FHA Loan vs. Conventional Loan — Which Is Right for You?
One of the most common questions homebuyers face is: should I go FHA or conventional? The answer depends on your credit score, down payment, and long-term goals. Here’s a direct comparison.
Side-by-Side Comparison
| Feature | FHA Loan | Conventional Loan |
|---|---|---|
| Minimum Credit Score | 580 (standard) | Typically 620–640 |
| Minimum Down Payment | 3.5% | 3% (some programs) |
| Mortgage Insurance | UFMIP + monthly MIP required | PMI if < 20% down |
| MI Cancellation | Life of loan (if < 10% down) | Cancellable at 20% equity |
| Max Seller Concessions | 6% | 3%–9% depending on LTV |
| Property Types | Primary residence only | Primary, second home, investment |
| Gift Funds | Allowed — 100% of down payment | Allowed with restrictions |
When FHA Makes More Sense
- Lower credit scores: If your score is 580–660, FHA typically offers better rates and easier approval than conventional.
- Limited down payment: At 3.5%, FHA requires similar down payment to many conventional programs — but with easier credit requirements.
- Recent derogatory events: FHA waiting periods after bankruptcy (2 years) and foreclosure (3 years) are shorter than conventional (4 years and 7 years respectively).
- Gift funds for the full down payment: FHA is extremely accommodating for gift money.
When Conventional Makes More Sense
- Higher credit scores with equity: If your credit is 720+ and you have 20% down, conventional avoids mortgage insurance entirely.
- Long-term MIP concern: FHA MIP doesn’t cancel automatically with equity growth on loans with less than 10% down.
- Second homes and investment properties: FHA is only for primary residences.
The Bottom Line
There is no universally “better” option. For a first-time buyer in California with a 600 credit score and 3.5% saved, FHA is likely the right answer. For a buyer with 740 credit and 20% down, conventional is almost always better. Many buyers fall somewhere in between — that’s where working with a broker who can compare both options for you becomes critical.