FHA vs. Conventional Loan: Which Is Right for You? [2026 Comparison]
Understanding the FHA vs conventional loan differences is essential before you start house hunting.
Quick answer: Choose an FHA loan if your credit score is below 680 or your down payment is under 5% — you’ll get more lenient qualification requirements and competitive rates. Choose a conventional loan if your credit is 680+ and you can put 5–20% down — you’ll avoid permanent mortgage insurance and potentially save tens of thousands over the life of the loan.
The FHA vs conventional loan decision is the single most common question we hear at Integrity Home Lending: “Should I go FHA or conventional?” The answer depends on your specific situation, and getting it wrong can cost you thousands. Here’s everything you need to know to make the right call.
FHA vs Conventional Loan at a Glance
| Feature | FHA Loan | Conventional Loan |
|---|---|---|
| Minimum Credit Score | 580 (3.5% down) or 500 (10% down) | 620 minimum, 680+ for best rates |
| Down Payment | 3.5% minimum | 3% minimum (5% more common) |
| Mortgage Insurance | Required for life of loan (MIP) | Drops off at 20% equity (PMI) |
| Upfront Fee | 1.75% upfront MIP | None |
| Debt-to-Income Ratio | Up to 57% (with compensating factors) | Up to 50% (typically 45%) |
| Loan Limits (2026) | $524,225 (most areas) | $806,500 (most areas) |
| Property Standards | Stricter appraisal requirements | Standard appraisal |
| Gift Funds for Down Payment | 100% allowed | Allowed with restrictions |
When to Choose an FHA Loan
An FHA loan is backed by the Federal Housing Administration and designed specifically for borrowers who might not qualify for conventional financing. Choose FHA if:
- Your credit score is between 580 and 679. FHA lenders are significantly more forgiving of lower credit scores and past credit events like bankruptcies or foreclosures.
- You have a limited down payment. FHA requires just 3.5% down, and that entire amount can come from gift funds — parents, family, or even employer assistance programs.
- You have higher debt-to-income ratios. FHA allows DTI ratios up to 57% with compensating factors, giving you more borrowing power.
- You’re a first-time homebuyer. FHA was literally built for you. The lower barriers to entry make homeownership accessible while you’re still building credit and savings.
The FHA Trade-Off: Mortgage Insurance
The biggest downside to FHA is the mortgage insurance premium (MIP). You’ll pay two types:
- Upfront MIP: 1.75% of the loan amount, typically rolled into the loan
- Annual MIP: 0.55% of the loan amount per year, paid monthly
On a $250,000 loan, that’s $4,375 upfront plus about $115/month. And here’s the kicker — FHA mortgage insurance never goes away unless you refinance into a conventional loan. This is the single biggest reason many borrowers transition from FHA to conventional once they’ve built equity. This is a key FHA vs conventional loan consideration for buyers with limited savings.
When to Choose a Conventional Loan
A conventional loan isn’t backed by the government, which means stricter qualification standards but better long-term economics. Choose conventional if:
- Your credit score is 680 or higher. You’ll qualify for competitive rates that rival or beat FHA rates, without the permanent mortgage insurance.
- You can put 5% or more down. Conventional PMI rates are tiered by credit score and down payment — with strong credit and 10%+ down, your PMI will be significantly less than FHA MIP.
- You want mortgage insurance to go away. Once you hit 20% equity, you can request PMI cancellation. It automatically drops at 22%. This saves most borrowers $150–$250/month in the later years of their loan.
- You’re buying a higher-priced home. Conventional conforming limits ($806,500 in 2026) are much higher than FHA limits.
Not Sure Which Loan Is Right for You?
Here’s the truth: the “right” loan depends on where you are today and where you’re headed. At Integrity Home Lending, we don’t push one product over another. We run your numbers through both programs and show you the real cost of each option over 5, 10, and 30 years.
FHA vs Conventional Loan Cost: Real Numbers on a $300,000 Home
Let’s make this concrete. Here’s what a $300,000 home actually costs with each loan type for a borrower with a 660 credit score:
| Cost | FHA (3.5% down) | Conventional (5% down) |
|---|---|---|
| Down Payment | $10,500 | $15,000 |
| Loan Amount | $289,500 + $5,066 MIP = $294,566 | $285,000 |
| Monthly Payment (P&I) | ~$1,862 | ~$1,802 |
| Monthly Mortgage Insurance | ~$135 (forever) | ~$180 (drops at 20% equity) |
| Total Monthly | ~$1,997 | ~$1,982 (then drops to ~$1,802) |
| Total Cost (30 years) | ~$718,920 | ~$681,720 |
*Assumes 6.5% rate. Conventional PMI drops after ~7 years. Actual costs will vary — get your personalized comparison.
That’s a $37,200 difference over the life of the loan. But notice — the FHA loan requires $4,500 less upfront. If cash is tight today, FHA gets you in the door. The smart play is often to start with FHA, build equity, then refinance into a conventional loan once your credit improves and you’ve hit 20% equity. Running an FHA vs conventional loan cost comparison with your actual numbers is the best way to decide.
The “Start FHA, Refinance to Conventional” Strategy
This is one of the most powerful plays in mortgage planning, and it’s something we help borrowers execute at Integrity Home Lending regularly:
- Year 1: Buy with FHA at 3.5% down, lower credit requirements
- Years 1–3: Make on-time payments, pay down debt, boost your credit score
- Year 3–5: Refinance into a conventional loan, eliminate mortgage insurance, potentially secure a lower rate
The result? You get into a home now rather than waiting years to save a bigger down payment or improve your credit — and you save money in the long run by eventually dropping that permanent FHA mortgage insurance.
Other Loan Options Worth Considering
FHA and conventional aren’t your only choices:
- VA Loans: If you’re a veteran or active-duty military, VA loans offer 0% down and no mortgage insurance. This is almost always the best option if you qualify.
- Adjustable-Rate Mortgages (ARMs): If you plan to sell or refinance within 5–7 years, an ARM can offer significantly lower initial rates.
- Non-QM Loans: Self-employed? Bank statement loans and other non-QM products can work when traditional income verification doesn’t reflect your true earning power.
FHA vs Conventional Loan FAQ
Can I switch from FHA to conventional without refinancing?
No. To move from FHA to conventional, you need to refinance. The good news is that if rates have improved or your credit has gone up, you may also get a better rate in the process — a double win.
Is FHA only for first-time buyers?
No. FHA loans are available to anyone, regardless of whether they’ve owned a home before. However, FHA is especially popular with first-time buyers because of its lower credit and down payment requirements. The FHA vs conventional loan question often comes down to your credit profile.
Which has lower closing costs, FHA or conventional?
Closing costs are similar for both, typically 2–5% of the loan amount. However, FHA adds a 1.75% upfront mortgage insurance premium, which increases the total cost. Many borrowers roll this into the loan to avoid paying it out of pocket. Understanding the FHA vs conventional loan trade-offs helps you save thousands over the life of your mortgage.
Can I use an FHA loan to buy an investment property?
No. FHA loans are for primary residences only. If you’re looking to buy an investment property, you’ll need a conventional loan or an investor loan product.
Let Us Run the Numbers for You
We’ll compare FHA vs. conventional side-by-side with your real credit score, income, and down payment. No sales pitch — just clarity.
Or call us directly: 877-445-3631
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