The FHA vs conventional decision comes down to your credit score and down payment. FHA charges a 1.75% upfront fee and lifetime mortgage insurance. Conventional has no upfront fee but charges PMI until 20% equity, after which it automatically drops off. For buyers with good credit and 20% down, conventional wins easily. For buyers with lower credit or small down payments, it gets more complicated.
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Generally, if your credit score is 680+, conventional loans start becoming more competitive — especially once you factor in that conventional PMI drops off at 20% equity while FHA MIP typically lasts forever (if less than 10% down). At 700+, conventional almost always wins. Below 640, FHA is often the only viable option.
Which loan has lower monthly payments?
It depends on credit score and down payment. At 3.5% down with a 640 credit score, FHA often has a lower rate but higher mortgage insurance. At 5% down with a 700 score, the payments can be very close. At 10%+ down with a 720+ score, conventional is almost always cheaper because the PMI rate drops significantly.
Can I switch from FHA to conventional?
Yes — refinancing from FHA to conventional is very common once you build sufficient equity (typically 20%). This removes the lifetime MIP requirement and can significantly lower your monthly payment. Many FHA borrowers plan to refinance conventional after 5–7 years once their home appreciates.
Which loan is easier to get approved for?
FHA is generally easier to qualify for — it accepts lower credit scores (580 vs. 620), higher debt-to-income ratios, and is more forgiving of past credit issues. Lenders also tend to have more flexible overlays on FHA loans for borderline borrowers.
Do FHA and conventional have the same interest rates?
FHA rates are often slightly lower than conventional rates for the same credit profile because the government guarantee reduces lender risk. However, when you add the annual MIP to an FHA loan, the effective cost is usually higher than a conventional loan with PMI for buyers with good credit.