Quick answer: FHA loans accept credit scores as low as 580 with 3.5% down but require mortgage insurance, often for the life of the loan. Conventional loans generally need a 620 or higher score, can be as low as 3% down, and let you drop
PMI once you reach 80% loan-to-value. FHA is easier to qualify for, while conventional usually costs less for borrowers with good credit.
The right loan depends on your credit, your down payment and how long you plan to keep the loan. FHA loans are easier to qualify for but carry mortgage insurance for a long time. Conventional loans have stricter requirements but can cost less, especially with good credit.
What Is an FHA Loan?
An FHA loan is a mortgage insured by the Federal Housing Administration (FHA). It is designed to help first-time buyers and borrowers with lower credit scores or smaller down payments.
Key features
- Credit scores: As low as 580 with 3.5% down, or 500 to 579 with 10% down. Many lenders set higher minimums.
- Down payment: As little as 3.5%, according to HUD.
- Debt-to-income (DTI): More flexible than most conventional loans.
- Mortgage insurance: Upfront and annual mortgage insurance premiums (MIP) are required regardless of down payment. With less than 10% down, MIP generally lasts for the life of the loan.
- Property standards: The home must meet FHA safety and livability requirements.
- Loan limits: Set by HUD and vary by county.
What Is a Conventional Loan?
A conventional loan is not backed by a government agency. Most are sold to Fannie Mae or Freddie Mac and follow their guidelines.
Key features
- Credit scores: Fannie Mae sets a 620 minimum for manually underwritten fixed-rate loans. Automated underwriting has no fixed minimum, but most lenders look for about 620 or higher, with the best pricing at higher scores.
- Down payment: As low as 3% for qualified buyers.
- Mortgage insurance: Private mortgage insurance (PMI) is required with less than 20% down, and you can ask to cancel it once your balance reaches 80% of the original value.
- DTI: Fannie Mae allows up to 45% for manually underwritten loans and up to 50% with automated underwriting when credit and reserves are strong.
- Loan limits: Higher than FHA in many areas.
- Property standards: Less rigid than FHA, but the home must still appraise and meet basic condition requirements.
| FHA vs. Conventional Loan: Side-by-Side Comparison Feature | FHA loan | Conventional loan |
| Minimum credit score | 580 (3.5% down) or 500 (10% down); lenders may require more | About 620; higher for better rates |
| Minimum down payment | 3.5% | As low as 3% |
| Mortgage insurance | Upfront and annual MIP; often for the life of the loan with less than 10% down | PMI if less than 20% down; removable at 80% loan-to-value |
| Debt-to-income | Flexible, up to about 50% or more with compensating factors | Often up to about 45% to 50% |
| Loan limits | Set by HUD by county | Higher limits available |
| Property condition | Must meet FHA standards | Standard appraisal and condition requirements |
| Best for | Lower credit scores, small down payments | Stronger credit, larger down payments, avoiding long-term mortgage insurance |
Next step: Not sure which column fits you? Tell us your credit range and down payment and we will tell you which program makes sense.
No obligation. It only takes a few minutes.
Pros and Cons of FHA Loans
Pros
- Easier to qualify with lower credit scores.
- Low down payment.
- More flexible DTI limits.
- Good option for first-time buyers.
Cons
- Upfront and annual mortgage insurance, often for the life of the loan.
- Stricter property condition requirements.
- Loan limits may be lower in some areas.
Pros and Cons of Conventional Loans
Pros
- No PMI with 20% down, and PMI can be removed later.
- Higher loan limits.
- Potential for better rates with good credit.
Cons
- Higher credit requirements.
- Stricter DTI limits for some borrowers.
- Larger down payment needed to avoid PMI.
Which Loan Is Right for You?
- Choose an FHA loan if you have a lower credit score or a small down payment and need more flexible guidelines.
- Choose a conventional loan if you have good credit, can put more down and want to avoid long-term mortgage insurance. Many FHA borrowers later refinance into a conventional loan once their credit and equity improve.
A loan officer can compare both options using your actual numbers.
Frequently Asked Questions
What credit score do I need for an FHA loan?
HUD guidelines allow 580 with 3.5% down, or 500 to 579 with 10% down. Many lenders require higher scores, so ask your loan officer.
Does FHA mortgage insurance ever go away?
With less than 10% down, FHA mortgage insurance premiums generally last for the life of the loan. Many borrowers refinance into a conventional loan later to remove it.
Can I get a conventional loan with 3% down?
Yes, qualified borrowers can, though PMI will be required until you reach 80% loan-to-value.
Next step: The cheaper loan depends on your credit, your down payment and how long you will keep it. A loan officer can price both with your real numbers.
No obligation. You will answer a few quick questions about your home purchase so we can offer you the best options. It only takes a few minutes.
Sources
- HUD, FHA loans
- HUD Handbook 4000.1 (FHA), credit score, down payment and mortgage insurance rules
- Fannie Mae Selling Guide, B3-5.1-01 Credit Scores
- Fannie Mae Selling Guide, B3-6-02 Debt-to-Income Ratios
- CFPB, When can I remove PMI?
Tithe Lending LLC | NMLS #2439006 | Equal Housing Lender. General information only; not a loan offer or financial, tax or legal advice.