For most home buyers, the choice comes down to two main loan categories: FHA loans, backed by the Federal Housing Administration, and conventional loans, which aren’t government-backed and follow guidelines set by Fannie Mae and Freddie Mac. Each has distinct advantages depending on your credit profile, savings, and long-term plans.
Credit Score Requirements
This is often the deciding factor for first-time buyers:
- FHA loans accept credit scores as low as 580 with a 3.5% down payment, or even 500 with a 10% down payment — making them significantly more accessible for buyers still building credit.
- Conventional loans typically require a minimum score of 620, with the best rates reserved for scores of 740 and above.
If your credit score needs work before applying, see our guide on how to improve your credit score before applying for a mortgage.
Down Payment Comparison
| Loan Type | Minimum Down Payment | Credit Score Needed |
|---|---|---|
| FHA | 3.5% | 580 (3.5% down) or 500 (10% down) |
| Conventional | 3% | 620+ |
Conventional loans can actually require a slightly smaller minimum down payment than FHA in some cases — but qualifying for that minimum requires a stronger credit profile.
Mortgage Insurance: The Biggest Practical Difference
This is where the two loan types diverge most significantly.
FHA Mortgage Insurance Premium (MIP): FHA loans require both an upfront MIP (typically 1.75% of the loan amount, often rolled into the loan) and an annual MIP paid monthly. Critically, FHA MIP often cannot be removed for the life of the loan if your down payment was under 10% — the only way to eliminate it is typically to refinance into a conventional loan once you have enough equity.
Conventional PMI: Conventional loans only require PMI if your down payment is under 20%, and that PMI automatically cancels once you reach 78% loan-to-value, with the option to request removal even earlier at 80%. See our full guide on What Is PMI and How to Avoid It for the removal process.
This difference matters enormously over time. A buyer with a lower credit score might initially only qualify for FHA, but should have a clear plan to refinance into a conventional loan once their score and equity improve, to escape permanent mortgage insurance.
Loan Limits
Both loan types have maximum loan amounts that vary by county, based on local home prices. Conventional “conforming” loan limits are generally set higher than FHA limits in most areas, though both are adjusted annually. If you’re purchasing a higher-priced home, check current limits for your specific county, as exceeding them may require a jumbo loan instead.
Property Requirements
FHA loans require the property to meet specific safety and condition standards as part of the appraisal process — sometimes making FHA loans harder to use for homes needing significant repairs (like fixer-uppers or properties with deferred maintenance). Conventional loans generally have more flexible property condition requirements, though both still require a standard appraisal confirming value.
Debt-to-Income Flexibility
FHA loans are generally more flexible with debt-to-income ratios, sometimes approving back-end ratios above the conventional 36–43% guideline, particularly for borrowers with strong compensating factors (significant cash reserves, long employment history, etc.). This flexibility is part of why FHA loans are popular among buyers who don’t fit a perfectly clean financial profile.
Which Should You Choose?
Consider FHA if:
- Your credit score is below 620
- You have limited savings for a down payment
- You don’t expect to refinance out of mortgage insurance quickly
Consider Conventional if:
- Your credit score is 620 or higher (ideally 680+)
- You can put down at least 5–10%, ideally working toward 20%
- You want the option to eliminate mortgage insurance once you build equity
Run Your Own Numbers
Use our Mortgage Calculator to compare your estimated monthly payment under both loan types, factoring in mortgage insurance costs for each. Pair it with our Affordability Calculator to confirm your total payment — including mortgage insurance — fits comfortably within your budget regardless of which loan type you choose.
For the official, government source on FHA loan requirements and limits, see HUD’s FHA loan resources.