A $380,000 house in Columbus. Two buyers, both with 720 credit scores and about $30,000 saved. One takes an FHA loan, the other goes conventional. Six years later the conventional buyer’s monthly payment has dropped by roughly $180 because the mortgage insurance fell off. The FHA buyer is still paying it — and will be for another 24 years unless they refinance.
Same house. Same price. Same credit score. That gap is what the FHA loan vs conventional loan question is really about. Both programs are widely available, both will get you into a home, and both have reasonable rates. The differences hide in mortgage insurance rules, credit floors, property standards, loan ceilings, and how much freedom you have after closing.
Two different animals, one shared goal
An FHA loan is insured by the Federal Housing Administration. The government isn’t lending you money — a normal bank or credit union is — but the FHA promises to cover the lender’s loss if you default. That insurance is why lenders accept 3.5% down and 580 credit scores.
A conventional loan has no government guarantee. It’s a standard mortgage that gets sold to Fannie Mae or Freddie Mac once it closes, which is why the rules are written by those two entities rather than by Congress. Conventional loans have their own low-down-payment options, and if you put 20% down you skip mortgage insurance entirely.
Down payment: 3.5% versus 3%
The FHA’s 3.5% minimum is the number everyone quotes, and it’s real. On that $380,000 house it means $13,300 down. Conventional has quietly beaten it for years — Fannie Mae’s HomeReady and Freddie Mac’s Home Possible programs both allow 3% down for first-time buyers, or $11,400 on the same house. Some lenders run their own 3% conventional programs with no first-time-buyer requirement at all.
So why does FHA feel cheaper? Because the credit and debt-to-income math is more forgiving. A buyer with a 600 score and a 48% debt-to-income ratio will usually sail through FHA and get turned down for the 3% conventional. If you’re on the edge of qualifying, that half-point of extra down payment is irrelevant next to being denied. There’s a fuller breakdown of how down payment and credit score interact across both loan types if you want to model your own numbers.
The credit score floor, and why it costs more than it looks
FHA insures loans down to a 580 score with 3.5% down, and between 500 and 579 if you bring 10% down. Conventional generally wants 620, with most lenders pricing their best rates at 740 and above.
The catch is how each program prices risk. FHA charges roughly the same mortgage insurance rate whether your score is 600 or 780 — in most cases 0.55% of the loan amount per year. Conventional loan-level pricing adds hits for lower scores and smaller down payments. A 640-score borrower often pays less all-in on FHA. A 760-score borrower almost never does.
Mortgage insurance is where the real difference lives
This is the part that decides the winner in most comparisons, and it’s the part buyers understand least.
FHA charges a 1.75% upfront mortgage insurance premium, which is usually rolled into the loan balance, plus an annual premium — 0.55% for most loans with 3.5% down. On a $366,700 base loan amount that’s about $2,017 a year, or $168 a month. Here’s the sting: that annual premium stays for the life of the loan unless you put at least 10% down, in which case it drops off after 11 years. Refinancing is the only exit.
Conventional private mortgage insurance works differently. It’s cancellable once you reach 80% loan-to-value based on the original value, and the lender must drop it automatically at 78%. On a 3% down loan with steady appreciation, that can happen in four to six years. On a 10% down loan with a strong market, sometimes sooner.
Adding it up over a 30-year horizon, mortgage insurance frequently decides the cheaper loan outright. There’s a detailed side-by-side cost comparison of FHA and conventional mortgages that runs the full amortization, and an honest look at where the FHA’s 3.5% down payment helps and where it quietly costs you.
The house itself has to qualify for FHA
Conventional appraisals are mostly about value. FHA appraisals are about value and condition, because the FHA won’t insure a loan on a house it considers unsafe.
Peeling exterior paint on a pre-1978 home, a missing handrail on a steep staircase, a roof with less than two years of remaining life, exposed wiring, a broken window — any of these can stall a deal until they’re fixed. Sellers sometimes price that in, and sometimes they walk. Condos are trickier still: the entire project needs FHA approval, and the condo approval process is where plenty of FHA deals quietly die. If you’re shopping in a competitive market for a fixer, conventional gives you far more room to negotiate a credit instead of a repair.
Loan limits and multi-unit properties
For 2025, the baseline conforming loan limit is $806,500, rising to $1,209,750 in high-cost counties. FHA’s floor is $524,225, with a ceiling that matches the conventional high-cost number. In most of the country that means conventional covers more house, and in expensive metros FHA’s ceiling caps out at the same figure — so a $950,000 purchase in a mid-cost area is conventional-only.
Where FHA pulls ahead is small multifamily. You can buy a duplex, triplex or fourplex with 3.5% down and live in one unit, which is genuinely hard to match. Here’s how buying a two-family home with 3.5% down works, including the self-sufficiency test for three- and four-unit buildings.
Seller concessions and how your offer reads
FHA allows the seller to cover up to 6% of the price in closing costs, every time. Conventional caps it at 3% once your down payment is under 10%, and 6% between 10% and 25%. For a cash-tight buyer, that extra 3% can cover an entire closing.
The flip side is perception. In a bidding war, some listing agents still steer sellers away from FHA offers because of the appraisal conditions above. It’s less common than it was a decade ago, but it happens.
Which loan fits your situation
- Credit score under 680: FHA usually wins on pricing and approval odds.
- Score of 740 or higher with 5% or more down: conventional wins, often by $100–$200 a month once PMI drops off.
- Buying a condo: check the project’s FHA approval before you fall in love with it.
- Buying a duplex to house-hack: FHA’s 3.5% down is hard to beat.
- Planning to refi within five years: FHA’s lifetime premium matters less.
- Buying a fixer with visible deferred maintenance: conventional avoids the appraisal surprises.
Ask your lender these four questions before you commit
First: what is my total monthly payment including mortgage insurance, taxes and insurance — not just principal and interest? Second: for the FHA option, will this loan’s annual premium ever come off, and if so, when? Third: for the conventional option, at what projected home value or balance does my PMI cancel? Fourth: what would my rate and payment look like if I waited six months to raise my credit score by 40 points?
Get those four answers in writing from two different lenders and the FHA versus conventional decision stops being abstract. One of the two quotes will be meaningfully cheaper over the years you actually plan to own the house, and it isn’t always the one with the lower rate on page one.