📋 What You'll Learn in This Guide
FHA vs Conventional: Complete 2025 Comparison Table
Before we dive deep, here's the complete side-by-side comparison. This table alone could save you thousands—get pre-approved with both loan types to see your actual rates.
| Feature | FHA Loan | Conventional Loan | Winner |
|---|---|---|---|
| Minimum Credit Score | 580 (3.5% down) 500 (10% down) | 620 minimum 740+ for best rates | FHA |
| Minimum Down Payment | 3.5% | 3% (first-time buyers) 5% (repeat buyers) | TIE |
| Interest Rates (Dec 2025) | 6.15% average | 6.45% average | FHA |
| Mortgage Insurance | 1.75% upfront + 0.55%/year For life of loan | 0.5%-1.5%/year Removable at 20% | CONV |
| DTI Ratio Limit | Up to 57% | Up to 50% | FHA |
| Loan Limits (2025) | $524,225 - $1,209,750 | $806,500 - $1,209,750 | CONV |
| Property Types | Primary residence only | Primary, secondary, investment | CONV |
| Bankruptcy Wait | 2 years (Chapter 7) 1 year (Chapter 13) | 4 years (Chapter 7) 2 years (Chapter 13) | FHA |
| 30-Year Total Cost* | $847,000 | $800,000 | CONV |
*Based on $400,000 home, 720 credit score, 10% down payment
The $47,000 Difference: Real Cost Breakdown
Let's break down exactly where that $47,000 savings comes from using a real $400,000 home purchase example. The difference is shocking—and it's why comparing multiple lenders is critical.
🏠 FHA Loan Costs
🏠 Conventional Loan Costs
*PMI removed after ~7 years when reaching 20% equity
💰 Your Potential Savings
$46,715
By choosing conventional over FHA with 10% down and 720+ credit
🔥 Not Sure Which Loan Is Right for You?
Get personalized quotes for BOTH FHA and conventional loans in 2 minutes. See your actual rates and monthly payments side-by-side.
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Credit Score Requirements: The Real Story
Your credit score is the #1 factor in determining which loan saves you more money. Here's the truth about credit requirements that most guides don't tell you.
580-619 Credit
Your only realistic option is FHA. Conventional lenders will either decline you or charge extremely high rates.
✅ Recommendation: FHA Loan
620-679 Credit
Both options available, but FHA typically offers better rates. Conventional PMI will be expensive at this tier.
✅ Recommendation: FHA (usually)
680+ Credit
Conventional loans become more attractive. At 740+, you'll get the best rates and lowest PMI costs.
✅ Recommendation: Conventional
💡 Pro Tip: The 680 Threshold
If your credit score is between 660-679, consider spending 2-3 months improving it before applying. Reaching 680 can save you $15,000+ over the life of your loan. Quick wins include paying down credit card balances below 30% utilization and disputing any errors on your credit report. Get pre-approved to see your current options.
PMI vs MIP: The Hidden Cost That Changes Everything
This is where FHA loans get expensive. FHA's mortgage insurance premium (MIP) stays for the LIFE of your loan, while conventional PMI can be removed. This single difference accounts for most of the $47,000 savings.
FHA MIP Structure (2025)
Upfront MIP
- • 1.75% of loan amount
- • Can be financed into loan
- • On $386,000 loan = $6,755
Annual MIP
- • 0.55% of loan balance annually
- • Paid monthly ($177/month on $386K)
- • NEVER goes away (unless 10%+ down)
Conventional PMI Structure (2025)
PMI Rates by Credit Score
- • 760+: 0.25%-0.50%
- • 720-759: 0.50%-0.75%
- • 680-719: 0.75%-1.00%
- • 620-679: 1.00%-1.50%
PMI Removal Options
- • Auto-removed at 22% equity
- • Request removal at 20% equity
- • Refinance to remove earlier
- • Typical removal: 7-10 years
📊 PMI Savings Example ($400K Home, 10% Down)
FHA MIP (30 years):
$70,475
$6,755 upfront + $63,720 annual
Conventional PMI (7 years):
$12,600
$150/month × 84 months
PMI Savings: $57,875 with conventional!
Down Payment: How Much Do You Really Need?
Both FHA and conventional loans offer low down payment options, but the math changes significantly based on how much you put down. Compare lenders to find the best down payment programs.
| Down Payment | FHA Available? | Conventional Available? | Best Choice |
|---|---|---|---|
| 3% | ❌ No (3.5% min) | ✅ Yes (first-time buyers) | Conventional |
| 3.5% | ✅ Yes | ✅ Yes | FHA (if credit <680) |
| 5% | ✅ Yes | ✅ Yes | Depends on credit |
| 10% | ✅ Yes (MIP for 11 years) | ✅ Yes | Conventional |
| 20% | ✅ Yes | ✅ Yes (no PMI!) | Conventional |
⚠️ Important: FHA 10% Down Payment Exception
If you put 10% or more down on an FHA loan, your MIP drops off after 11 years instead of lasting the full 30 years. This makes FHA more competitive at higher down payments, but conventional still typically wins due to lower PMI rates and earlier removal options.
Which Loan Should YOU Choose? Decision Framework
Use this decision tree to find your best option in 60 seconds:
Question 1: What's your credit score?
Below 620
→ FHA is your only option
620 or higher
→ Continue to Question 2
Question 2: How much can you put down?
Less than 5%
→ FHA (3.5%) or Conventional (3% first-time)
10% or more
→ Conventional usually wins
Question 3: How long will you stay in the home?
Less than 5 years
→ FHA may be cheaper (lower rate)
5+ years
→ Conventional (PMI removal saves $$$)
5 Real Buyer Scenarios: Which Loan Wins?
Scenario 1: First-Time Buyer, Limited Savings
Maria, 28 • Credit: 640 • Savings: $15,000 • Home: $350,000
✅ Winner: FHA Loan
With 640 credit, Maria gets a 6.25% FHA rate vs 7.0%+ conventional. Her $12,250 down payment (3.5%) is achievable, and the lower rate saves her $150/month despite higher MIP.
Scenario 2: Strong Credit, Good Savings
James, 35 • Credit: 750 • Savings: $60,000 • Home: $450,000
✅ Winner: Conventional Loan
James's 750 score qualifies him for 6.25% conventional with minimal PMI ($90/month). He'll save $52,000+ over 30 years compared to FHA, and his PMI drops off in just 6 years.
Scenario 3: Recent Bankruptcy
The Johnsons • Credit: 620 • Bankruptcy: 2.5 years ago • Home: $300,000
✅ Winner: FHA Loan
FHA allows homeownership just 2 years after Chapter 7 bankruptcy. Conventional requires 4 years. FHA is their only path to homeownership right now.
Scenario 4: High DTI Ratio
Sarah, 32 • Credit: 700 • DTI: 52% • Home: $380,000
✅ Winner: FHA Loan
Sarah's 52% DTI exceeds conventional's 50% limit but falls within FHA's 57% maximum. Despite her good credit, FHA is her only option until she pays down debt.
Scenario 5: Investment Property
Mike, 40 • Credit: 720 • Buying rental property • Home: $500,000
✅ Winner: Conventional Loan (Only Option)
FHA loans are only for primary residences. Mike must use conventional financing for his investment property, requiring 15-25% down payment.
Frequently Asked Questions
Is FHA or conventional loan better for first-time buyers?
It depends on your credit score and down payment. If you have a credit score below 680 or less than 5% down payment, FHA is typically better. If you have 680+ credit and 10%+ down payment, conventional loans save you $30,000-$50,000 over 30 years due to removable PMI. Get quotes for both loan types to see which saves you more.
Can I refinance from FHA to conventional later?
Yes! Many homeowners start with FHA and refinance to conventional once they have 20% equity and improved credit. This eliminates lifetime FHA MIP and can save $200-$400/month. The typical break-even point is 2-3 years after refinancing.
Why are FHA interest rates lower than conventional?
FHA loans are government-insured, reducing lender risk. This allows lenders to offer lower rates. However, the lower rate is often offset by higher mortgage insurance costs, making the total cost higher than conventional for borrowers with good credit.
What credit score do I need for the best conventional rates?
For the best conventional rates and lowest PMI, aim for 740+ credit score. At this level, you'll qualify for rates 0.25%-0.50% lower than borrowers with 680 credit, and your PMI will be 50% cheaper. This can save $100-$200/month.
How long does FHA mortgage insurance last?
For most FHA loans (less than 10% down), MIP lasts for the entire 30-year loan term. If you put 10% or more down, MIP drops off after 11 years. This is the biggest disadvantage of FHA loans compared to conventional, where PMI can be removed at 20% equity (typically 7-10 years).
🎯 Ready to Find Your Best Loan Option?
Stop guessing which loan is right for you. Get personalized quotes for both FHA and conventional loans in just 2 minutes. See your actual rates, monthly payments, and total costs side-by-side.
Compare FHA & Conventional Rates Now →Free • No SSN required • No impact to credit score
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Sarah Mitchell
Senior Mortgage Analyst • 12+ Years Experience
Sarah has helped over 5,000 homebuyers navigate the FHA vs conventional decision. She specializes in first-time buyer programs and has been featured in Forbes, Bankrate, and NerdWallet.