Most people assume conventional is the “better” loan and FHA is what you settle for when you can’t qualify for anything else. After originating both for years, I can tell you that’s backwards more often than it’s right.
Minimum credit score
Two numbers decide which doors open — and one detail most buyers learn too late.
FHA's published floor is a 500 credit score with 10% down, or 580 with the minimum 3.5% down. Conventional financing generally stops at 620.
One thing worth knowing before you shop: those are FHA's rules, not necessarily your lender's. Most lenders add their own overlays on top and won't go below 580, and plenty won't go below 620 even on FHA. If you're in the 500s, the loan is possible, but you need a lender who writes to FHA's published guidelines rather than a stricter internal standard. Ask about that on the first call instead of finding out three weeks into the process.
FHA requires 3.5% down with a 580 or higher score.
Conventional can technically go lower through first-time buyer programs, but those come with income limits and other restrictions a lot of buyers don't meet. In practice, most conventional borrowers are looking at 5%.
There's a second difference that matters more than the percentage: FHA is far more permissive about where the money comes from. The entire down payment can be a gift from a family member. Conventional programs allow gift funds too, but with tighter documentation and, in some cases, a required minimum contribution from the borrower's own funds. If family is helping, FHA is usually the smoother path.
Pricing & Risk
Mortgage insurance is the single most misunderstood part of this comparison, so let’s take it apart properly.
FHA Upfront MIP
FHA Annual MIP
Conventional PMI
Where that leaves you
Put those two together and the pattern is clear:
The crossover point isn’t a hard line, and it moves with the specific numbers. But that’s the shape of it, and it’s why a blanket “conventional is better” is bad advice.
Long-Term Costs
Unless you’re putting 20% down with strong credit, don’t rule out FHA.
Get quoted both ways, and compare the total monthly payment rather than the interest rate alone. The rate is the number everyone fixates on and it’s frequently the wrong one. A conventional loan with a lower rate and expensive PMI can cost more every month than an FHA loan with a slightly higher rate and cheap MIP. The only way to know is to see both side by side, with the mortgage insurance included.
Some sellers still believe FHA offers are riskier, largely because of appraisal requirements around property condition. In a competitive market this can matter. A strong pre-approval letter and a responsive lender go a long way toward addressing it.
Yes, and it's one of the most common reasons FHA borrowers refinance. Once you have roughly 20% equity and a qualifying credit score, refinancing into a conventional loan eliminates mortgage insurance permanently.
No. FHA has no income limits. Some conventional low-down-payment programs do.
Yes, up to four units, as long as you occupy one of them as your primary residence. Loan limits increase with the unit count, and rental income from the other units can often help you qualify.
The annual premium doesn't vary by credit score, which is exactly what makes it competitive for borrowers with weaker credit. It does vary by loan term, loan amount, and loan-to-value.
In practice they're comparable. FHA appraisals include additional property condition requirements that can add time if repairs are needed, but the underwriting timeline is similar.
Ready when you are
