FHA vs. Conventional Loan: Key Differences
October 20, 2026
An FHA loan is insured by the Federal Housing Administration, part of HUD, and generally allows lower credit scores and more flexible qualifying. A conventional loan isn't government-insured and usually follows Fannie Mae or Freddie Mac guidelines, which often reward stronger credit and more equity. The biggest practical differences are mortgage insurance, credit flexibility, property rules and occupancy, so compare both on Loan Estimates for your actual scenario.
How they differ. FHA loans are for a primary residence you'll live in, and they have county-based loan limits set by HUD. FHA's minimum credit score depends on the size of your down payment, and many lenders set higher minimums of their own. The property must meet HUD's minimum property standards, which an FHA appraisal checks. Conventional loans can be used for a primary home, a second home or an investment property. Conforming conventional loans follow Fannie Mae and Freddie Mac limits and rules, and they carry loan-level price adjustments based on credit score, equity and other risk factors, which FHA loans don't. Fannie Mae and Freddie Mac also offer low-down-payment conventional programs, some aimed at first-time buyers or buyers within certain income limits.
Mortgage insurance is often the deciding factor. FHA loans charge an upfront mortgage insurance premium, which is usually financed into the loan, plus an annual premium paid monthly. Depending on your down payment and loan term, the annual premium lasts either a set number of years or the life of the loan, and on many FHA loans the only way to remove it is to refinance. Conventional loans require private mortgage insurance (PMI) when you have less equity than the lender requires. Under the federal Homeowners Protection Act, you can ask to cancel PMI once your balance reaches the threshold set by the law, based on the home's original value, and it generally ends automatically at a later point if you're current on payments. PMI pricing is tied more closely to credit score, so borrowers with stronger credit often find conventional more cost-effective, while FHA can be the better fit for borrowers with lower scores or higher debt-to-income ratios.
How to choose and quick answers. Ask a lender or broker to price the same purchase both ways and compare the Loan Estimates, especially the mortgage insurance lines on page 1 and the In 5 Years totals on page 3. Think about how long you'll keep the loan, since FHA mortgage insurance may stay unless you refinance. Can sellers help with closing costs? Both programs allow seller concessions within limits. Can you switch from FHA to conventional later? Yes, by refinancing if you qualify. Is FHA only for first-time buyers? No. Any eligible buyer can use it for a primary residence. Which has stricter property rules? FHA generally does, so homes needing repairs may need fixes before closing or a renovation loan. Do both programs count student loans and other debts? Yes, and each has its own rules for how payments are calculated, so ask the lender to show you the debt-to-income figures it used.
FHA loans are government-insured and more flexible on credit, but they carry upfront and annual mortgage insurance that may last for years. Conventional loans reward stronger credit and more equity, and their PMI can be cancelled under federal law. Price both for your scenario and compare total cost over the time you expect to keep the loan. Sources: HUD Single Family Housing Policy Handbook 4000.1; Fannie Mae Selling Guide; Homeowners Protection Act (12 U.S.C. 4901 et seq.). LoFi Rate is not affiliated with or endorsed by HUD or FHA. General education only. LoFi Rate is an independent matching service, not a lender.