FHA vs Conventional: Which Loan Is Right for You?

FHA loans are usually the better fit for buyers with lower credit scores or higher debt, because they are more flexible on qualifying. Conventional loans are usually the better fit for buyers with stronger credit, because mortgage insurance can be cheaper and can be removed once you reach enough equity. The right choice depends on your score, your down payment, and how long you plan to keep the loan.

"Should I go FHA or conventional?" is one of the questions we hear most. Both are great options, and they serve different needs. Here is a straightforward breakdown.

Key takeaways

• Down payment: conventional can go as low as 3% down for eligible buyers. FHA allows 3.5% down with a 580 score.
• Credit: our FHA minimum is 580. Our conventional minimum is 600 when you put less than 20% down, with no minimum score at 20% or more down.
• Mortgage insurance: FHA typically has mortgage insurance for the life of the loan unless you put 10% or more down. Conventional PMI can be removed once you reach enough equity.
• Loan limits: both vary by county. Conventional limits are usually higher.
• The best way to decide is to compare the total cost of each for your situation.

Down payment

FHA allows 3.5% down with a 580 score. Our product guide also includes an FHA option with as little as $100 down for eligible buyers, and FHA works well with down payment assistance.

Conventional can go as low as 3% down for eligible buyers, with up to 97% loan-to-value in our product guide. So if down payment alone is your concern, conventional can actually edge out FHA. The catch is that conventional pricing and mortgage insurance lean more heavily on your credit score.

Credit score requirements

FHA is more forgiving on credit. Our FHA minimum score is 580, and we can do manual underwrites down to 580 when the automated system does not approve a file but the borrower's full story supports it.

For conventional loans, our minimum score is 600 when the loan-to-value is above 80%, meaning less than 20% down. With 20% or more down, there is no minimum score in our guide, and we have no-FICO options too. That said, conventional pricing and mortgage insurance generally improve as your score rises, so a buyer with a higher score often gets more value from conventional.

Our blog post on what credit score you need for a mortgage goes deeper on each loan type.

Mortgage insurance

This is often the deciding factor.

FHA mortgage insurance

FHA loans have an upfront mortgage insurance premium, which is usually rolled into the loan, plus an annual premium paid monthly. Under current FHA rules, if you put less than 10% down, the monthly premium generally stays for the life of the loan. If you put 10% or more down, it generally drops off after 11 years. Many FHA borrowers later refinance into a conventional loan to remove it once they have enough equity.

Conventional PMI

Conventional loans require private mortgage insurance (PMI) only if you put less than 20% down. PMI cost is tied closely to your credit score and down payment. Once you reach 20% equity, you can typically request removal, and it generally drops off automatically at 22% equity based on the original schedule. For buyers with good credit, that flexibility can make conventional less expensive over time.

Debt-to-income flexibility

FHA guidelines are often more flexible on debt-to-income ratio, which can help buyers carrying student loans, a car payment, or other debts. Conventional loans can also allow higher ratios for strong files, but FHA tends to give more room when the rest of the file is less than perfect.

Loan limits

Both FHA and conventional loans have limits that vary by county. In most areas, including the Austin metro, conventional conforming limits are higher than FHA limits, which gives more buying power at higher price points. Above the conforming limit, you would look at a high-balance or jumbo loan.

Property and renovation options

FHA offers the 203(k) standard and limited renovation loans, which let you finance repairs or updates into your purchase. Conventional loans have renovation options too, and in our product guide, all agency loans (conventional, FHA, VA, and USDA) include renovation, construction, and temporary buydown options. FHA appraisals also have property condition standards, so homes that need significant work may be easier with a renovation loan.

Which should you choose?

Here is a quick guide:

FHA may be the better fit if you:

• Have a credit score in the 580s or 600s
• Have a higher debt-to-income ratio
• Want to pair your loan with down payment assistance
• Plan to refinance later once your credit and equity improve

Conventional may be the better fit if you:

• Have a stronger credit score
• Want to avoid long-term mortgage insurance
• Are buying a second home or investment property (FHA is for primary residences)
• Are buying at a price above FHA limits in your county

How we help you decide

We run both options side by side, showing the upfront cost, the monthly cost, and how long mortgage insurance lasts. Then we look at how long you plan to stay. Our mortgage calculator is a good way to start exploring.

Want to talk through your options?

Call 512-657-1333 or start your pre-approval. We will help you figure out the best fit. Learn more on our FHA loans and conventional loans pages.

Additional terms and conditions apply. Not all loan types are compatible with this product. Subject to underwriting conditions. Not a promise to make a loan. All borrowers must qualify. Network Funding, LP NMLS #2297. Kyle Richardson NMLS #863464. Equal Housing Lender.