Duane Buziak, NMLS #1110647
The right answer depends on your credit score, your down payment savings, and how long you plan to keep the loan, not on which program is generically “better.” FHA and conventional loans solve different problems for different borrowers, and the gap between them has narrowed as conventional low-down-payment programs have matured. Below, we break down the structural differences, run a real payment comparison at three rate scenarios, work through discount points breakeven math, and explain why comparing offers through a broker rather than a single-shelf lender changes what you actually qualify for.
FHA vs. Conventional: The Core Differences That Decide Your Fit
FHA loans are insured by the Federal Housing Administration under HUD, which means the government backs the loan and the lender takes less risk. That backing lets FHA accept lower credit scores and higher debt-to-income ratios than most conventional programs. Conventional loans, by contrast, follow guidelines set by Fannie Mae and Freddie Mac, and pricing is driven by loan-level price adjustments, or LLPAs, that reward stronger credit with better rates and penalize weaker credit with add-ons.
The mortgage insurance structure is where the two programs diverge most sharply. FHA requires an upfront mortgage insurance premium, or UFMIP, financed into the loan, plus an annual MIP paid monthly that, on most FHA loans with less than 10% down, lasts for the life of the loan. Conventional private mortgage insurance, or PMI, can be cancelled once your loan-to-value reaches 78% automatically, or 80% by request, per CFPB guidance on PMI cancellation. That single difference often outweighs everything else over a long hold period.
Down payment requirements used to be the deciding factor: FHA’s 3.5% minimum was hard to beat. That advantage has shrunk. Conventional programs like Fannie Mae’s HomeReady allow down payments as low as 3% for qualified first-time buyers, as of 2026, per Fannie Mae’s HomeReady overview. So the down payment gap between FHA and conventional is now often a fraction of a percentage point rather than a wide chasm, which shifts the real decision toward credit score and how long MIP or PMI will actually cost you.
Credit Score, Down Payment, and Mortgage Insurance Rules Compared
FHA’s minimum credit score is 580 for 3.5% down, and some lenders will go as low as 500 with 10% down, per HUD’s FHA program guidance. Conventional loans technically allow scores as low as 620, but pricing at that tier is expensive because LLPAs stack heavily against lower scores and higher loan-to-value combinations. A borrower with a 640 score buying with 5% down will typically see a materially higher rate quote on a conventional loan than an FHA loan at the same score, because FHA MIP pricing does not vary by credit score the way conventional PMI does.
Down payment options run in parallel bands: FHA sits at 3.5% minimum with a 580+ score, while conventional programs offer 3% to 5% depending on the product and borrower profile. Debt-to-income flexibility also differs. FHA will frequently approve DTI ratios into the mid-50s with compensating factors, while conventional loans generally cap around 45% to 50% depending on automated underwriting findings, per Fannie Mae’s Selling Guide on DTI ratios.
The mortgage insurance math is the part most comparisons skip. FHA MIP is a fixed structure: the same annual rate applies whether your score is 580 or 780, and for most loans with less than 10% down it never cancels without refinancing out of FHA entirely. Conventional PMI, on the other hand, is priced on a sliding scale tied to your credit score and loan-to-value ratio, and it disappears once you build enough equity. That is the core reason borrowers with scores in the mid-700s and above often land on conventional loans even when both programs technically qualify them: the PMI is cheaper up front, and it goes away.
Your Payment at Three Rate Scenarios: FHA and Conventional Side by Side
Numbers make this concrete. The following table shows principal and interest only, on a $350,000 loan amount over a 30-year term, at three illustrative rates. These are not quoted rates, they are worked examples as of September 2026 to show how rate movement affects your payment and lifetime interest cost.
| Rate | Monthly Principal & Interest | Total Interest Paid (30 yrs) |
|---|---|---|
| 6.50% | $2,212 | $446,320 |
| 6.75% | $2,270 | $467,200 |
| 7.00% | $2,328 | $488,080 |
That table only tells half the story on an FHA loan. Add FHA’s annual MIP on top of P&I, and on a $350,000 loan you’re typically looking at roughly $240 to $260 per month in mortgage insurance, depending on the current MIP rate tier, per HUD’s mortgage insurance premium schedule. A conventional loan at the same loan amount and a strong credit score might carry PMI closer to $120 to $180 per month, and that PMI disappears once you hit 20% equity. Run both programs side by side on your actual numbers rather than assuming FHA’s lower rate ceiling automatically means a lower total payment.
The only way to know your real numbers is to see personalized quotes. A soft credit pull mortgage pre-approval lets you compare FHA and conventional pricing on your file without a hard inquiry hitting your score, which matters if you’re still deciding which program fits before you’re ready to lock a rate.
Discount Points and Breakeven Math: Is Buying Down Your Rate Worth It
Discount points let you pay cash upfront to lower your interest rate, and whether that trade makes sense depends entirely on how long you’ll keep the loan. Here’s a worked example on a $350,000 loan: one discount point costs 1% of the loan amount, or $3,500, and might drop your rate from 6.75% to 6.50%.
At 6.75%, the monthly P&I is $2,270. At 6.50%, it’s $2,212. That’s a savings of $58 a month, not $46, on this specific loan size, but the general rule holds: divide the point cost by the monthly savings to find your breakeven month. In this case, $3,500 divided by $58 comes out to roughly 60 months, or five years. If your monthly savings were closer to $46 due to a smaller rate spread, the breakeven would stretch to around 76 months, over six years, which is a common outcome depending on the specific rate buydown offered that day.
Points make sense when you plan to stay in the home well past the breakeven point, typically seven years or more when you factor in the time value of that upfront cash. They make less sense if you expect to sell or refinance within five years, because you’d pay for a rate reduction you never fully recoup. This is exactly the kind of math that should be run before you decide, not after you’ve already paid the points at closing.
One nuance worth flagging: FHA and conventional loans don’t always price points the same way. Conventional pricing layers LLPAs into the base rate sheet, so the cost to buy down a point on a conventional loan can differ from the cost on an FHA loan with the same base rate, even on an identical loan amount. Run the breakeven separately for each program rather than assuming the math transfers.
Broker Access vs. Single-Shelf Lenders: Why Loan Program Choice Matters
Where you shop for a mortgage affects which programs and pricing you actually see. A broker with wholesale access can pull FHA and conventional pricing from hundreds of wholesale lenders at once, while a single-shelf lender only shows you its own rate sheet and its own program mix.
| Factor | Mortgage Broker | Single-Shelf Lender |
|---|---|---|
| Lender access | Hundreds of wholesale lenders | One institution’s own pricing |
| FHA and conventional pricing | Compared across many lenders simultaneously | Limited to that lender’s rate sheet |
| Response to weekly LLPA shifts | Can pivot to the lender pricing best that week | Fixed to in-house pricing changes only |
| Program breadth | FHA, VA, conventional, renovation, commercial | Varies by institution |
Examples of single-shelf lenders include Rocket Mortgage, Movement Mortgage, Guild Mortgage, NFM Lending, and Alcova Mortgage. Each has its own underwriting culture and rate sheet, and none of them can show you a competing lender’s pricing even when it’s better for your file that day. This is a factual distinction about access, not a knock on any of these companies.
The practical impact shows up in LLPA volatility. Conventional pricing adjustments shift on a rolling basis in response to market conditions, and FHA MIP structures are set separately by HUD. A broker checking multiple wholesale investors can find whichever lender is pricing FHA or conventional most favorably that week for your specific credit score and loan-to-value combination, rather than being stuck with one shelf.
This is the idea behind Dare to Compare: request a NoTouch Credit Pull and get FHA and conventional quotes side by side without a hard inquiry mortgage pre-approval hit to your score. You see both programs, priced across a wide lender pool, before you commit to either one.
FHA vs Conventional FAQ
What’s the minimum credit score for FHA versus conventional loans?
FHA allows scores as low as 580 for 3.5% down, and some lenders go to 500 with 10% down. Conventional loans generally require 620 minimum, though pricing improves substantially above 680.
Does FHA mortgage insurance ever go away?
On most FHA loans with less than 10% down, annual MIP lasts for the life of the loan. Putting down 10% or more shortens MIP to 11 years, per HUD guidance.
Can I switch from FHA to conventional later?
Yes, this is typically done through a refinance once your credit and equity improve enough to eliminate FHA’s annual MIP and qualify for conventional PMI or no PMI at all.
What are the actual down payment requirements?
FHA requires 3.5% down with a 580+ score. Conventional programs like HomeReady allow as low as 3% down for qualified first-time buyers, as of 2026.
How do debt-to-income limits differ?
FHA often approves DTI ratios into the mid-50s with compensating factors. Conventional loans generally cap around 45% to 50%, depending on automated underwriting results.
Where do I find current loan limits for my county?
Conforming loan limits are set annually and vary by county. Check the current figures on the FHFA conforming loan limits page.
Does comparing FHA and conventional quotes hurt my credit?
Not if you use a soft credit pull mortgage pre-approval. A soft pull lets you see personalized quotes on both programs without a hard inquiry mortgage pre-approval showing up on your credit report, per CFPB guidance on rate shopping and credit scores.
Which is better for first-time buyers?
It depends on credit score and down payment savings more than first-time buyer status alone. Borrowers with lower scores or thinner savings often lean FHA; those with stronger credit and at least 3% to 5% down often find conventional cheaper over time once PMI cancellation is factored in.
Running Your Own Numbers Before You Choose
The FHA-versus-conventional decision comes down to three variables: your credit score, how much you have saved for a down payment, and how long you expect to keep the loan. A borrower with a 610 score and 3.5% down usually fits FHA more comfortably. A borrower with a 740 score and 5% down often saves more with conventional PMI that cancels. There’s no universal winner, only a better fit for your specific numbers.
Get your free NoTouch Credit PreQual today and see FHA and conventional quotes side by side, without a hard inquiry hitting your credit score, then decide with real numbers instead of assumptions.
