Buying a new home is an exciting time! It also means that you’ll have to decide which type of financing is best for you. The two most common mortgage types are conventional and FHA. In this guide, we’re breaking down key differences between the two so you can start your mortgage process off with as much knowledge as possible.
What Is a Conventional Loan?
The most common type of mortgage loan, conventional loans are backed by a private lender rather than a government agency. They fall into the category of conforming or nonconforming. Conforming loans must meet either Fannie Mae or Freddie Mac’s regulations.
Because conventional loans are backed by a private lender, you need to have a higher credit score and lower debt-to-income (DTI) ratio to qualify than you would on a government-backed loan.
A conventional loan can be fixed-rate or an adjustable rate mortgage (ARM).
Conventional loans can be used to finance primary residences, investment properties, or second homes.
What Is an FHA Loan?
An FHA loan is insured by the Federal Housing Administration. FHA loans are generally less strict on borrower qualifications than conventional. FHA allows a lower credit score and higher DTI than conventional.
An FHA loan can be fixed-rate or an adjustable rate mortgage (ARM).
FHA loans can be used to purchase primary residences only.
What Are the Key Differences Between Conventional and FHA Loans?
Mortgage Insurance
One difference between conventional and FHA loans is mortgage insurance. On conventional loans, private mortgage insurance (PMI) is not required if the loan-to-value (LTV) is under 80%. However, on FHA loans, both an upfront and monthly mortgage insurance premium (MIP) are always required.
On conventional loans, you can choose between upfront and monthly PMI. If you choose monthly, the premium may be cancelled eventually. However, on FHA, the monthly premium usually lasts for the life of the loan, though it can be shorter in some cases.
The amount of conventional PMI you’ll pay is determined by your credit score, down payment size, LTV, DTI ratio, and other factors. However, on FHA, the upfront MIP is always 1.75% of your loan amount, and the monthly MIP is determined by your loan amount, loan term, and loan-to-value. Credit score and DTI are not factors.
Credit Score
FHA allows more flexibility in credit scores. Typically, the minimum is 580, but this can vary depending on your down payment and other factors. For conventional, the minimum is usually 620.
Debt-to-Income Ratios (DTI)
FHA is a little more flexible than Conventional when it comes to DTI. Conventional is capped at 50% DTI while FHA is generally capped at 55%.
Loan Limits
In 2026, the FHA loan limit for single family homes is $541,287 in most areas of the country and $1,249,125 in high-cost areas. For conventional, the maximum loan limit for a single-family property is $832,750.
Down Payments
On conventional, the minimum down payment is 3% of the purchase price for qualifying first-time homebuyers. On FHA, the minimum down payment is 3.5%.
Property and Appraisal
On FHA loans, the property condition requirements are stricter than on conventional loans. While the appraisal for both loan types evaluates the property’s value, FHA appraisals also evaluate the safety and security of the property. FHA loans must meet standards set by the U.S. Department of Housing and Urban Development (HUD), which means that some properties won’t be eligible for FHA.
Quick Recap of Conventional and FHA Requirements
Conventional
- No private mortgage insurance (PMI) required if loan-to-value (LTV) is 80% or under
- Down payment as low as 3%
- Minimum credit score is typically 620
- Loan limit of $832,750 for single family properties
- Maximum debt-to-income (DTI) of 50%
FHA
- Both upfront and monthly mortgage insurance required, regardless of LTV
- Minimum 3.5% down payment
- Minimum credit score is typically 580
- Stricter appraisal and property requirements than conventional
- Loan limit of $541,287 in most areas of the country
- Maximum debt-to-income ratio (DTI) is usually 55%
FAQ: FHA vs. Conventional
Which loan is best for me – FHA or conventional?
That depends on your unique situation. If you have a high credit score and low DTI, a conventional loan may make more sense for you. However, if your credit score is lower and you have a high DTI, FHA may be the better option. A loan officer can help you weigh your options and make the best decision.
What are the benefits of conventional loans over FHA?
Conventional loans don’t always require PMI. If you have significant down payment funds, you can avoid PMI all together. And if you do need PMI, you don’t need both upfront and monthly PMI like you do on FHA. Also, you may be able to borrow a larger loan amount than with FHA.
What are the benefits of FHA over conventional?
FHA loans are less strict on qualifying requirements such as credit score and DTI. FHA allows borrowers who may not qualify for a conventional loan to achieve homeownership. In addition, because FHA property requirements are stricter than those of conventional loans, you can rest assured knowing that your new home is safe and secure.
Which is more expensive—conventional or FHA?
It depends on your down payment, loan amount, loan term, closing costs, and interest rate. A loan officer can assist you in determining which option is less costly for you.
