An FHA loan usually fits buyers with a smaller down payment or a lower credit score. A conventional loan usually costs less for buyers with strong credit and a larger down payment. Neither one is cheapest for everyone, so the right choice depends on your credit profile, your cash to close and the total-cost quote each lender gives you. This guide compares the two side by side, adds USDA and VA loans, and shows you how to decide.
TL;DR
- FHA loans are insured by the Federal Housing Administration, allow lower credit scores and down payments as low as 3.5%, and require mortgage insurance on every loan.
- Conventional loans are not backed by a government program, typically want a higher credit score, and require mortgage insurance only when you put down less than 20%.
- With good credit and a 10% to 15% down payment, FHA can cost more than conventional. With a lower score or a small down payment, FHA is often the cheaper route.
- VA and USDA loans are separate options with their own eligibility rules, worth checking before you settle.
- Compare full Loan Estimates, not just interest rates.
Table of Contents
- What an FHA loan is, and what a conventional loan is
- FHA vs. conventional at a glance
- Down payment and credit score
- Mortgage insurance: the biggest cost difference
- Loan limits and property types
- Why a seller might prefer a conventional offer
- Where USDA and VA loans fit
- How to decide: five questions
- How to compare Loan Estimates
- Perspective: why we start with your numbers, not a loan type
- Get a side-by-side quote
- FAQ
- Sources
What an FHA loan is, and what a conventional loan is
An FHA loan is made by a private lender and insured by the Federal Housing Administration. The FHA does not lend the money itself. The insurance protects the lender if the loan goes unpaid, which is why lenders can accept lower credit scores and smaller down payments.
A conventional loan is not insured or guaranteed by a government program such as FHA, VA or USDA. Conventional loans can be conforming, meaning they meet the loan limits and guidelines for purchase by the major mortgage investors, or nonconforming, such as jumbo loans.
The practical result: FHA is built to widen access to homeownership, while conventional loans are priced more directly on your financial profile. The CFPB notes that conventional loans typically cost less than FHA loans but can be harder to get.
FHA vs. conventional at a glance
| Feature | FHA loan | Conventional loan |
|---|---|---|
| Backed by | Insured by the Federal Housing Administration | No government insurance or guarantee |
| Minimum down payment | 3.5% with a 580+ score; 10% with a 500 to 579 score | As low as 3% on some programs |
| Typical credit score | 580 for the lowest down payment | Often 620 or higher |
| Mortgage insurance | Required on all loans | Only if you put down less than 20% |
| Occupancy | Primary residence (with a limited multi-unit exception) | Primary, second home or investment property |
| 2026 limit, one-unit home | $541,287 (low-cost areas) to $1,249,125 (high-cost areas) | $832,750 baseline conforming limit |
The credit score and down payment figures come from NerdWallet’s comparison. Individual lenders can set stricter requirements than the program minimums, so your actual terms depend on the lender and your full file.
Down payment and credit score
This is where most buyers start, and where the two loans differ most.
FHA requirements
FHA borrowers generally need a 580 credit score for the 3.5% down payment. Scores from 500 to 579 may still qualify with 10% down. That makes FHA a strong fit if you are rebuilding credit, have limited savings, or are buying your first home.
Conventional requirements
Some conventional loans permit 3% down, but they typically call for a 620 or higher score. As your score and down payment rise, conventional pricing tends to improve. A larger down payment also lowers or removes the mortgage insurance cost, which we cover below. For a wider view of how minimums vary, see these minimum down payment requirements from other markets.
A quick example
Say you are buying a $300,000 home. At 3.5% down, an FHA loan needs $10,500 down. At 3% down, a conventional loan needs $9,000. The down payment gap is small. The difference that matters is the credit score you need for each and what mortgage insurance costs you every month, which is why you should compare real quotes.
Mortgage insurance: the biggest cost difference
The CFPB says mortgage insurance is required for all FHA loans. On a conventional loan, private mortgage insurance applies only when you have less than 20% equity in the home.
That difference shapes the whole decision:
- Small down payment, lower score: FHA may be cheaper. The CFPB says FHA loans may cost less for borrowers with lower credit scores or smaller down payments.
- Good credit and a medium down payment (10% to 15%): the same CFPB page says FHA may be more expensive than conventional financing.
- 20% down: a conventional loan avoids private mortgage insurance altogether.
Because conventional mortgage insurance is priced on your credit score and down payment, a strong profile can bring that cost down. FHA mortgage insurance does not work the same way, so as your credit improves, conventional becomes more attractive. Ask any lender to show the monthly mortgage insurance amount and how long it lasts for your specific loan, and compare it across both loan types.
Loan limits and property types
For 2026, the FHFA set the baseline conforming loan limit for a one-unit property at $832,750. Higher limits apply in designated high-cost areas.
HUD set the 2026 FHA forward mortgage limit for a one-unit property at $541,287 in low-cost areas and $1,249,125 in high-cost areas. In many markets, then, a conventional loan reaches a higher price point, while in the highest-cost counties the FHA ceiling can actually be higher than the baseline conforming limit. Your county determines which limits apply.
If the home you want costs more than the conforming limit, a jumbo loan is the usual path.
On property use, FHA loans must generally finance a primary residence. An investment property is eligible only when you occupy one unit of a property with no more than four rental units. Conventional financing is more flexible and can cover second homes and investment properties, which matters if you plan to rent the home out.
Why a seller might prefer a conventional offer
Sellers and their agents sometimes read a conventional offer as simpler, because conventional loans may involve fewer program-specific requirements. That is a perception, not a rule, and it varies by market and by the strength of the rest of your offer.
You can keep an FHA offer competitive by:
- Getting a full pre-approval, not just a pre-qualification, before you tour homes.
- Showing your agent and the seller a clear, documented file.
- Keeping your timeline short and your communication fast.
- Making the rest of the offer clean: realistic price, reasonable contingencies, and a clear closing date.
A lender that processes quickly helps here. Our fully online application is designed so that many loans can fund in under 21 days, which is a strength in any competitive offer.
Where USDA and VA loans fit
FHA and conventional are the two most common choices, but you may qualify for something else.
USDA loans
USDA guaranteed loan funds must be used for a permanent primary residence and cannot be used for income-producing property or to flip houses. The program serves eligible rural areas and has income and property rules, so check the USDA’s own eligibility tools for your address. If your target home is in an eligible area and your household income qualifies, USDA is worth putting next to FHA and conventional when you compare. If your search is in a suburb or city outside those areas, FHA and conventional are the practical choices.
VA loans
If you are a veteran, service member or eligible surviving spouse, a VA loan deserves a close look. VA loans require no monthly mortgage insurance but charge a one-time funding fee of 2.15% to 3.30%, unless you are exempt because of a service-connected disability. You need a Certificate of Eligibility, and you must live in the home as your primary residence.
VA also notes that its funding fee helps lower costs for taxpayers, because VA loans do not require a down payment or monthly mortgage insurance. For eligible borrowers, that often makes VA the most cost-effective of the options in this guide. Learn more on our VA loans page.
Quick comparison of all four
| Loan | Best suited to | Mortgage insurance or fee | Occupancy |
|---|---|---|---|
| FHA | Smaller down payments, lower credit scores | Mortgage insurance on every loan | Primary residence |
| Conventional | Strong credit, larger down payment, second homes and investments | Private mortgage insurance if under 20% down | Primary, second or investment |
| USDA | Eligible rural areas, qualifying household income | Program guarantee fees apply | Primary residence |
| VA | Eligible veterans and service members | One-time funding fee, no monthly mortgage insurance | Primary residence |
How to decide: five questions
- What is your credit score? Below 620, FHA is often the more realistic path. Well above it, run both comparisons.
- How much can you put down? The smaller the down payment, the more FHA tends to help. At 10% to 15% with good credit, conventional may win. At 20%, conventional avoids private mortgage insurance.
- What is the home’s price and location? Check the loan limits for your county and whether the area is USDA-eligible.
- How will you use the property? Plan to live in it? Any of these can work. Planning to rent it out or buy a second home? Conventional is the more flexible choice.
- How long will you keep the loan? If you may refinance when your credit or equity improves, a lower starting payment can matter more than the long-term cost. Our refinance calculator helps you test that scenario.
The CFPB’s guidance is that neither loan type is universally cheapest. It recommends comparing lender quotes and total costs.
How to compare Loan Estimates
The most reliable way to settle FHA vs. conventional is to get both quotes and compare them line by line. The CFPB says to compare multiple Loan Estimates on:
- Loan amount
- Interest rate
- Monthly payment
- Mortgage insurance
- Upfront lender costs
- Credits
- Cash to close
The CFPB also suggests looking at the five-year cost of borrowing and negotiating with lenders. Keep in mind that a Loan Estimate showing lower taxes and insurance does not necessarily mean a better deal, since lenders do not control those costs.
When you request quotes, give each lender the same assumptions: same home price, same down payment, same credit information, same closing date. Otherwise the numbers will not line up.
Perspective: why we start with your numbers, not a loan type
Most buyers come to us asking whether FHA or conventional is better. We think that question is better answered with a side-by-side quote than with a rule of thumb.
Our approach is to learn your goals first: your down payment, your credit, your monthly budget and how long you plan to stay. Then we compare rates across lenders for the loan types that fit, including FHA, conventional, VA, ARM and fixed-rate options such as a 15-year or 30-year term. You see the costs next to each other and choose with confidence.
Because our application is fully online and our communication is streamlined, we aim to keep the process moving. Our goal is funding in under 21 days. We also stay with you after the first quote, so if your credit improves or rates change, we can look at a refinance.
Choosing a loan is a major financial decision. You deserve a clear explanation of every number, and that is what we aim to provide.
David Mordue
Get a side-by-side quote
If you are deciding between FHA and conventional, we can run both for your situation and show you the full picture: rate, monthly payment, mortgage insurance and cash to close. Our FHA loans page explains how that program works with us. When you are ready, you can get your mortgage pre-approval through our fully online process, with personalized consultations and expert rate comparison along the way.
If you already own a home and are wondering whether to switch from an FHA loan to a conventional one, start with our refinance calculator. Not sure you are ready to buy? Try the rent vs. buy calculator first.
FAQ
Does FHA cost more than conventional?
It depends on your profile. FHA can cost less for borrowers with lower credit scores or smaller down payments. With good credit and a 10% to 15% down payment, it may cost more than conventional. The most accurate answer comes from comparing Loan Estimates for both.
Which is better, FHA or conventional?
Neither is better for every buyer. FHA tends to suit buyers with lower scores or limited savings. Conventional tends to suit buyers with strong credit and larger down payments. Compare your total cost, not just the rate.
Can I use an FHA loan for an investment property?
Generally no, since FHA loans must finance a primary residence. The exception is a property with up to four units where you occupy one unit yourself. Conventional loans can finance investment properties.
Is a VA loan better than FHA?
For eligible veterans and service members, a VA loan can be more cost-effective, since it has no down payment requirement or monthly mortgage insurance. It does carry a one-time funding fee unless you are exempt. FHA remains an option for buyers who are not eligible for VA benefits.
What credit score do I need for an FHA loan?
Generally 580 for the 3.5% down payment, and 500 to 579 with 10% down. Individual lenders may set higher minimums, so ask for the requirements of the specific lender.
Sources
- FHA loans | Consumer Financial Protection Bureau
- What is a conventional loan? | Consumer Financial Protection Bureau
- Understand the different kinds of loans available | Consumer Financial Protection Bureau
- Compare and negotiate your loan offers | Consumer Financial Protection Bureau
- FHFA Announces Conforming Loan Limit Values for 2026
- HUD’s Federal Housing Administration Announces 2026 Loan Limits
- FHA vs. Conventional Loans: Pros, Cons and Differences | NerdWallet
- USDA Frequently Asked Questions
- VA Home Loan Guaranty Buyer’s Guide
- Cash-Out Refinance Loan | Veterans Affairs