Financing
Conventional vs FHA loans
Conventional loans follow Fannie Mae and Freddie Mac guidelines. FHA loans are insured by the Federal Housing Administration and are designed to widen access to credit.
The decision usually comes down to three things: your credit score, whether you can remove mortgage insurance later, and whether the property meets FHA condition standards.
- What this is
- A side-by-side comparison of the two most common loan types.
- Who it is for
- Buyers choosing a loan program, especially first-time buyers.
- The problem
- FHA is presented as the low-down-payment option, but its mortgage insurance often cannot be removed, which changes the long-run cost entirely.
- What happens next
- Compare total cost over how long you expect to hold the loan, not just the monthly payment.
Qualifying
FHA generally allows credit scores from about 580 with three and a half percent down, and is more forgiving on debt-to-income ratio and past credit events.
Conventional typically wants 620 or higher, with pricing improving sharply above 740. Below roughly 680, FHA is often cheaper despite its insurance.
Mortgage insurance is the deciding factor
Conventional private mortgage insurance is removable once you reach twenty percent equity, and is cancelled automatically at seventy-eight percent of original value.
FHA charges an upfront premium of one and three-quarters percent financed into the loan, plus an annual premium that, with the minimum down payment, lasts the life of the loan. Removing it means refinancing.
Property condition standards
FHA appraisals include minimum property requirements covering safety, security and soundness. Peeling paint on a pre-1978 home, missing handrails, or a non-functioning heating system can all require repair before closing.
On a property needing work, that alone can force a conventional loan or a renovation loan product instead.
Which costs less over your hold
Compare total cost over the period you realistically expect to hold the loan, including the upfront premium, monthly insurance, and the likely refinance to remove it.
A common sound pattern: use FHA to buy when credit or cash is the constraint, then refinance to conventional once credit and equity improve.
Do the math
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Is an FHA loan better than conventional?
Better when your credit score is below roughly 680, when your down payment is small, or when your debt-to-income ratio is high. Conventional is usually cheaper long term because its mortgage insurance can be removed.
Can you remove FHA mortgage insurance?
Not with the minimum down payment — it lasts the life of the loan. Removing it requires refinancing into a conventional loan once you have sufficient equity.
What is the minimum down payment for each?
Three and a half percent for FHA with a qualifying score, and as little as three percent on some conventional first-time buyer programs, though five percent is more common.
Can I use an FHA loan for an investment property?
No, FHA requires owner occupancy. You may buy a two- to four-unit property and live in one unit, renting the others — a common first investment path.
Do sellers prefer conventional offers?
Some do, because FHA appraisals add condition requirements and can add time. On a well-maintained property the difference is minimal.
What about VA and USDA loans?
If you are eligible, VA offers zero down with no monthly mortgage insurance and USDA offers zero down in eligible rural areas. Both usually beat FHA and conventional when you qualify.
Want this answered for one property?
Property Intelligence™ applies this to a specific address using public records, uploaded documents, comparable sales and professional review — and states plainly what is known, what is missing and what to do next.
Related reading
Part of these decisions
Last reviewed August 3, 2026. Educational information, not financial or legal advice.