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FHA and conventional loans are mortgages from private lenders, but they differ in who insures the loan, how borrowers qualify, and how long mortgage insurance can last. Neither is automatically cheaper: FHA can be a better fit for a lower credit score or tighter underwriting, while conventional can cost less for a borrower with stronger credit who can cancel PMI or avoid it with a 20% down payment. Compare same-day Loan Estimates for the same home price and down payment—not just the advertised interest rate. This guide covers U.S. FHA-insured purchase loans and conventional conforming loans under Fannie Mae and Freddie Mac rules; lender requirements can be stricter than program rules.
At a glance
| Name | Best for | Key spec | Checked |
|---|---|---|---|
| FHA loan | Buyers who need more flexible credit or underwriting rules | 3.5% down at a decision score of 580 or higher; annual MIP may last for the loan term | November 2026 |
| Conventional conforming loan | Buyers with stronger credit who want a path to remove mortgage insurance, or buyers putting 20% down | Eligible buyers may put 3% down; PMI is generally avoidable at 20% down and cancellable under applicable rules | November 2026 |
What is the difference between an FHA and a conventional loan?
An FHA loan is insured by the Federal Housing Administration, part of HUD; a conventional loan has no government insurance. Both are originated by private lenders. FHA insurance protects the lender against certain losses if the borrower defaults—it does not protect the borrower from foreclosure. On a conventional loan with less than 20% down, the borrower usually pays private mortgage insurance (PMI), which also protects the lender, not the borrower.
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Outbyte PC Repair FREEClear out junk files and repair common Windows errorsFree Scan →Outbyte Driver Updater FREEScan for outdated or missing drivers - takes under a minuteDriver Scan →Both types commonly come in fixed- or adjustable-rate terms, including 15- and 30-year mortgages. FHA financing is for an owner-occupied principal residence, although a borrower can buy a property with up to four units if they live in one. Conventional financing can also be used for a second home or an investment property, subject to the lender’s rules. Low-down-payment conventional options are generally for principal residences.
FHA is not limited to first-time buyers. Repeat buyers can apply if they meet the applicable requirements, but FHA generally cannot be used to buy a vacation home or an investment property. FHA loans are generally assumable by a qualified buyer; most conventional fixed-rate loans have a due-on-sale clause. Assumability may matter when selling, but it should not replace the comparison of insurance and borrowing costs today.
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What credit score do I need for an FHA loan versus a conventional loan?
HUD’s published FHA tiers generally permit a 3.5% minimum down payment at a decision credit score of 580 or higher, or 10% down at 500–579. Below 500, FHA financing is not available under those tiers. Conventional underwriting is more nuanced: Fannie Mae does not set a minimum score for Desktop Underwriter (DU) casefiles, but manual fixed-rate underwriting has a 620 minimum and manual adjustable-rate underwriting has a 640 minimum. Lenders can impose higher minimums on either program.
| Program or underwriting path | Credit-score rule | Down-payment implication |
|---|---|---|
| FHA | 580 or higher | At least 3.5% down |
| FHA | 500–579 | At least 10% down |
| FHA | Below 500 | Not eligible under the stated FHA tiers |
| Fannie Mae conventional, manual fixed-rate underwriting | 620 minimum under the guide | Down payment depends on product eligibility |
| Fannie Mae conventional, manual adjustable-rate underwriting | 640 minimum under the guide | Down payment depends on product eligibility |
| Fannie Mae conventional, DU casefile | No Fannie Mae minimum score requirement stated for DU | DU approval and lender rules still apply |
These are program and agency rules, not a promise of approval. The lender still evaluates the complete application and may set a stricter score floor. A common statement that “conventional starts at 620” reflects the manual fixed-rate floor and many lenders’ overlays, but it does not fully describe DU. Fannie Mae’s current guide says no minimum credit score is required for DU casefiles; a lender can still decline an application that does not meet its own standards or receive acceptable underwriting findings. See Fannie Mae’s credit-score requirements.
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Random freezes, missing sound and display glitches usually trace back to one bad driver. Find and replace yours safely.Free scan · under a minuteFor a $300,000 purchase, the minimum FHA down payment is $10,500 with a qualifying score of at least 580, or $30,000 at a score of 500–579. Those amounts are just the down payment, not closing costs or prepaid expenses, and do not establish that a lender will approve the loan.
How much down payment do I need for an FHA loan?
The usual FHA minimum is 3.5% if the decision credit score is 580 or higher. A score from 500 through 579 generally requires at least 10% down. The down payment can come from an eligible gift when the source and transfer are properly documented, but the lender must verify the funds and apply program rules.
Some conventional buyers can put down less than 3.5%. Fannie Mae’s HomeReady program allows eligible borrowers to finance up to 97% of a home’s value—about 3% down—on qualifying one-unit principal-residence purchases with a fixed-rate mortgage. The borrowers’ total annual qualifying income cannot exceed 80% of the area median income (AMI) for the property location, using Fannie Mae’s AMI figures. For 95.01%–97% loan-to-value (LTV), the transaction must meet other conditions: it is a purchase or limited cash-out refinance, is fixed-rate with a term up to 30 years, is not a high-balance loan, and is underwritten through DU. HomeReady also requires homeownership education for purchase loans when all occupying borrowers are first-time buyers. Details are in Fannie Mae’s HomeReady eligibility guide.
Other 97% conventional programs may be available. Under the conventional 97 rules summarized in the supplied 2026 mortgage guidance, a purchase above 95% LTV generally must have at least one first-time homebuyer unless it is HomeReady or uses a Community Seconds subordinate lien. These products have limits on property type, occupancy, and loan size; they are not a general 3%-down option for every borrower. A lender should confirm which program it is offering and the exact eligibility rules.
On a $300,000 home, 3% down is $9,000 and 3.5% down is $10,500—a $1,500 difference. But the smaller conventional down payment only helps if the buyer qualifies for a 97% program. At 20% down ($60,000), conventional PMI is generally not required; FHA still charges mortgage insurance, though putting at least 10% down can shorten its annual MIP period.
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Which loan has lower monthly costs?
There is no reliable universal winner. Compare principal and interest plus mortgage insurance, then account for upfront costs, the mortgage-insurance end date, and the time you expect to keep the loan. FHA’s monthly MIP can be lower than conventional PMI for a borrower with weaker credit, while conventional can become less expensive when PMI can be removed—or can avoid monthly PMI altogether at 20% down.
FHA mortgage insurance has two components for most borrowers: an upfront premium and annual MIP. For most purchase loans, upfront MIP is 1.75% of the base loan amount and is usually financed into the mortgage. For most 30-year loans with a base amount of $726,200 or less, the annual rate is 0.55% when LTV is above 95%, and 0.50% when LTV is 95% or lower. At original LTV above 90%, annual MIP lasts for the loan term; at 90% or less, it lasts 11 years. The rate schedule cited in 2026 guidance reflects HUD Mortgagee Letter 2023-05. See the published 2026 FHA MIP chart for the broader loan-size and term grid.
The $726,200 breakpoint remains part of the cited 2023 MIP table; it is not the same thing as a current county loan limit. For base loans above that breakpoint, the cited annual rates for terms longer than 15 years are 0.75% above 95% LTV, 0.70% above 90% through 95% LTV, and 0.70% at 90% LTV or less. The respective durations are the loan term, the loan term, and 11 years. Terms of 15 years or less have a separate, generally lower schedule. The exact premium and applicability should be confirmed on the Loan Estimate.
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FHA MIP does not increase simply because the borrower’s credit score is lower. On otherwise identical FHA loans, the score does not change the stated MIP rate. Conventional PMI is priced to the borrower and can vary with credit score, LTV, coverage, insurer, and other underwriting factors. Fannie Mae loan-level price adjustments can also affect the conventional loan’s pricing; those are not the same charge as annual PMI. There is no single official PMI percentage that applies to everyone.
For a simplified example on a $300,000 purchase at 30 years, 3.5% down produces a $289,500 FHA base loan. The 1.75% upfront MIP is $5,066.25; if financed, the starting balance becomes $294,566.25. At a 0.55% annual rate, base loan multiplied by rate divided by 12 gives about $132.69 per month as a rough first-year estimate. Actual MIP is based on the average outstanding balance and the Loan Estimate’s calculation, so the simple figure is slightly high. With 10% down, the base loan is $270,000, upfront MIP is $4,725, and the annual 0.50% rate lasts 11 years rather than the loan term. Moving from 3.5% to 5% down does not end MIP; crossing 10% is the duration threshold for these longer-term loans.
On a conventional loan, PMI is commonly a monthly charge, although some loans use upfront or lender-paid arrangements. A no-monthly-PMI loan with a low down payment may carry a higher interest rate instead. CFPB advises comparing the rate trade-off with what monthly PMI would cost over the years the borrower expects to keep the mortgage. A lender-paid arrangement has different cancellation rules, so ask what is included in the rate and whether the borrower can end the charge.
Is FHA MIP the same as conventional PMI?
No. Both are mortgage insurance that primarily protects the lender, but they have different payment structures and cancellation rules. FHA generally charges upfront MIP and annual MIP; conventional borrowers with less than 20% down usually pay PMI, which can generally be canceled or automatically terminated under federal rules for covered loans.
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For single-family principal residences closed on or after July 29, 1999, a borrower can generally ask the servicer in writing to cancel PMI when the principal balance is scheduled to reach 80% of the home’s original value. A request may be possible earlier if extra payments bring the balance to that level. Original value is generally the lower of the purchase price or appraised value at purchase; after a refinance, it is generally the appraisal at refinance. The borrower must meet conditions, including a good payment history, being current, certifying there is no junior lien, and showing the property value has not fallen below original value.
If the borrower does not request cancellation, the servicer generally must automatically terminate PMI when the balance is scheduled to reach 78% of original value, provided payments are current. A separate statutory rule requires PMI to end the month after the midpoint of the loan’s amortization schedule if it has not already ended. The CFPB explains the conditions and exceptions in its guide to when PMI can be removed. These rules do not cover FHA MIP or VA insurance.
FHA annual MIP does not follow the 80% or 78% conventional PMI cancellation clock. Extra principal payments do not shorten its 11-year or loan-term duration. The usual ways to end it are to reach the end of the applicable MIP period, refinance into a conventional loan (if eligible and cost-effective), sell the property, or pay off the mortgage. Refinancing can remove FHA MIP but may bring closing costs, a new rate, and PMI if the new conventional loan starts above 80% LTV.
Do FHA loans have higher interest rates than conventional loans?
Not always. The note rate depends on the lender, borrower, loan details, and market conditions. FHA rates can be lower in some lender surveys, but a lower note rate does not prove the FHA loan costs less once upfront and ongoing MIP are included. Compare same-day Loan Estimates and annual percentage rates, while recognizing that APR is only useful when the estimates use comparable assumptions.
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As a dated market reference, Freddie Mac’s Primary Mortgage Market Survey reported a 30-year fixed-rate average of 7.11% and a 15-year average of 6.45% as of November 12, 2026. Those are averages for conventional, single-family originations within FHFA conforming limits, not an FHA quote, not a 3%-down quote, and not a promise of a rate for a particular credit profile. Freddie Mac reported the 30-year average at 7.18% the prior week and 6.24% a year earlier. The survey changes weekly; check the latest Freddie Mac PMMS release for a current benchmark.
For context only, MyMortgageInsider’s November 2026 comparison used the same 7.18% rate in both columns to isolate insurance effects on a $420,000 purchase. Its example showed a conventional 97 loan with 3% down and $238 first-year monthly PMI (using a 0.70% annual PMI assumption), versus FHA with 3.5% down, financed upfront MIP, and about $189 monthly MIP (using 0.55%). Principal, interest, and mortgage insurance were about $2,998 conventional and $2,983 FHA in that example. The assumptions are not a quote or a universal PMI rate. Its six-year illustration still favored conventional by about $5,200 after accounting for the FHA borrower’s larger financed balance and down payment, with the difference widening after conventional PMI could be canceled. A different FHA rate, PMI quote, or time in the home can change the outcome. Review the example and assumptions in the publisher’s FHA-versus-conventional cost comparison.
Freddie Mac’s survey and lender surveys should not be merged: they may cover different loan types, borrower profiles, and dates. Ask lenders for FHA and conventional Loan Estimates on the same day, with the same purchase price, down payment, term, and lock period. Compare cash to close, principal and interest, mortgage insurance, APR, and the projected year insurance ends.
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How do debt-to-income ratios and past credit events affect eligibility?
Debt-to-income (DTI) limits depend on the underwriting path and the strength of the full file. Manual FHA underwriting is commonly described around 43%, with potential flexibility toward 50% when compensating factors support it. FHA automated approvals may allow more than manual caps, but the sources differ on the exact ceiling, so borrowers should not treat a single high percentage as a guaranteed limit. Conventional DU files are commonly discussed up to about 50%, while manual conventional underwriting is often more restrictive, around 36% to 45% depending on the case.
DTI is not the only affordability test. Lenders also consider income stability, assets, credit history, the proposed housing payment, and other obligations. A borrower should ask whether the loan is being run through automated underwriting or manual review and whether the stated DTI is a program rule, a lender overlay, or a maximum for a particular file.
Waiting periods after serious credit events can also differ. The 2026 guidance summarized here reports approximately two years from Chapter 7 discharge for FHA versus four years for Fannie Mae conventional, and about three years after foreclosure for FHA versus seven years for conventional. Exceptions can apply, including for documented extenuating circumstances; dates and circumstances need to be reviewed by the lender rather than assumed from a general timeline.
Do property type, gifts, and seller help differ?
Yes. FHA generally requires owner occupancy and the property must meet HUD minimum property requirements. FHA appraisals can flag health and safety or soundness issues—such as peeling paint, a failing roof, or missing handrails—that may require repair before closing. Conventional appraisals also address safety and soundness, but a seller may perceive an FHA transaction as more likely to require repairs. A clean, well-maintained home can qualify under either program, and an FHA offer can still be competitive.
Both programs can allow the full down payment to be gifted on a one-unit principal residence, subject to documentation such as a gift letter and a clear paper trail. FHA rules can accept a broader range of eligible donors, potentially including a close friend with a documented interest, employer, union, charity, or government program. Fannie Mae gift rules generally focus on relatives and people with a familial relationship; the lender must confirm that the donor meets the applicable definition.
Seller concessions can help pay eligible closing costs, but cannot substitute for the borrower’s required down payment. The 2026 guidance reports FHA concessions up to 6% of the sales price regardless of down payment. Conventional caps for a primary residence are generally 3% when the down payment is under 10%, 6% with 10% to 25% down, and 9% above 25%; investment-property concessions are generally capped at 2%. On a $420,000 purchase, 6% is $25,200 and 3% is $12,600. These are maximum concession limits, not guaranteed credits: the seller must agree, and the actual allowable amount is constrained by eligible costs and program rules.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.How do 2026 loan limits affect the choice?
A home’s price and county can rule out one option. FHFA set the 2026 baseline conforming loan limit for a one-unit property at $832,750 in most of the country, with a high-cost ceiling of $1,249,125. In Alaska, Hawaii, Guam, and the U.S. Virgin Islands, the one-unit baseline and ceiling are higher: $1,249,125 and $1,873,675. See the FHFA’s 2026 conforming-limit announcement.
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FHA has separate HUD county limits. Several November 2026 guides report a one-unit FHA floor of $541,287 and a high-cost ceiling of $1,249,125, but the actual limit depends on county and property units. The national floor is not the limit everywhere. Look up the specific county limit before relying on FHA eligibility. If the required loan is above the local FHA limit but within the conforming limit, FHA may not be available. If a conventional loan exceeds the county conforming limit, it is generally jumbo and falls outside this conforming-loan comparison. Also note that low-down conventional 97% programs are not available on high-balance loans, so a 3% down option may stop before the local FHA ceiling.
Which loan is better for first-time buyers?
Neither is inherently the first-time-buyer loan. FHA is worth considering when the borrower needs its lower published credit tiers, more flexible manual underwriting, or a potentially shorter wait after a credit event. Conventional can be a strong fit when the buyer qualifies for a low-down-payment program, has a stronger credit profile, wants PMI that can eventually be canceled, or can put 20% down.
HomeReady’s 3%-down path is particularly relevant to first-time buyers whose qualifying income is no more than 80% of the property’s AMI. If all occupying borrowers on a HomeReady purchase are first-time buyers, homeownership education is required. Conventional 97 options may have their own first-time-buyer condition above 95% LTV. FHA does not require a buyer to be a first-timer, although it may be attractive to one. Compare the actual lender offer rather than relying on a label.
Seller preference is not a hard rule. A seller may worry that FHA appraisal repairs or closing requirements could delay a transaction, but the property’s condition and the strength of the offer matter. A buyer can reduce uncertainty by understanding likely repairs, meeting lender documentation requests promptly, and making a credible offer with a realistic closing timeline. Conventional financing is not a guarantee that the property will avoid appraisal or safety issues.
How should I compare FHA and conventional Loan Estimates?
Get two pre-approvals and, when you have a property and loan scenario, request two Loan Estimates on the same day. Hold price, down payment, loan term, rate-lock period, and points as close as possible. Different assumptions can make an otherwise fair comparison misleading.
- Confirm eligibility first. Ask the lender which program and underwriting path applies, what credit score it used, whether there is an overlay, whether your DTI is acceptable, and whether the property and county loan limit fit.
- Compare cash due at closing. Include down payment, closing costs, prepaid items, credits, and FHA upfront MIP if it is paid in cash. If FHA upfront MIP is financed, compare the resulting larger loan balance rather than treating the premium as free.
- Compare recurring payment components. Separate principal and interest from FHA annual MIP or conventional PMI. Include taxes, homeowners insurance, and HOA dues in affordability and qualification; they may be similar for the two loans, but they still affect the household payment.
- Ask when mortgage insurance ends. Record FHA’s MIP duration based on original LTV and the conventional PMI cancellation path. Ask whether PMI is borrower-paid or lender-paid and what conditions apply to removal.
- Compare the rate and APR with the insurance timeline. A lower note rate can be outweighed by upfront MIP or longer-lasting annual MIP. Consider how long you expect to keep the loan, and do not assume you will refinance later at a better rate.
- Check contract-specific details. Confirm appraisal and repair expectations, eligible seller concessions, gift documentation, occupancy, and whether an assumable FHA loan could matter to you as a future seller.
There is no universal break-even year. It depends on rate quotes, credit-based PMI pricing, down payment, FHA MIP duration, closing costs, and how long the borrower keeps the mortgage. The most useful comparison is the lender’s written estimate for the buyer’s actual file, supplemented by a clear insurance-cancellation schedule.
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Can I switch from an FHA loan to a conventional loan later?
Yes, refinancing is one way to replace FHA financing, but approval is not automatic. The new loan requires a fresh application, appraisal or value determination as applicable, closing costs, and enough equity to meet conventional requirements; if the new LTV exceeds 80%, PMI may still apply.
Can I use an FHA loan for a duplex or triplex?
FHA can finance an eligible one- to four-unit property when the borrower occupies one of the units as a principal residence. Unit count, appraisal, occupancy, and the applicable county loan limit all affect eligibility.
Does a larger down payment always make an FHA loan cheaper?
It reduces the amount borrowed, but FHA MIP duration changes at a specific threshold for longer-term loans: original LTV of 90% or less generally means 11 years of annual MIP, while higher LTV means MIP for the loan term. A larger down payment below that threshold lowers the balance but does not itself create the conventional-style 80% cancellation right.
Can a seller pay my FHA or conventional down payment?
Seller concessions generally cannot count toward the borrower’s required down payment. Seller-paid amounts are limited to eligible closing costs and prepaid items, subject to program caps and the actual costs in the transaction.
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