Published · The Loan Ranger
Side by side
| FHA | Conventional | |
|---|---|---|
| Minimum down payment | 3.5% with a 580+ credit score | 3% for eligible first-time buyers, 5% in most other cases |
| Credit score | More flexible. 580+ for 3.5% down | Usually 620 or higher, with better pricing for higher scores |
| Mortgage insurance | Upfront premium plus a monthly premium | Monthly premium only when you put down less than 20% |
| Removing mortgage insurance | Usually stays for the life of the loan with less than 10% down | Can be removed once you reach enough equity |
| Property use | Primary residence | Primary, second home or investment property |
| Property condition | Must meet FHA’s minimum standards | Appraisal required, with fewer condition rules |
When FHA usually costs less
- Your credit score is in the 500s or low 600s
- You have a small down payment and your score would make conventional mortgage insurance expensive
- Your debts are high compared with your income
FHA pricing depends less on your credit score than conventional pricing does. That is why it often wins for buyers who are still building credit.
When conventional usually costs less
- Your credit score is strong
- You can put down 10% or more
- You want mortgage insurance to end without refinancing
- You are buying a second home or a rental
The mortgage insurance difference
This is where the two loans differ most. FHA charges an upfront premium, usually added to the loan, and a monthly premium. With less than 10% down, the monthly premium generally lasts as long as the loan does, and the usual way to end it is to refinance into a conventional loan later.
Conventional mortgage insurance has no upfront premium in most cases. Its cost depends on your credit score, and you can ask to remove it when your balance reaches 80% of the home’s original value.
Two other options to check
If you served in the military, look at a VA loan first. It can require no down payment and has no monthly mortgage insurance, which neither FHA nor conventional can match.
If your income is within the limits set by the Colorado Housing and Finance Authority, CHFA down payment assistance can be combined with an FHA or a conventional loan. See first-time home buyer loans.
How to decide
Ask for both loans priced on the same home, on the same day. Compare the monthly payment, the cash to close and the total cost over the years you expect to keep the loan. The answer is usually clear once the two are next to each other, and it is the comparison Max runs for buyers who qualify for both.
General information, not a loan approval or financial advice. Loan programs and requirements change, and Max confirms what applies to you.
