Conventional vs. FHA Loan: Which One Costs You Less?

The right answer depends on your credit profile and how long you plan to keep the loan. The starting rate is the least useful number in this comparison.

Down payment

Conventional loans start at 3% down for eligible buyers; FHA starts at 3.5%. On down payment alone, they are close enough that it rarely decides the question.

Credit requirements

This is where they diverge. FHA underwriting tolerates lower scores and past credit events. Conventional pricing rewards strong credit sharply, so a buyer above 740 usually sees a materially better conventional offer.

Mortgage insurance — the deciding factor

Conventional private mortgage insurance can be removed once you reach roughly 20% equity. FHA mortgage insurance generally stays for the life of the loan when you put the minimum down. Over a decade, that difference usually outweighs a small gap in rate.

A reasonable strategy

Use FHA to buy when it is the program that gets you approved, then refinance to conventional once your credit and equity support it. Buying earlier at a slightly higher cost often beats waiting two more years in a rising market.