The first question my lender asked when I started shopping for a mortgage was not about my income or my savings. It was “FHA or conventional?” and I had no idea what the difference was. I nodded like I understood, went home, and spent the rest of the evening reading articles that all said the same thing in different orders. FHA is for people with lower credit scores. Conventional is for people with higher ones. Pick the one that matches your situation.
That is true and almost completely useless as advice. The actual difference between the two loans is not which one you qualify for. It is which one costs less over the life of the loan, and the answer is not always the one you would guess.
What FHA actually is
FHA is not a lender. It is a government insurance program run by the Federal Housing Administration, which is part of HUD. When you get an “FHA loan,” you are borrowing from a regular lender (a bank, a credit union, a mortgage company) and the FHA is insuring that lender against the risk that you default. Because the government is backstopping the risk, the lender can offer you the loan with a lower credit score and a smaller down payment than they would require on a conventional loan.
The minimum credit score for an FHA loan is 580 with 3.5% down (VA loans work differently for eligible veterans), or 500 with 10% down. The 2026 FHA loan limit for a single-family home in most of the country is tied to the FHFA conforming limit, which is $832,750 this year. In high-cost areas the limit is higher.
The catch is mortgage insurance. FHA loans require two forms of it. An upfront mortgage insurance premium (UFMIP) of 1.75% of the loan amount, which gets rolled into the loan balance at closing. And an annual mortgage insurance premium (MIP) that you pay monthly, currently around 0.55% of the loan balance per year for most borrowers. The annual MIP on an FHA loan with less than 10% down lasts for the entire life of the loan. It does not go away when you reach 20% equity. The only way to remove it is to refinance into a conventional loan.
That last sentence is the one that most first-time-buyer articles bury in the middle of a paragraph and then move on. It matters more than any other difference between the two loan types, and I will come back to it.
What conventional actually is
A conventional loan is any mortgage that is not insured by a government agency. Most conventional loans are “conforming,” meaning they meet the guidelines set by Fannie Mae and Freddie Mac, which allows the lender to sell them on the secondary market. The 2026 conforming loan limit is $832,750 for a single-family home in most areas.
Conventional loans typically require a minimum credit score of 620, though most lenders want 680 or higher for the best rates. The minimum down payment is 3% for first-time buyers through certain programs, but the standard expectation is 5% and the sweet spot for avoiding private mortgage insurance (PMI) is 20%.
PMI on a conventional loan works differently from FHA’s MIP. Conventional PMI drops off automatically when your loan balance reaches 78% of the original purchase price, and you can request cancellation at 80%. This means the insurance cost is temporary, not permanent. On a 30-year loan, the difference between temporary PMI and permanent MIP can be tens of thousands of dollars.
The real comparison (with numbers)
Here is where most articles give you a side-by-side table and stop. I am going to run actual numbers because the table version hides the part that matters.
Assume a $350,000 purchase price. 3.5% down on FHA ($12,250 down, $337,750 loan). 5% down on conventional ($17,500 down, $332,500 loan). Same interest rate for simplicity (in practice, FHA rates are often slightly lower, but the difference is small enough that it does not change the conclusion).
On the FHA loan, your UFMIP adds $5,911 to the loan balance on day one. Your annual MIP at 0.55% is about $155/month. Over 10 years, you pay roughly $18,600 in MIP, and it continues for the remaining 20 years.
On the conventional loan with 5% down, your PMI is roughly $130/month (varies by credit score and insurer). You reach 78% LTV in about 9 years through normal amortization, at which point PMI drops off automatically. Total PMI paid: roughly $14,000, and then it stops.
The FHA loan got you in the door with $5,250 less down payment. But the permanent MIP costs you roughly $4,600 more in the first 10 years and then keeps going for another 20 years while the conventional borrower pays zero. Over the full 30 years, the MIP difference is the most expensive feature of the FHA loan by a wide margin.
When FHA is still the right call
FHA makes sense in a specific set of circumstances, and they are narrower than most guides suggest.
Your credit score is between 580 and 660 and you cannot realistically improve it before you need to buy. Conventional lenders will either decline you or quote you a rate so much higher than FHA that the MIP difference is irrelevant.
You genuinely cannot save 5% down and the 1.5% difference between 3.5% and 5% is the barrier. On a $350,000 house, that is $5,250. If that $5,250 is the difference between buying now and waiting another year, FHA may be worth the long-term MIP cost.
You plan to refinance into a conventional loan within 2-3 years once your credit improves or your equity increases. This is the most common smart use of FHA: as a temporary entry point, not a permanent loan structure. The people who get hurt by FHA are the ones who take it, forget about the MIP, and carry it for 15 years without refinancing.
When conventional is the better path
If your credit score is 680 or higher and you can manage 5% down, conventional almost always wins on total cost. The PMI is temporary, the rates are competitive, and you avoid the UFMIP entirely.
If you are anywhere near 20% down, conventional is the obvious choice because you skip mortgage insurance altogether.
And if you are comparing two loans where you qualify for both, run the total cost over 10 years (not just the monthly payment) and include the insurance premiums. The monthly payment on an FHA loan is often lower in year one. The total cost over a decade is often higher. That is the number that decides the answer, and it is the number most first-time-buyer articles do not show you.
What I wish someone had told me
I took an FHA loan on my first house because I qualified for it and did not qualify for conventional at the time. It was the right decision for that moment. What nobody told me was that I should have refinanced into a conventional loan two years later, when my credit had improved and my equity had grown past 20%. I carried the MIP for three extra years because I forgot it was there. That was roughly $5,500 I paid for insurance I no longer needed, on a loan I could have replaced, because nobody circled back and told me the FHA was supposed to be temporary.
If you take an FHA loan, put a reminder on your calendar for two years out. Check your credit score. Check your equity. Talk to a lender about refinancing into conventional. The FHA got you into the house. It does not have to stay with you for the rest of the mortgage.