When you start shopping for a home, one of the first questions comes up fast: FHA or conventional? Both are popular. Both can get you into a home. But the FHA vs conventional loan decision isn't just about which one you qualify for — it's about which one costs you less over the time you actually own the home.

We work with buyers in Colorado and Florida every week, and this is one of the most common places where assumptions lead people in the wrong direction. So let's walk through what actually matters, without the hype.

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How FHA and Conventional Loans Actually Differ

These two loan types come from different places. That's where the differences start.

An FHA loan is backed by the Federal Housing Administration, a government agency under HUD. Because the government insures the loan, lenders take on less risk. So they can approve borrowers with lower credit scores and smaller down payments. But you pay for that protection — through mortgage insurance that stays on the loan for a very long time.

A conventional loan has no government backing. It meets the guidelines set by Fannie Mae or Freddie Mac. Lenders take on more risk, so they want stronger credit profiles. However, the trade-off is real: no permanent mortgage insurance, more flexible property options, and often better long-term costs for borrowers who qualify.

According to HUD, FHA loans have financed more than 50 million homes since the program launched in 1934, and per HUD's 2023 Annual Report to Congress, approximately 83% of FHA purchase loans went to first-time homebuyers — which tells you exactly who this program was built for.

Neither loan is better across the board. Each one fits a different borrower profile.

Down Payment Requirements: What Each Loan Actually Needs

Down payment is often the first thing buyers focus on. Here's where FHA and conventional actually differ.

FHA requires a minimum 3.5% down payment for borrowers with a credit score of 580 or above, per HUD guidelines. If your score falls between 500 and 579, FHA still works — but you'll need 10% down. Below 500, FHA won't approve the loan.

Per Fannie Mae guidelines, the HomeReady program allows conventional loans with as little as 3% down for qualifying borrowers. Standard conventional loans typically start at 5% down. But here's something worth knowing: putting less than 20% down on a conventional loan triggers private mortgage insurance — which we'll cover in detail below.

For many buyers, the 3% vs 3.5% difference looks small. It often is. On a $350,000 home, that's $10,500 vs $12,250 — a difference of $1,750. The bigger impact is what happens after you close. Learn more about the down payment options available to you before assuming you know what's possible.

Note: Loan limits update each year. For 2026, verify the FHA floor limit at HUD.gov and the conventional conforming limit at FHFA.gov before using these figures in your planning.

How Your Credit Score Changes the Picture

Here's where a lot of buyers get tripped up. FHA approves borrowers with a 580 credit score. Conventional loans technically start at 620. So if your score is in the 580–620 range, FHA may be your only option.

But once you're above 620, the comparison gets more nuanced.

Fannie Mae's Loan-Level Price Adjustment (LLPA) framework applies rate add-ons based on credit score and loan-to-value ratio, meaning a borrower with a 640 credit score pays a meaningfully higher rate than one with a 760 credit score on the same conventional loan. So "I qualify for conventional" doesn't always mean "conventional is the cheaper option."

In our experience working with Colorado and Florida borrowers, we often see buyers with scores in the 620–680 range assume conventional is automatically better. But after running the numbers, FHA sometimes comes out ahead on the monthly payment — at least early on. The problem is what happens over time, which ties directly to mortgage insurance.

For buyers with scores above 720, conventional almost always wins on rate. And when that's paired with a 20% down payment, there's no mortgage insurance at all. That's the cleanest scenario. The debt-to-income ratio also plays a role here — FHA gives more room on DTI, which matters for buyers with student loans or car payments.

Mortgage Insurance: The Cost That Can Follow You for 30 Years

This is the section most articles skim. We're not going to do that.

Mortgage insurance is the biggest long-term cost difference between these two loan types — and most buyers don't fully see it until it's too late to change their decision.

How FHA mortgage insurance works

Per HUD guidelines, FHA charges an upfront mortgage insurance premium of 1.75% of the loan amount at closing, plus an annual premium of approximately 0.55% for most 30-year loans with less than 10% down. That annual premium gets divided into monthly payments added to your mortgage bill.

Here's the critical part: if you put down less than 10%, that monthly MIP stays on your loan for the full 30-year term. You can't cancel it by building equity. To get rid of it, you'd need to refinance into a conventional loan once you've built enough equity — which means new closing costs.

How conventional PMI works

Conventional loans use private mortgage insurance (PMI) when you put down less than 20%. Under the Homeowners Protection Act, lenders must cancel PMI on conventional loans once the borrower reaches 78% LTV based on the original amortization schedule — and you can request cancellation at 80% LTV.

So conventional PMI has an end date. FHA MIP (in most cases) does not.

Here's what that means in real dollars. On a $350,000 home with 5% down, FHA annual MIP runs roughly $1,900+ per year and never stops. Conventional PMI on the same loan might run a bit higher monthly at first, but it cancels around year five once you've built 20% equity through payments and appreciation. By year seven, a conventional borrower may have paid significantly less in total insurance costs — even if their monthly payment looked higher early on.

So when you're comparing these two loans, don't just look at the monthly payment. Ask how long you plan to stay in the home, and how quickly you'll build equity.

How to Pick the Right Loan for Your Situation

There's no universal right answer here. But there are clear patterns. After working with hundreds of buyers across Colorado and Florida, we've seen these two profiles play out consistently.

The gray zone: 620–680 credit scores

This range is where the decision is hardest. You qualify for both loan types. But conventional rates will carry risk-based price add-ons at this credit tier, while FHA rates are more consistent. So run the numbers for both — specifically the total cost over your expected time in the home, not just the payment.

We often run side-by-side payment scenarios for buyers in this range. Sometimes FHA wins on month one. But conventional wins by year six because the PMI is gone. Your plan for the home matters as much as your credit score.

You can explore the full range of loan programs available in Colorado and Florida to see what else might fit alongside these two options.

Don't forget the appraisal difference

FHA has stricter property standards. The appraiser checks for health and safety issues — peeling paint, broken handrails, roof condition — not just market value. On older homes or fixer-uppers, this can create headaches. Conventional appraisals focus primarily on value. If you're buying a home that needs work, this distinction may influence which loan type is even practical for that property.

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Frequently Asked Questions