FHA or conventional loan: which is better for a first-time buyer?

In the FHA vs conventional loan choice, the short version is this: FHA is usually easier to get, and conventional is usually cheaper over time if your credit is good. FHA allows 3.5% down with a 580 credit score and is more forgiving of higher debts. Conventional loans let you remove mortgage insurance later, which often makes them the lower-cost choice for buyers with stronger credit.

The Consumer Financial Protection Bureau (CFPB) sums it up the same way: conventional loans typically cost less than FHA loans but can be harder to get. The right pick for you depends on your score, your down payment, your debts and how long you plan to keep the loan.

What is the difference between an FHA and a conventional loan?

An FHA loan is insured by the Federal Housing Administration, part of the US Department of Housing and Urban Development (HUD). A conventional loan has no government insurance; most follow rules set by Fannie Mae or Freddie Mac. That difference shapes who qualifies and how mortgage insurance works.

Because the government insures FHA loans against default, lenders can accept lower credit scores and smaller down payments. Borrowers pay for that protection through FHA mortgage insurance premiums. Conventional lenders protect themselves with private mortgage insurance (PMI) when the down payment is under 20%.

How do FHA and conventional loans compare side by side?

FHA wins on flexibility: lower credit score floors, room for higher debts, and gifts from a wide range of sources. Conventional wins on long-term cost for many buyers: mortgage insurance that can be removed, higher loan limits in most areas, and the option to buy second homes and investment properties.

Sources: HUD’s FHA Handbook 4000.1 and Mortgagee Letter 2023-05; Fannie Mae’s credit score requirements; Freddie Mac’s Home Possible page; FHFA’s 2026 conforming loan limits; and HUD’s 2026 FHA loan limits.

	FHA	Conventional
Minimum down payment	3.5% with a 580+ score	3% on HomeReady / Home Possible
Minimum credit score	500 with 10% down	No fixed minimum in Desktop Underwriter; 620 if manually underwritten
Mortgage insurance	1.75% upfront + 0.50–0.55% a year	PMI priced by credit and down payment
Can it be removed?	After 11 years with 10%+ down, otherwise by refinancing	Ask at 80% of original value; ends at 78%
2026 one-unit limit	$541,287 to $1,249,125	$832,750 (up to $1,249,125 in high-cost areas)

Source: HUD Handbook 4000.1, HUD ML 2023-05, Fannie Mae Selling Guide, FHFA (as of October 18, 2026).

How does mortgage insurance compare on each loan?

FHA charges a 1.75% upfront premium plus an annual premium, and with under 10% down that annual premium usually lasts as long as the loan. Conventional PMI has no set government rate, but it can be cancelled once you build enough equity. Over many years, that difference is often the biggest cost gap between the two.

FHA mortgage insurance premium

Under HUD Mortgagee Letter 2023-05, effective for loans endorsed on or after March 20, 2023, a 30-year FHA loan at or below the national conforming loan limit pays:

• 0.55% a year when the loan-to-value ratio (LTV) is above 95%, such as with 3.5% down. This lasts for the life of the loan.
• 0.50% a year when the LTV is above 90% but no more than 95%, such as with 5% down. This also lasts for the life of the loan.
• 0.50% a year for 11 years when the LTV is 90% or less, meaning 10% or more down.

The 1.75% upfront premium is usually added to the loan balance rather than paid in cash.

Conventional private mortgage insurance

The CFPB explains that you can ask your servicer to cancel PMI once your balance is scheduled to reach 80% of the home’s original value, if you are current and meet the other conditions. The servicer generally must end it automatically when the balance is scheduled to hit 78%. Our guide on when you can remove PMI has the full checklist.

Which loan costs less for a buyer with 5% down and a 660 score?

It depends on your PMI quote. At a mid-600s score, FHA’s monthly cost can be similar to or a little lower than conventional at first. But conventional PMI can be removed once you reach 20% equity, while FHA’s premium usually stays. The longer you keep the loan, the more that tends to favor conventional.

Both payments leave out property taxes and homeowners insurance, which are the same for either loan. The 6.5% rate is an example, not a current rate; FHA and conventional rates are often different, so plug in your real quotes. For current national averages, see Freddie Mac’s weekly Primary Mortgage Market Survey.

• FHA (incl. MIP)
• Conventional (incl. PMI)

View data as table

	FHA (incl. MIP)	Conventional (incl. PMI)
Year 1	$25,166	$20,711
Year 2	$45,112	$41,209
Year 3	$64,809	$61,479
Year 4	$84,241	$81,507
Year 5	$103,390	$101,275
Year 6	$122,237	$120,767
Year 7	$140,762	$139,963
Year 8	$158,942	$158,845
Year 9	$176,757	$177,391
Year 10	$194,179	$195,579

Source: Mortgage Advice Daily calculation (worked example) (as of October 18, 2026). Worked example, not a quote

How do credit scores and debts affect which loan you can get?

FHA is more forgiving of lower scores and higher debt-to-income ratios. Conventional underwriting in 2026 no longer has a fixed 620 floor for Fannie Mae’s automated system, but lower scores still mean higher pricing and PMI costs, and lenders may set their own minimums.

On credit scores, HUD’s handbook makes borrowers with a score of 580 or higher eligible for maximum FHA financing, and limits scores from 500 to 579 to a 90% LTV, which means 10% down. Fannie Mae’s Selling Guide now says a minimum credit score is not required for loans run through its Desktop Underwriter system, while manually underwritten fixed-rate loans still need 620. Lenders and mortgage insurers can add their own stricter rules, called overlays. Freddie Mac has its own rules, so ask your lender which apply.

On debt-to-income ratio (DTI), which is your monthly debts divided by gross monthly income:

• FHA (manual underwriting): 31% for housing and 43% for total debt, rising to 37/47 or 40/50 with compensating factors such as extra savings, per HUD’s handbook.
• Fannie Mae conventional: up to 50% total DTI through Desktop Underwriter, or 36% (up to 45% with the required score and reserves) when manually underwritten.

If your score is near the low end, see our guide on buying a house with a 620 credit score for ways to strengthen your file before you apply.

When does an FHA loan make more sense?

FHA tends to fit buyers with lower credit scores, higher debts or very little cash, and those whose conventional PMI quote is high. It can also help when a family gift or government assistance program is part of the plan, since HUD lists a broad range of acceptable gift sources.

FHA is often the better fit if:

• Your score is below the mid-600s. FHA pricing often changes less with credit score than conventional PMI does.
• Your DTI is on the high side. FHA’s compensating-factor rules can allow more room.
• You only have 3.5% saved and do not qualify for a 3% conventional program.
• You plan to sell or refinance within several years, so long-term mortgage insurance matters less.

HUD also lets sellers and other interested parties contribute up to 6% of the sales price toward closing costs on FHA loans, though not toward your minimum required investment.

When does a conventional loan make more sense?

Conventional usually wins for buyers with good credit, a solid down payment, or plans to keep the loan for many years. It also makes sense when the home costs more than your county’s FHA limit or is not your primary residence.

Conventional is often the better fit if:

• Your score is in the 700s or higher, which tends to bring lower PMI costs.
• You can put down 10% to 20% or more, cutting or removing PMI entirely.
• You plan to stay put, so being able to cancel PMI saves real money over time.
• Your income qualifies for HomeReady or Home Possible, which allow 3% down for borrowers at or below 80% of area median income.
• The price is above your county’s FHA limit but within the conforming limit.

Not sure how much to put down? Our guide on how much down payment you need compares the options for every major loan type.

What should you do next?

Compare real numbers, not rules of thumb. The better loan for you is the one with the lower total cost over the time you expect to keep it, at a payment you can manage. Quotes for both loan types, taken on the same day, give you that answer. Here is how:

1. Check your credit reports and score. Fix errors before you apply, since your score affects both FHA and conventional pricing.
2. Set your budget first. Use our guide on how much house you can afford to pick a comfortable monthly payment.
3. Get preapproved and ask for both loan types. Learn the difference between prequalification and preapproval, then request FHA and conventional Loan Estimates on the same day.
4. Compare the five-year and full-term cost. Add up payments, mortgage insurance and cash to close, and note when each loan’s mortgage insurance can end.
5. Get a free second opinion if you want one. The CFPB lets you find a HUD-approved housing counselor who can walk through both offers with you.