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Conventional vs. FHA Loans: How to Choose

Many first-time buyers assume an FHA loan is their only option. Often it’s a great one, but a conventional loan can come out ahead, especially once mortgage insurance is part of the math. Here’s how the two compare and how to tell which fits you.

Reviewed by Patriot Home Mortgage compliance, October 2026 · 3 min read

The short answer

FHA may make more sense when your credit is still building or your savings are thin. Conventional may make more sense when your credit is solid, because its mortgage insurance may cost less over time and goes away on its own.

Side by side

Conventional loan FHA loan
Backed by No government backing; most follow Fannie Mae and Freddie Mac standards Insured by the Federal Housing Administration
Minimum down payment As little as 3% for some buyers 3.5% with a 580+ score; 10% from 500 to 579
Credit Credit score weighs heavily on approval and pricing More flexible; FHA’s floor is 500
Mortgage insurance PMI below 20% down; can be cancelled at 80% and ends at 78% Upfront premium plus an annual premium; lasts the life of the loan with less than 10% down
Loan limits Conforming limit set yearly by FHFA FHA limits set yearly by HUD, by county
Property use Primary home, second home or investment property Primary residence

Down payment

Both loans can work with a small down payment. FHA’s 3.5% minimum is well known, but some conventional programs go as low as 3%. The difference is usually less about the down payment and more about what comes with it.

Mortgage insurance

This is often the deciding factor.

  • FHA charges an upfront mortgage insurance premium, which can be added to the loan, and an annual premium paid monthly. With less than 10% down, the annual premium lasts for the life of the loan. Getting rid of it usually means refinancing. HUD publishes the current premiums in its mortgage insurance schedule.
  • Conventional loans charge private mortgage insurance (PMI) only when you put down less than 20%. There’s no upfront premium, and PMI can be cancelled once your balance reaches 80% of the home’s original value. It ends automatically at 78%.

With good credit, conventional PMI may be the less expensive of the two, and it doesn’t last forever.

One more conventional option: some buyers avoid PMI with a second mortgage that covers part of the down payment. The second loan usually costs more, so it’s worth pricing both ways.

Credit and debt

FHA is more forgiving of lower credit scores and past setbacks. Conventional loans price more heavily on your score, so a higher score can mean a noticeably better rate and lower PMI. Both look closely at your debt-to-income ratio, your monthly debts compared with your gross monthly income.

Loan limits

Each program has its own limit, and both vary by county. FHFA sets the conforming limit for conventional loans, and HUD sets FHA limits. In most areas, FHA’s limit is lower.

Property standards

Both loans require an appraisal, and both appraisals look at the home’s condition as well as its value. FHA adds HUD’s minimum property standards for safety and soundness, so a home with significant problems may need repairs before an FHA loan can close. Conventional appraisals still flag safety problems, but there’s generally more room for homes that need cosmetic work.

Help from family

Both loans allow gift funds for the down payment, with documentation. FHA also allows a family member who won’t live in the home to join the loan as a co-borrower in many cases, which can help a buyer qualify.

How to decide

  1. Check your credit. Near the top of the range, conventional may price better. Lower, FHA may.
  2. Look at your down payment. At 10% or more, FHA’s mortgage insurance lasts 11 years rather than the life of the loan, and conventional PMI shrinks as well.
  3. Think about the property. Second homes and rentals need a conventional loan.
  4. Price both. A loan officer can show the monthly payment, cash to close and total cost for each, side by side.

Our guides to FHA loans and conventional loans go deeper on each one.

Talk to a Patriot loan officer

Every situation is different, and a short conversation is the quickest way to know what fits yours.

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This article is general information, not an offer to lend or a commitment to lend. All loans are subject to credit approval, underwriting and property valuation. Belem Servicing LLC, NMLS ID #715386 (NMLS Consumer Access).

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