FHA vs Conventional loan — 2026 comparison.
Side-by-side: down payment, credit score, mortgage insurance, monthly cost. Which one is cheaper for you?
Pick FHA if…
- Credit score under 680
- Down payment under 5%
- Using gift funds for the full down payment
- Higher DTI (45–57%)
- Have past credit events (BK, foreclosure 2+ years ago)
Pick Conventional if…
- Credit score 680+
- 5% or more down payment
- Want PMI removed at 80% LTV
- Loan above the FHA county limit
- Buying an investment property or vacation home
Full feature comparison
| Feature | FHA | Conventional |
|---|---|---|
| Minimum down payment | 3.5% (580+ credit) or 10% (500–579) | 3% (first-time buyer programs) or 5% standard |
| Minimum credit score | 580 typical / 500 with 10% down | 620 typical / 740+ for best pricing |
| Max debt-to-income (DTI) | Up to 56.99% with compensating factors | Up to 50% (45% common) |
| Mortgage insurance | MIP for life of loan in most cases | PMI removable at 80% LTV; auto at 78% |
| Upfront mortgage insurance | 1.75% UFMIP financed into loan | None |
| Annual MI cost (typical) | 0.55% of loan amount | 0.20%–1.50% depending on credit + LTV |
| Loan limit (most CO counties, 2026) | $524,225 | $806,500 |
| Gift funds allowed | Yes — 100% of down payment can be gifted | Yes — with documentation |
| Seller concessions | Up to 6% of purchase price | Up to 3% (low down) / 6% (20%+ down) |
| Property condition standards | Stricter — appraiser flags safety/health issues | Standard appraisal — fewer condition requirements |
| Multi-unit (2–4 unit) | Yes, must owner-occupy one unit | Yes — can be primary or investment |
| Self-employed borrowers | 2 years tax returns required | 2 years tax returns + P&L; bank statement options on some programs |
Real numbers: $450,000 home in Colorado Springs
Same purchase price, same borrower (680 credit), different program.
FHA (3.5% down)
- Down payment: $15,750
- Loan amount + UFMIP: $441,853
- P&I (6.75%): $2,866
- Monthly MIP (0.55%): $202
- Est. tax + insurance: $475
- Total monthly: $3,543
Conventional (5% down)
- Down payment: $22,500
- Loan amount: $427,500
- P&I (7.00%): $2,845
- Monthly PMI (1.05%): $374
- Est. tax + insurance: $475
- Total monthly: $3,694
Takeaway: At 680 credit, FHA saves about $150/month and $6,750 in down payment. With a 740+ credit, conventional PMI drops to ~$110/month and conventional becomes cheaper. Run your own scenario →
FHA vs Conventional FAQs
Is FHA or conventional better for first-time buyers?+
It depends on your credit and down payment. FHA wins if you have lower credit (under 680) or only 3.5% down. Conventional wins if you have 680+ credit and at least 5% down because you can remove PMI at 80% LTV — FHA mortgage insurance is permanent.
Can I refinance from FHA to conventional?+
Yes — this is one of the most common refinances we do. Once you reach 20% equity (or a credit score above 680 with PMI), refinancing to conventional eliminates the permanent FHA mortgage insurance and often lowers your monthly payment by $150–$400.
Which has lower closing costs?+
Closing costs are similar, but FHA's 1.75% upfront mortgage insurance premium (UFMIP) is unique. Most FHA borrowers roll the UFMIP into the loan, so it doesn't increase out-of-pocket costs. Conventional has no upfront MI.
Can I buy an investment property with FHA?+
No — FHA loans are strictly for primary residences. However, you can buy a 2–4 unit property with FHA as long as you live in one unit. Conventional allows true investment property financing with 15–25% down.
Which loan has better interest rates?+
FHA base rates are usually 0.125%–0.25% lower than conventional. But once you factor in permanent FHA mortgage insurance, conventional often costs less total monthly for borrowers with 700+ credit.
What if my credit score is right at 620?+
Both options work, but FHA will likely give better pricing at 620. Borrowers in the 620–679 range often pay less monthly with FHA even after MIP. Above 700, conventional usually wins.
Get a real side-by-side quote
We'll price both FHA and Conventional for your scenario — pick the one that costs less.