FHA vs. conventional loans: which is right for you?
Two of the most common loan types, side by side. Here's how they compare on every factor that matters — and which one wins for your situation.
The core difference
FHA loans are backed by the Federal Housing Administration and designed to make homeownership accessible to buyers with lower credit scores or smaller down payments. Conventional loans are not government-backed — they follow guidelines set by Fannie Mae and Freddie Mac and typically reward stronger credit profiles with better terms.
Neither is universally better. The right choice depends on your credit score, down payment, the home's price, and how long you plan to stay. This guide walks through every key factor so you can make an informed decision.
Step 01
Credit score requirements
FHA loans accept credit scores as low as 580 with a 3.5% down payment, and scores as low as 500 with 10% down. This makes FHA the go-to option for buyers who are rebuilding credit or haven't had time to build a strong history. Conventional loans typically require a minimum score of 620, but the best rates are reserved for scores of 740 and above. Below 680, conventional loans often become more expensive than FHA due to loan-level price adjustments (LLPAs).
Key takeaways
If your score is between 620–679, run the numbers on both — FHA may actually be cheaper
A score of 740+ on a conventional loan unlocks the best available pricing
Even a 20-point score improvement before applying can shift which loan is the better deal
Step 02
Down payment requirements
FHA requires a minimum of 3.5% down with a 580+ credit score. Conventional loans can go as low as 3% down (Fannie Mae HomeReady, Freddie Mac Home Possible) for qualifying buyers, but 5% is more typical. The key difference: with conventional loans, reaching 20% down eliminates private mortgage insurance entirely. With FHA, mortgage insurance is required for the life of the loan if you put less than 10% down — a significant long-term cost.
Key takeaways
Down payment assistance programs can be layered with both FHA and conventional loans
Gift funds from family are allowed for down payments on both loan types
If you can put 10% down on an FHA loan, MIP drops off after 11 years instead of lasting the full term
Step 03
Mortgage insurance: the biggest difference
This is where FHA and conventional loans diverge most significantly. FHA requires an upfront mortgage insurance premium (UFMIP) of 1.75% of the loan amount (financed into the loan) plus an annual MIP of 0.55–1.05% depending on loan size and term. On a conventional loan, PMI is only required when you put less than 20% down — and it automatically cancels when your equity reaches 20%. On FHA with less than 10% down, MIP lasts the entire loan term.
Key takeaways
On a $400,000 FHA loan, the UFMIP alone adds $7,000 to your loan balance
Conventional PMI rates vary by credit score and down payment — get a quote for your specific scenario
Refinancing from FHA to conventional once you have 20% equity is a common strategy to eliminate MIP
Step 04
Loan limits
FHA loan limits are set by county and updated annually. In El Paso County (Colorado Springs), the 2024 FHA limit for a single-family home is $498,257. Conventional conforming loan limits are higher — $766,550 for most of Colorado in 2024. Loans above these limits are jumbo loans and require different qualification standards. If you're buying above the FHA limit, conventional is your primary option (or a VA loan if you're eligible).
Key takeaways
FHA limits are lower in most Colorado counties — verify the current limit before assuming FHA works for your price point
Conforming loan limits are adjusted annually — check the current year's limits when budgeting
Jumbo loans require stronger credit, larger down payments, and more reserves
Step 05
Property requirements
FHA has stricter property condition requirements than conventional. The FHA appraiser will flag safety and habitability issues — peeling paint, broken windows, missing handrails — that must be repaired before closing. This can complicate offers on fixer-uppers or older homes. Conventional appraisals focus primarily on value, with fewer condition requirements. If you're buying a home that needs work, conventional financing is typically easier to use.
Key takeaways
FHA 203(k) loans allow you to finance renovation costs into the loan — an option for fixer-uppers
Sellers sometimes prefer conventional offers because of FHA's stricter appraisal requirements
Condos must be FHA-approved for FHA financing — check the HUD condo approval list early
Step 06
Which loan wins for your situation
FHA wins when: your credit score is below 680, you have limited down payment savings, or you need the most flexible qualification standards. Conventional wins when: your credit score is 740+, you can put 20% down (eliminating PMI entirely), you're buying above FHA loan limits, or you want to avoid lifetime mortgage insurance. For veterans and active-duty military, the VA loan beats both in almost every scenario. The best way to decide: have your broker run both scenarios with your actual numbers.
Key takeaways
Ask your broker to show you a side-by-side payment comparison for both loan types
Consider the break-even point — how long until the lower conventional rate offsets the higher down payment?
Your situation today may favor FHA, but plan to refinance to conventional once you have 20% equity
Not sure which loan is right for you?
We'll run both scenarios with your actual numbers and show you exactly which option saves you more money.
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