FHA vs Conventional Loan: Key Differences

FHA and conventional loans both finance a home, but they differ in who backs the loan, how mortgage insurance works and who qualifies most easily.

Down payment and credit

FHA loans allow as little as 3.5% down for borrowers who meet credit guidelines, and are often easier to qualify for with a lower credit score. Conventional loans can go as low as 3% to 5% down in some programs but typically reward stronger credit with better pricing.

Mortgage insurance

• FHA charges an upfront premium, often financed, plus an annual premium paid monthly.
• Conventional loans use private mortgage insurance (PMI) when you put down less than 20%, and it can usually be removed once you reach enough equity.
• The length of FHA premiums depends on the down payment and loan terms.

Which costs less?

With a strong credit score and 5% or more down, conventional loans often cost less overall. With weaker credit or a small down payment, FHA can be cheaper or the only option. Compare actual quotes rather than rules of thumb.