If you’re looking to buy a home, both conventional and FHA loans are common options. When comparing a conventional loan vs. an FHA loan, it helps to know that FHA loans typically allow lower credit scores and more flexible debt-to-income (DTI) ratios.
But that’s not the only difference. Find out how each loan type works so you can decide whether a conventional loan or an FHA loan is the better fit for you.
Conventional Loan Vs FHA: A Quick Overview
An FHA loan is a home loan backed by the Federal Housing Administration (FHA). Conventional loans are funded by private lenders and are sometimes sold to government-sponsored enterprises such as Fannie Mae and Freddie Mac in the secondary mortgage market. Conventional loans aren’t directly backed by a government agency and therefore tend to have stricter requirements for borrowers regarding credit scores and DTI.
Why Consider A Conventional Loan?
A conventional loan could be a great option if you have a good credit score and a low DTI. A conventional loan could also make sense if you’re able to make a 20% down payment. Paying more up front means lower ongoing monthly payments and avoiding private mortgage insurance (PMI).
Why Consider An FHA Loan?
An FHA loan could be a good borrowing solution if you don’t have a strong credit score and your DTI is on the high side. It’s also worth considering if you can afford monthly mortgage payments but don’t have the funds for a down payment.
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Conventional Loan Vs. FHA: Terms, Conditions And Requirements
Conventional and FHA loans work differently – consider these key differences:
| FHA Loans | Conventional Loans | |
|---|---|---|
| Minimum Credit Score | 500 with a 10% down payment; otherwise, 580 | Technically, there’s no minimum, but many lenders require 620 or higher |
| Minimum Down Payment | 3.5% for credit scores above 580; 10% for scores of 500 – 579 | As low as 3%, though some lenders may require a larger down payment |
| Maximum Debt-To-Income Ratio | Typically 43% or lower; higher with certain qualifications | 50% or lower |
| Mortgage Insurance | Pay mortgage insurance premiums up front and monthly | Pay private mortgage insurance if down payment is less than 20% |
| Loan Limits | Varies by location; as low as $541,287 or as high as $1,249,125 for a one-unit property | Varies by location; $832,750 in most areas for a one-unit property or as high as $1,873,675 in high-cost areas |
| Property Standards | Can only be used for primary residences | Can be used for primary, secondary, or investment properties |
| Interest Rates | Competitive interest rates | Rates depend on the borrower’s qualifications; can be competitive |
| Refinance Process | Yes. Options include FHA Streamline Program and cash-out refinances | Yes. Rate-and-term and cash-out refinances are available |
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Minimum Credit Scores For Conventional And FHA Loans
Whether you apply for an FHA loan or a conventional loan, your lender will take a close look at your credit score. That number tells a lender how risky a borrower you are. The less risk your lender thinks it’s taking on, the lower the mortgage rate you might qualify for.
FHA Loan Credit Score Requirements
It’s possible to get an FHA loan with a lower credit score than you might with other types of loans. The FHA backs loans with a credit score of 500 or higher; if your score is under 580, you’ll need to make a 10% down payment.
Conventional Loan Credit Score Requirements
Conventional loans typically have stricter requirements than FHA loans. These loans used to require a minimum 620 credit score. Though that’s no longer a strict requirement, lenders can set their own credit score thresholds individually. Indeed, some may still require a score of 620 or higher to qualify for a conventional loan.
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Debt-To-Income Ratio Requirements
Your debt-to-income ratio (DTI) is the percentage of your gross monthly income that’s spent on debt payments. Lenders use this number to determine how much income you have to cover your monthly mortgage payments.
FHA Loan DTI Requirements
FHA lenders typically require a DTI of 43% or lower. Some lenders may allow a higher DTI based on your overall financial profile.
Conventional Loan DTI Requirements
Freddie Mac and Fannie Mae set their maximum DTI at 50% for conforming loans. However, to increase your chances of qualifying for a mortgage, you may want to aim for a DTI of 36% or less.
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Mortgage Insurance Requirements
Mortgage insurance protects lenders when borrowers stop making payments. Mortgage insurance is required for FHA loans, and it’s sometimes required for conventional loans.
FHA Loan Mortgage Insurance Premiums
FHA loans require two types of mortgage insurance payments:
- An upfront mortgage insurance premium (MIP) of 1.75% of the loan amount is either paid when you close on the loan or rolled into the loan.”
- Monthly MIP as part of your regular mortgage payments
If your down payment on your FHA loan was less than 10%, you’ll continue to pay monthly mortgage insurance for the life of the loan. If your down payment was 10% or more and your origination date was after June 3, 2013, you’ll have to pay mortgage insurance only for the first 11 years of the loan, after which it expires.
Conventional Loan Private Mortgage Insurance
Private mortgage insurance (PMI) protects your lender if you stop making your mortgage payments. You’ll have to pay PMI if your down payment was less than 20% of the home’s value. You can have PMI cancelled once your mortgage balance reaches 80% of your home’s original value.
Loan Limits
FHA and conventional conforming loans both set limits on the amount you can borrow, and those limits change yearly. The exact limit for either loan largely depends on where in the U.S. you want to buy your home. (Keep in mind that conventional loans are often conforming – meaning they can be purchased by Freddie Mac or Fannie Mae – but not always.)
FHA Loan Limits
The FHA determines loan limits based on the area where you want to buy a home and the type of property you plan to purchase. Those limits change annually, and here’s where they currently stand:
| Property Type | Regular Limit | High-Cost-Area Limit |
|---|---|---|
| 1 unit | $541,287 | $1,249,125 |
| 2 units | $693,050 | $1,599,375 |
| 3 units | $837,700 | $1,933,200 |
| 4 units | $1,041,125 | $2,402,625 |
Conventional Loan Limits
Conventional conforming loans have higher loan limits than FHA loans. In 2026, the limit for a one-unit property in most areas is $832,750. However, for some high-cost areas, the limit is $1,249,125. And for Alaska, Guam, Hawaii and the U.S. Virgin Islands, the limit is $1,873,675.
Property Requirements
To qualify for an FHA loan, the property must be your primary residence. FHA loans aren’t available for second homes or investment properties. A conventional loan, on the other hand, can be used to purchase a secondary home, like a vacation home or investment property, as well as a primary residence.
Interest Rates
FHA loans typically carry lower interest rates than conventional mortgages for borrowers with lower credit scores. For borrowers with strong credit, though, a conventional loan may offer better rates. Keep in mind that lenders will look at your total borrowing profile to decide what interest rate to offer you. They’ll account for factors like your:
- Credit score
- DTI
- Down payment amount
Ability To Refinance
Both conventional and FHA loans can be refinanced in a variety of ways. The FHA Streamline program allows you to refinance an FHA loan without some of the costs or steps needed for other types of refinances.
With a conventional loan, you can use a rate-and-term refinance to lower the interest rate on your loan or change your repayment period. Both loan types also allow you to do a cash-out refinance.
Conventional Loan Vs. FHA Loan FAQs
Here are some commonly asked questions about conventional vs. FHA loans.
The Bottom Line: Choose The Best Loan For Your Situation
FHA loans are a popular mortgage option because of their low credit score requirements and competitive interest rates. Conventional loans, however, offer the benefit of being able to remove PMI payments and have fewer restrictions on the type of property you can buy. You’ll need to consider your financial situation and home-buying goals when deciding which loan type is right for you.
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Maurie Backman
Maurie Backman has more than a decade of experience covering personal finance topics that include mortgages, loans, retirement, Social Security, and investing. Prior to becoming a full-time writer, she worked in the financial industry as well as in product design and marketing. Maurie holds a bachelor's degree from Binghamton University, where she studied creative writing and finance. She was happy to combine her two areas of study into a career that allows her to educate consumers on a host of financial topics.
