FHA vs. Conventional: How to Actually Decide

For most borrowers the answer comes down to one number and one question. The number is your credit score. The question is whether the mortgage insurance ever goes away. Below roughly 660, FHA usually wins. Above roughly 700, conventional usually wins. In between, it is a real calculation — and the mortgage insurance is what tips it.

Everything else in this comparison is detail. Start there.

Why credit score decides so much

The two programs price credit differently, and that is the root of everything.

Conventional loans price risk into the loan. Fannie Mae and Freddie Mac apply loan-level price adjustments that move with your credit score and down payment. A 780 borrower and a 640 borrower get materially different terms on the same house. Credit is rewarded, and the reward is steep.

FHA prices risk into the insurance. The government insures the loan, so the pricing is far less sensitive to your score. A 620 borrower and a 700 borrower are treated more alike than they would be on conventional.

The consequence: conventional is the better deal when your credit is strong, and FHA is the better deal — sometimes the only deal — when it is not. That is not a marketing preference. It is how the two systems are built.

The mortgage insurance difference, which is usually the whole ballgame

Both programs charge mortgage insurance when you put down less than 20%. They differ in one respect that dwarfs the others.

Conventional PMI is temporary. Under the Homeowners Protection Act you can request cancellation at 80% of original value, and the servicer must terminate it automatically at 78%. If the home has appreciated, a new appraisal may get you there sooner on current value.

FHA mortgage insurance is frequently permanent. With less than 10% down, the annual premium generally stays for the life of the loan. With 10% or more down, it generally drops after 11 years.

At minimum down payment on FHA, there is no cancellation provision. The only exit is refinancing — which depends on rates and equity you cannot forecast today.

Over a full loan term, that difference regularly outweighs any rate advantage in either direction. If you take one thing from this page, take that.

The numbers for 2026

A framework instead of a rule

Work through these in order.

1. Is your score below 620? FHA, most likely, or wait and repair credit. Conventional pricing at that level is usually punitive where it is available at all.

2. Is the property not your primary residence? Conventional, by elimination. FHA, VA, and USDA all require occupancy. A rental or second home is a conventional loan.

3. Are you putting down 20% or more? Conventional. No mortgage insurance at all, and none of FHA's costs apply.

4. Is your score above 700 with at least 5% down? Conventional, almost always. You capture the credit pricing and your PMI is cancellable.

5. Are you between 620 and 700 with a small down payment? This is the real decision, and it turns on two things: how long you expect to keep the loan, and whether you will realistically refinance out of FHA mortgage insurance later.

If you are likely to move or refinance within five to seven years, FHA's permanent mortgage insurance matters much less, and FHA's easier qualifying may win. If this is a long-term hold, conventional's cancellable PMI usually wins even at a somewhat worse rate.

6. Does the property have condition issues? FHA and VA appraisals enforce property standards that conventional does not. For a fixer, conventional may be the only program that closes.

Two things worth knowing before you compare quotes

Lender overlays are real. FHA sets a 580 floor; many lenders will not go below 620 or 640. The same file can be declined at one lender and approved at another with no change. If you have been turned down, that may be a statement about one lender's overlays, not about your eligibility.

You can refinance out of FHA later — but only if conditions allow. "We will refinance out of the mortgage insurance in a few years" is a common plan and sometimes a good one. It depends on rates being reasonable and your equity reaching 80%. Neither is guaranteed. Treat it as a possibility, not a step in the plan.

Have both run

The honest answer is that this is arithmetic, not philosophy. With your score, your down payment, and your timeline, both programs produce a number, and one of them is lower.

We run both and show you the comparison. If FHA is better for you, we will say so.

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FAQ

Is FHA or conventional better? Conventional is usually better above roughly 700 because PMI cancels and credit pricing rewards you. FHA is usually better below roughly 660 because its pricing is less credit-sensitive and its qualifying is more forgiving. Between those, it depends on your down payment and how long you will keep the loan.

Can I switch from FHA to conventional later? Yes, by refinancing — and it is the standard way to shed FHA mortgage insurance. It requires rates that make sense and enough equity, typically 20% of current value.

Does FHA have a lower interest rate than conventional? Sometimes, particularly for lower credit scores. But the rate is only part of the cost. FHA's upfront premium and frequently permanent annual premium often exceed the rate difference over time.

What credit score do I need for conventional? There is no published minimum, but pricing deteriorates sharply below about 680 and many lenders stop around 620. FHA goes to 580 with 3.5% down.

Can I use FHA for an investment property? No. FHA requires you to occupy the home as your primary residence. You can buy up to four units and live in one. For a pure rental, you need conventional.