The Quick Read: It depends on your credit, your cash, and how long you plan to keep the loan. An FHA loan is built for buyers with thinner credit or smaller savings, and it accepts higher debt loads. A conventional loan usually fits buyers with stronger credit, because its mortgage insurance can end sooner. Both can finance a first home you will live in. Neither is better for everyone.
Key Takeaways
- FHA reaches up to 96.5% financing with a 3.5% minimum investment at a 580 decision score, subject to lender guidelines.
- Conventional loans usually ask for more from credit, but private mortgage insurance can be cancelled once you build equity.
- FHA mortgage insurance has two parts: an upfront premium and an annual premium. Whether the annual part ends depends on your starting LTV.
- Debt-to-income room is wider on FHA files with documented compensating factors.
- Many borrowers can qualify for both. The better pick is the one with the lower cost over the time you will actually hold the loan.
Side-by-Side
The table below shows how the two loan types compare on the points that decide most first-home files. Figures for FHA come from the wholesale programs Lendmire places these loans with. Conventional terms vary more by lender and program, so they are described in plain terms. All of it is subject to lender guidelines and full file review.
FHA payment estimate
Starting assumptions reflect an example price and the FHA minimum investment. Replace them with your own figures.
Editable benchmark: 7.32% as of October 22, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not an FHA loan quote.
Illustrative starting assumptions: a $350,000 price, the FHA minimum investment as the down payment, a thirty-year term at the current Freddie Mac benchmark, and property taxes and insurance estimated at typical national rates. Every field is editable.
Illustrative estimate only — not a Loan Estimate, approval, quote, or commitment to lend. The rate field carries the weekly Freddie Mac thirty-year conventional benchmark, a market reference and not an FHA loan quote; your rate is set by the lender at lock. FHA mortgage insurance follows HUD’s published schedule for the term, leverage and loan size entered; taxes, insurance and dues are editable estimates; closing costs are not included; county loan limits are not checked here. Licensed in sixteen states for consumer mortgages. Lendmire is not affiliated with or acting on behalf of FHA, HUD, or the federal government.
| Factor | FHA Loan | Conventional Loan |
|---|---|---|
| Maximum financing | 96.5% LTV | Varies by program and credit |
| Minimum investment | 3.5% at a 580 score | Varies; low-down options exist |
| Credit floor | 580 on these programs | Usually higher; varies by lender |
| Mortgage insurance | Upfront plus annual premium | Private insurance; cancelable |
| Debt ratios | 31/43 base, up to 40/50 | Set mostly by automated finding |
| Occupancy | Principal residence, 1-4 units | Primary, second home, or rental |
| Past credit events | Set waiting periods | Set by lender and program |
What Each Loan Really Is
An FHA loan is a regular mortgage from a private lender with mortgage insurance backed by the federal government. HUD describes its basic program, Section 203(b), as insurance on a loan to buy or refinance a principal residence. The lender funds the loan and HUD insures it. Eligible properties are one-to-four unit homes you will occupy.
A conventional loan is any mortgage not insured by a government agency. Most are written to the standards of the large secondary-market investors and are then sold to them. That gives them a common rulebook. The lender still sets its own minimums on top.
Lendmire is a mortgage broker. It arranges both types through wholesale lenders, and the lender makes the credit decision. If you want to see what an FHA loan asks of a borrower, Lendmire’s FHA loan programs page is the place to start.
One myth to clear up first: FHA is not only for first-time buyers. It is open to any buyer of a principal residence. A conventional low-down-payment program is not first-time-only either. Fannie Mae’s HomeReady guidelines cover one-unit homes, condos, and two- to four-unit properties. They also ask first-time buyers to complete a homebuyer education course when every occupying borrower is a first-timer.
When FHA Is the Better Fit
FHA is the better fit when credit, savings, or debt load is the tight spot on the file. Three situations come up most.
Credit in the lower range. On the wholesale programs used for FHA files, a decision score of 580 or higher opens financing up to 96.5% with a 3.5% minimum investment. Many conventional lenders set a higher floor. A buyer sitting in the low 600s or at 580 often finds FHA is the option that works on paper. Some lenders set a score minimum above the program floor. A 580 does not promise a decision, so the file is still read in full.
Higher debt ratios. The base FHA pair is 31/43, housing to total debt, with no compensating factors. Documented factors can stretch that to 40/50 at the top tier. The automated finding governs most files. A buyer with a car note and student loans may land inside FHA ratios but outside what a conventional finding allows.
A recent credit event. After a Chapter 7 discharge or a foreclosure, HUD’s own waiting periods are two years and three years. Those are HUD rules, not a promise from the network. Conventional programs usually wait longer, though the exact period depends on the lender and program.
FHA also allows a non-occupant co-borrower and seller or interested-party contributions up to 6% of the price. That helps a buyer who is short on cash at closing.
Picture a buyer with a 600 decision score, a modest down payment of around 4%, and a total debt load near the top of the range. That file is a natural FHA candidate. The same buyer on a conventional loan may be asked for more cash down or a higher score.
The Mortgage Insurance Catch
FHA mortgage insurance has two pieces. The upfront premium is 1.75% of the base loan and is usually financed into the balance. The annual premium runs between 0.15% and 0.75% of the balance, depending on term, loan amount and LTV. HUD’s own release explains that annual premium is calculated as a percentage of the outstanding balance. These are program facts, not a quote.
The duration is where it bites. On a thirty-year loan above 90% LTV, the annual premium lasts for the full term. At or below 90% LTV, it ends after eleven years. A buyer who puts down 3.5% should assume FHA insurance stays on the loan, then plan an exit. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
The exit is usually a refinance into a conventional loan once there is enough equity. That is a new credit decision, not an automatic switch.
When Conventional Is the Better Fit
Conventional is the better fit when credit is solid and you want the mortgage insurance to be temporary. The edge is not the down payment, because both loans have low-down options. The edge is what happens to the insurance later.
For private mortgage insurance, the rules are set by law. The CFPB explains that you can ask your servicer to cancel PMI when the balance is scheduled to reach 80% of the home’s original value. The request must be in writing, and you need a good payment history, no junior liens, and proof the value has not dropped. At a scheduled 78%, the servicer must end it automatically if you are current. FHA insurance does not follow those 80% and 78% rules.
Three more cases favor conventional.
Strong credit and a larger down payment. A buyer with a high score and 10% to 20% down often finds private insurance priced lower than FHA premiums. At 20% down, there may be no private mortgage insurance at all. Pricing depends on score and LTV, so a quote is the only real test.
A long hold. If you plan to stay for many years, a mortgage insurance premium that can end matters more.
Occupancy flexibility. FHA requires a home you occupy. Conventional programs can also cover second homes. That does not matter for most first-time buyers, but it is a real difference.
A conventional appraisal focuses on value and general condition. It does not apply FHA’s property standards. A home that needs repairs may pass a conventional review that an FHA appraisal would flag.
Appraisal and Property Condition
The home itself can decide the loan type. An FHA appraisal sets value and also checks the home against FHA minimum property standards. The appraiser notes needed repairs, and the lender decides which ones must be done before closing. Peeling paint, a failing roof, or a missing handrail can stop an FHA file until it is fixed.
An FHA appraisal is not a home inspection. It does not guarantee the home is free of defects. Buyers should still hire an inspector on either loan type.
For a fixer-upper, conventional can be the cleaner path. For a move-in-ready home, the difference shrinks.
Loan Limits
County loan limits apply to both programs, and they change every year. Limits also rise with unit count, so a duplex has a higher limit than a one-unit home. HUD’s annual FHA limit announcement shows a low-cost floor and a high-cost ceiling in each unit category. The ceiling is tied by law to 150% of the national conforming limit. In expensive counties the two programs often end up near the same ceiling.
Check your county’s limit before you shop. It can steer the whole decision when the price is high.
Where Most Buyers Get It Wrong
Most mistakes come from comparing only the first bill.
- Comparing the down payment alone. The smaller down payment on FHA comes with insurance that can last much longer.
- Assuming the score floor is the offer. Lenders can set stricter minimums than the program. The FHA floor may be lower than what a given lender will accept.
- Treating FHA insurance like PMI. They have different names for a reason. FHA uses a mortgage insurance premium collected for HUD. PMI is private and follows its own cancellation rules.
- Ignoring the exit. If you start FHA, plan how and when you might refinance. Equity of around 20% is the usual target for a conventional loan without mortgage insurance, and the lender must approve it.
- Skipping the Loan Estimate comparison. Ask for estimates on both loan types and compare the full cost, not one line.
A Short Decision Checklist
Run through this before you commit.
1. Check your decision score. If it sits near the bottom of the range, FHA is likely the open door.
2. Count the cash you can bring, including gifts and seller contributions. Then compare how each loan treats it.
3. List your monthly debts. If the total is high, FHA’s wider ratios may matter.
4. Decide how long you will hold the loan. A long hold favors insurance that can end.
5. Look at the home’s condition. A rough property can complicate FHA.
6. Ask for both loan types in writing and compare them side by side.
If you served in the military, a third option may beat both. Lendmire’s piece VA vs Conventional vs FHA Loan for a Veteran Buying a First Home covers it.
Key Terms Defined
Decision score: The credit score the lender uses to place your file in a program tier.
LTV (loan-to-value): The loan amount as a percentage of the home’s price or appraised value, whichever is lower.
MIP (mortgage insurance premium): The upfront and annual premiums on an FHA loan, collected for HUD.
PMI (private mortgage insurance): Insurance on a conventional loan with a small down payment. It can be cancelled under set rules.
DTI (debt-to-income ratio): Your monthly debts as a share of your gross monthly income, shown as a housing ratio and a total ratio.
Overlay: A lender rule stricter than the program’s own minimum.
The Balanced Verdict
Neither loan wins on its own. FHA is the tool for a buyer who needs more room on credit, savings, or debt load, and who accepts that mortgage insurance may stay for the life of the loan. Conventional is the tool for a buyer with stronger credit who wants insurance that can end by rule. Many buyers in the middle can use either, and for them the question is cost over the years they will hold the loan.
Start with the file, not the label. Score, cash, debts, property condition, and time horizon decide it.
Frequently Asked Questions
Is an FHA loan only for first-time home buyers?
No. FHA insures loans for the purchase or refinance of a principal residence, and repeat buyers can use it. The home must be one to four units and you must live in it. Conventional low-down-payment programs are also open to repeat buyers.
Which loan costs less overall?
It depends on your credit, down payment, and how long you keep the loan. Buyers with strong credit and more cash down often find conventional costs less because private insurance can be cancelled. Buyers with lower scores often find FHA is the one they can get. Compare Loan Estimates for both before deciding.
Can I get rid of FHA mortgage insurance later?
Sometimes. On a thirty-year loan at or below 90% LTV, the annual premium ends after eleven years. Above 90% LTV, it lasts the loan term. Many borrowers instead refinance into a conventional loan once they have enough equity. That requires a new credit decision, and it is not guaranteed. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Does a 580 score mean I qualify for FHA?
No. A 580 decision score is the starting point for 96.5% financing on the programs Lendmire places FHA loans with, but lenders review income, assets, debts, and the property too. Some lenders set a higher minimum than the program. Approval is subject to lender guidelines and full file review.
Does the appraisal differ between the two loans?
Yes. An FHA appraisal checks value and also notes repairs needed to meet FHA property standards, and the lender decides which repairs must be made. Neither one replaces a home inspection.
Next Step
If you are buying a home and want to see whether an FHA loan fits your file, Lendmire can help you compare the options and what each one asks of the file. Call 828-256-2183 or request a quote to start the comparison.
About Lendmire
Lendmire, NMLS# 2371349, is a mortgage brokerage with consumer lending licenses in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending partners, and each application is reviewed individually by the lender. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. HUD – Basic Home Mortgage Loan 203(b)
2. Fannie Mae Selling Guide – HomeReady eligibility
3. HUD Archives – annual mortgage insurance premium release (HUD No. 23-041)
4. CFPB: When Can I Remove Private Mortgage Insurance PMI from My Loan
5. HUD – 2026 FHA Loan Limits announcement
This article is part of Lendmire’s FHA loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Is an FHA Loan Easier to Qualify for Than a Conventional Loan? · Reusing an FHA Loan vs. a Conventional Loan for a Past FHA Borrower · FHA vs Conventional Loan for a First-Time Buyer: What Decides
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.