FHA Loan vs Conventional Loan - Complete Comparison
By Jason Iacovelli, NMLS #3370 | Updated January 2025
FHA loans require 580+ credit and 3.5% down; annual MIP lasts 11 years with 10% or more down or the loan term with less than 10% down, while conventional loans use credit eligibility based on automated underwriting findings, subject to final lender review but allow requests for PMI cancellation when eligibility requirements are met, saving $100-200/month long-term. Buyers in Raleigh with good credit save more with conventional loans, while those in Holly Springs with lower credit benefit from FHA loans.
People Also Ask:
- Which is better? - Conventional for 680+ credit, FHA for 580-679 credit
- Can I remove insurance? - Conventional yes at 20%, FHA annual MIP: 11 years with 10% or more down; loan term with less than 10% down
- Which is easier to qualify? - FHA accepts scores of 580+ with 3.5% down, or 500-579 with 10% down, subject to approval; conventional loans use credit eligibility based on automated underwriting findings, subject to final lender review
- Down payment? - FHA 3.5%, Conventional 3-5%
- Which costs less long-term? - Conventional due to removable PMI
What Are the Key Differences?
| Feature | FHA | Conventional |
|---|---|---|
| Credit Score | 580+ with 3.5% down, or 500-579 with 10% down, subject to approval | No blanket 620 minimum. Credit eligibility depends on automated underwriting findings, with final approval subject to lender review. |
| Down Payment | 3.5% | 3-5% |
| Insurance | Annual MIP: 11 years with 10% or more down; loan term with less than 10% down. | Removable PMI |
| 2026 loan limit, one-unit property | $541,287 | $832,750 |
Which Should You Choose?
For most buyers with credit scores 680+, conventional loans save $100-200/month long-term due to removable PMI. However, FHA loans are the better choice for first-time buyers with credit scores 580-679 who need lower down payments and more flexible qualification requirements.
- Choose FHA: Credit 580-679, minimal down payment, first-time buyer
- Choose Conventional: Credit 680+, want removable PMI, higher loan amount
Frequently Asked Questions
What is the main difference between FHA and conventional loans?
FHA requires 580+ credit with 3.5% down. Annual MIP: 11 years with 10% or more down; loan term with less than 10% down. Conventional uses credit eligibility based on automated underwriting findings, subject to final lender review but PMI cancellation can be requested when eligibility requirements are met.
Which has lower monthly payments?
Conventional typically has lower payments for credit 680+. FHA may be cheaper for credit 580-679 despite MIP.
Can I remove mortgage insurance?
Conventional PMI cancellation can be requested when eligibility requirements are met. FHA MIP lasts life of loan if under 10% down.
Which is easier to qualify for?
FHA is easier with FHA credit options (580+ with 3.5% down, or 500-579 with 10% down, subject to approval) and conventional credit eligibility based on automated underwriting findings, subject to final lender review and higher DTI ratios (50% vs 43%).
What are the down payment requirements?
FHA: 3.5% with 580+ score. Conventional: 3-5% down payment.
Which has higher closing costs?
FHA has 1.75% upfront MIP ($6,125 on $350K loan) added to closing costs.
Can I use gift funds?
Yes, both allow gifts. FHA allows 100% gift, conventional requires some of your own funds.
Which has stricter property requirements?
FHA has strict minimum property standards. Conventional is more flexible with property condition.
What are the loan limits?
For one-unit properties in Wake County in 2026: FHA $541,287; conventional conforming $832,750.
Should I refinance from FHA to conventional?
Yes, once you have 20% equity to eliminate lifetime MIP and save $100-200/month.
Which do sellers prefer?
Sellers prefer conventional due to fewer appraisal issues and faster closing.
Can I buy investment property?
Conventional allows investment properties. FHA is primary residence only.