrower profiles. Here's a straightforward comparison to help you decide.
Down Payment
FHA: Minimum 3.5% down with a credit score of 580+. With a score of 500-579, you'll need 10% down.
Conventional: Minimum 3% down for first-time buyers (through programs like Fannie Mae HomeReady or Freddie Mac Home Possible). Standard conventional loans typically require 5% down.
Credit Score Requirements
FHA: More lenient. You can qualify with a score as low as 500 (with 10% down) or 580 (with 3.5% down). FHA is designed for borrowers who are still building credit or recovering from past credit issues.
Conventional: Generally requires a 620 minimum, though the best rates start at 740+. Higher credit scores are rewarded with significantly better pricing.
Mortgage Insurance
This is where the difference matters most:
FHA: Requires both an upfront mortgage insurance premium (1.75% of the loan amount, usually rolled into the loan) AND a monthly mortgage insurance premium (MIP) for the life of the loan if you put less than 10% down.
Conventional: Requires private mortgage insurance (PMI) only if you put less than 20% down. The key advantage: PMI is automatically removed once you reach 78% loan-to-value, and you can request removal at 80%.
Loan Limits
FHA and conventional loans both have county-specific limits. In high-cost areas like the San Francisco Bay Area, these limits are higher. Conventional loans offer "jumbo" options above conforming limits, while FHA limits are fixed.
Which Should You Choose?
Choose FHA if: Your credit score is below 680, you have a limited credit history, or you're recovering from a financial setback. FHA is also good for buyers with higher debt-to-income ratios.
Choose Conventional if: Your credit score is 680+, you can put 10-20% down, or you want to avoid permanent mortgage insurance. Conventional loans generally offer lower total costs for borrowers with strong credit.
Let Us Help You Compare
As a mortgage broker, we can run your scenario through both FHA and conventional programs side by side and show you the real numbers — monthly payment, total cost over time, and how quickly you build equity. See our FHA, USDA & VA loan programs for details, or get your comparison with no obligation.
Simonich Financial, Inc. dba SiFi Lending | NMLS #2563307 | Licensed Mortgage Broker | Equal Housing Opportunity. SiFi Lending arranges financing through third-party lenders and does not make direct loans. This article is for informational purposes only and does not constitute a commitment to lend or a guarantee of any specific terms. All loan programs are subject to borrower qualification, credit approval, and property eligibility.