If you're buying your first home, you've probably heard both terms thrown around — FHA and conventional. They're the two most common loan types for owner-occupied homes, and the right one depends less on the property and more on your credit, savings, and long-term plans.
The Core Difference
A conventional loan is not backed by the government — it follows guidelines set by Fannie Mae and Freddie Mac. An FHA loan is insured by the Federal Housing Administration, which allows lenders to offer more flexible terms because the government absorbs some of the risk.
Down Payment
- FHA: as low as 3.5% down with a qualifying credit score.
- Conventional: as low as 3% for certain first-time buyer programs, though 5–20% is more typical.
Credit Score
- FHA: more forgiving — borrowers with scores in the 580–620 range often still qualify.
- Conventional: generally requires stronger credit, typically 620+, with the best pricing reserved for scores well above that.
Mortgage Insurance
This is where the two programs diverge the most. FHA loans require mortgage insurance premiums (MIP) for the life of the loan in most cases, regardless of down payment. Conventional loans require private mortgage insurance (PMI) only when you put down less than 20% — and that PMI can be removed once you build enough equity.
Which Should You Choose?
If your credit is still developing or your savings are limited, FHA often opens the door sooner. If your credit is strong and you can put down at least 5–10%, conventional financing is usually cheaper over time because you're not locked into permanent mortgage insurance.
The honest answer is that it depends on your full financial picture — which is exactly the kind of conversation worth having before you start house hunting, not after you've found a home.