FHA and conventional loans are the two most common ways to buy a home with a small down payment. FHA needs only 3.5% down and a 580 credit score, but its mortgage insurance usually lasts for the life of the loan. Conventional loans start at 3% down with a 620 score, and their PMI can be removed. Which one costs less depends mainly on your credit score and how long you keep the loan.
Side-by-side rules
| FHA | Conventional | |
|---|---|---|
| Minimum down payment | 3.5% (580+ score); 10% (500–579) | 3% (first-time buyer programs); 5% otherwise |
| Minimum credit score | 500–580 | 620 |
| Upfront insurance | 1.75% of the loan, usually financed | None |
| Annual insurance | 0.55% of the loan for most borrowers | PMI, about 0.3%–1.5%, priced by credit score and down payment |
| When insurance ends | Life of loan with under 10% down; 11 years with 10%+ | Cancel at 80% LTV; ends automatically at 78% |
| Maximum debt-to-income | Often up to 50% with compensating factors | Usually up to 45%–50% through automated underwriting |
| Property | Primary residence only; must pass FHA appraisal standards | Primary, second home or investment |
Worked example: a $350,000 home
Both loans use a 30-year term at 6.5%. FHA rates are often a little lower in practice, which narrows the gap.
| FHA, 3.5% down | Conventional, 5% down | |
|---|---|---|
| Down payment | $12,250 | $17,500 |
| Loan amount | $343,661 (includes $5,911 upfront MIP) | $332,500 |
| Principal & interest | $2,172 | $2,102 |
| Mortgage insurance | $155 (MIP, 0.55%) | $111 at 0.4% (740+ score) to $333 at 1.2% (low 600s) |
| Total monthly (P&I + insurance) | $2,327 | $2,212–$2,434 |
| Insurance ends | Never, unless you refinance | About year 11 on schedule (78% LTV), sooner with extra payments or appreciation |
With good credit, the conventional loan is about $115 a month cheaper from day one, and the gap widens once PMI drops off. With a score in the low 600s, PMI can cost more than FHA's MIP, so FHA wins on monthly payment, at least until you can refinance.
When FHA is the better choice
- Your credit score is below about 680, where conventional PMI gets expensive.
- Your debt-to-income ratio is high, since FHA underwriting is more flexible.
- You need the lowest possible cash to close. Sellers can also contribute up to 6% toward FHA closing costs.
- You plan to refinance into a conventional loan once you reach 20% equity, which also removes MIP.
When conventional is the better choice
- Your credit score is 700 or higher.
- You plan to keep the loan for many years, so removable PMI matters.
- You can put 10% or more down, which lowers PMI further.
- The home is a condo not on the FHA-approved list, or it needs repairs an FHA appraisal would flag.
Run your own numbers
Enter both scenarios in the mortgage comparison calculator, check how much cash you need with the down payment calculator, and see when conventional PMI would end with the PMI removal calculator. Loan limits for both programs vary by county and are updated each year.
Published September 23, 2026. Figures are estimates for education only, not financial advice; program rules and rates change, so confirm with a licensed lender. Spotted an error? Let us know.