FHA vs. conventional loan: Which should you choose?

What is an FHA loan?

An FHA loan is a government-backed mortgage. The Federal Housing Administration supports lenders in offering these loans to help make homeownership achievable for more Americans.

FHA loans have many benefits that can help people with lower credit scores or less savings qualify for a loan. These loans also have certain requirements, limits, and rates, such as:

• Down payment percentage: 3.5%
• Minimum credit score requirement: 580
• Fixed or adjustable rate: both available
• Common loan terms: 15, 20, 25, 30 years
• Loan amount limits for one unit (2026): $541,287 – $1,249,125

What is a conventional loan?

Conventional mortgages are home loans that are not offered through a government program such as the FHA loan program. Instead, they’re offered by private lenders such as banks, credit unions, or online lenders.

Because they are not part of a government program or insured by the government, the requirements to qualify for a conventional loan can be stricter than those for FHA loans. However, they have other advantages, such as letting you borrow larger amounts or letting you avoid paying for mortgage insurance.

Some conventional loans are also considered to be conforming loans if they meet standards set by the FHFA.

Some key facts about conventional loans include:

• Down payment percentage: 3% – 20%
• Minimum credit score requirement: varies
• Fixed or adjustable rate: both available
• Common loan terms: 5 – 30 years
• Loan amount limits for one unit (2026): $832,750 – $1,873,675

FHA and conventional mortgage cost comparisons

You can use either a conventional or an FHA mortgage to purchase a home, but which you choose can have a significant impact on the cost of the loan.

This table illustrates the difference between using an FHA loan and a conventional loan to buy a three-bed, two-bath condo at a cost of $330,200 with a buyer who has an average credit score in the range of 620 to 680. FHA interest rates are generally around 0.125% to 0.25% less in this situation.

You can use Rocket Mortgage’s home affordability calculator to get a better idea of how much it would cost to purchase a home in your area based on whether you use a conventional or FHA loan.

Credit score requirements

When you apply for a mortgage, the lender will go through a process called underwriting. During underwriting, the lender checks your finances and credit score to make sure you’re likely to repay the loan.

Your credit score, which is determined based on your previous interactions with debt and your current level of debt, plays a big role in determining whether you can get a mortgage and the interest rate of the loan if you do qualify. In general, conventional loans will have higher credit score requirements than FHA loans.

Conventional loan credit score requirements

Credit score requirements for a conventional loan vary depending on the lender. You typically need a minimum credit score of 620 to qualify for a conventional mortgage. This is based on your median score as an individual.

If you have a co-borrower, your lender will view your application differently from other mortgage investors. They usually take the average median score of all borrowers on the loan rather than the lowest median score. This can make it easier to qualify.

If your co-borrower has a median score of 580 and you have a median score of 720, in the past, both incomes couldn't be used to qualify for a conventional loan. Now, your lender averages the two, making the qualifying score 650.

If your conventional loan is also conforming, meaning it adheres to the loan limits and guidelines set by the Federal Housing Finance Agency (FHFA), then you may be able to secure a mortgage backed by Fannie Mae or Freddie Mac. This is good news because as of late 2025, they have removed the strict 620 minimum credit score requirement for many loans in favor of a more holistic evaluation of a buyer’s finances. You can speak with a Home Loan Expert at Rocket Mortgage to learn more.

FHA loan credit score requirements

Generally, most FHA loan lenders (including Rocket Mortgage) require borrowers to have a credit score of 580 or above to get an FHA loan. You can qualify for an FHA home loan with a credit score as low as 500, but it does come with strings attached. For example, you need to be able to put 10% down to get an FHA loan with a credit score of 500.

The higher your credit score, the lower your down payment needs to be for an FHA loan. The qualifying credit score is the lowest median score if you have a co-borrower. If you're applying as an individual, it's your middle score.

Down payment requirements

When you buy a home, you’ll need to provide a percentage of the home’s cost upfront. This is called a down payment. For example, if you want to buy a home that costs $500,000 and put down $50,000, you’ve made a down payment of 10% and will only need to borrow $450,000.

Different loan programs have different minimum down payment requirements. The size of your down payment can impact whether you qualify for a loan, the interest rate of the loan, and whether you have to pay for mortgage insurance.

Down payments impact the loan-to-value ratio (LTV), which lenders review carefully. A conventional loan generally has a maximum LTV of 97% for a fixed-rate loan and 95% for an adjustable-rate mortgage. FHA loans usually allow a maximum LTV of 96.5% with a minimum credit score of 580 and an LTV of 90% if your credit score is between 500 and 579.

Conventional loan down payment

When you get a conventional mortgage, you typically need to make a down payment of at least 3%¹, though 5% is also a common minimum depending on the lender. However, if your down payment is less than 20% of the value of the home, your lender is likely to make you pay an additional amount each month to cover the cost of private mortgage insurance (PMI).

If you need help affording a down payment, there may be opportunities for down payment assistance in your area. Many cities and towns, as well as local organizations, offer assistance to first-time homebuyers in the form of grants or zero-interest loans to help make a down payment.

FHA loan down payment

FHA mortgages have a minimum down payment requirement of 3.5%, but you can make a larger down payment if you desire. Larger down payments can reduce, but not eliminate, the cost of mortgage insurance for FHA loans. A larger down payment will also reduce the amount you need to borrow to buy a home, which can lower your mortgage payment.

Mortgage insurance

When you buy a home, you may also have to pay for mortgage insurance. This insurance protects the lender, not you, in the event that you aren’t able to keep making your monthly loan payments.

Whether you have to pay for mortgage insurance and how much it costs will depend on your down payment amount and loan type.

Private mortgage insurance (PMI)

Private mortgage insurance applies to conventional mortgages where the borrower made a down payment of less than 20%. That means that making a down payment of at least 20% will let you avoid paying for PMI entirely.

PMI is paid as an additional monthly cost added to your mortgage payment. Once you reach 20% equity in your home, you can ask your lender to cancel your PMI payments. The lender will also automatically cancel PMI when you reach 22% equity based on your home’s value at the time of the loan.

FHA loan mortgage insurance (MIP)

All FHA mortgage borrowers must pay for mortgage insurance in the form of a mortgage insurance premium (MIP). MIP is paid as an upfront cost, plus additional payments each month with your mortgage payment.

Interest rates

When you qualify for a mortgage, the interest rate is one of the most important things to look at. Interest is the cost of borrowing money, so the higher the rate, the more your mortgage will cost, both overall and on a monthly basis. Lower rates mean a more affordable loan.

Your choice of loan type, credit score, finances, and market factors like the federal funds rate all have an impact on the interest rates you’ll see offered for mortgages.

Conventional loan interest rates

When you apply for a conventional loan, lenders will do a deep dive into your finances to assess your riskiness as a borrower. In general, those deemed to be likely to repay the debts secure lower interest rates than those lenders think might default on their loans.

Some factors lenders look at to decide if someone is likely to pay their debts include:

• Credit history. A good credit score can help secure a lower rate.
• Loan-to-value ratio. The lower the loan-to-value ratio, the less risk the lender is taking, leading to lower rates.
• Down payment percentage. Higher down payments show financial stability and reduce the LTV ratio.
• Co-borrower’s credit profile, if applicable. If you have a co-borrower, their good credit can help you secure a lower rate.
• Debt-to-income (DTI) ratio. A higher DTI ratio can mean you’re stretched thin financially, leading to higher rates. On the other hand, a low DTI can help you land a good rate.
• Fixed or adjustable-rate mortgage. Fixed-rate mortgages have higher rates initially than adjustable-rate mortgages (ARMs). However, ARMs can see rates rise over time, so they can be riskier.

FHA loan interest rates

FHA loans typically come with more competitive interest rates compared to conventional loans because these mortgages are backed by the government, so the lender faces lower risk. It’s important to note that FHA loans also require mortgage insurance, no matter how large a down payment you make. So, the money you save with a lower interest rate may be offset by the cost of mortgage insurance.

The appraisal process

When you apply for a loan, your lender will want to conduct an appraisal to ensure the home is worth enough to serve as collateral for the loan. The process can be slightly different depending on the type of loan you choose.

Conventional appraisals

During an appraisal for a conventional mortgage, your lender will hire a real estate professional to examine the property and determine its value.

In some cases, you may be able to waive this appraisal by promising to increase your down payment to cover any discrepancy between the purchase price you offered and the appraised value of the home. However, this can be risky. You might find yourself on the hook for tens or hundreds of thousands of dollars in additional down payment money. Failing to come up with the funds can mean losing the home and any earnest money you provided.

Lenders value appraisals because they want to be sure the property has value in case they need to recoup their losses during a foreclosure.

FHA appraisals

If you apply for an FHA loan, you’ll need to have an appraisal conducted. FHA appraisals involve both determining the value of the property you’re buying and ensuring it meets FHA standards for safety before you can move on with the sale.

During the appraisal, the appraiser will ensure there are no visible or obvious signs of damage or problems that can make the home unsafe to live in. However, this does not replace a thorough inspection by a professional inspector. It simply ensures that the home will serve as sufficient collateral for the loan.

Sellers are also required to make certain disclosures during the home sale process.

Loan limitations

Depending on the loan type you choose, there may be limits on the amount that you can borrow. Checking the limits for your loan type and where you live can help you set a budget for how much home you can afford.

Conventional loan limit

Conventional loans are loans that aren’t guaranteed or insured by the government. Conventional loans may be either non-conforming or conforming loans.

Loans that don’t meet guidelines set by the FHFA, like jumbo loans or portfolio loans, are considered non-conforming. For these loans, lenders will set the limit of what they can lend you based on their analysis of your finances.

Conforming loans are those that meet the requirements for loan amount, down payment, and other factors set by Fannie Mae and Freddie Mac. For 2026, the conforming loan limit ranges from $832,750 to $1,249,125 for a single-unit home, depending on where you live.

Fannie and Freddie are government-sponsored enterprises (GSEs) that help facilitate the mortgage market in the United States. Many lenders sell conventional loans to investors on the secondary market, so having a standardized set of requirements can help make it easier to keep that market liquid.

FHA loan limit

Like conventional loans, the amount you can borrow with an FHA loan will depend on the number of units and where you live. For 2026, the limit ranges from $541,287 to $1,249,125.

The easiest way to determine the upper limit in your county is to visit the HUD website for FHA mortgage limits. If you choose to go with an FHA loan over a conventional loan, it’s important to remember that these loan limits might cap the amount of home you can purchase.

When a conventional loan makes sense

In general, conventional loans are better for people who have strong credit and good finances. Though requirements are stricter, they are often more affordable because they may not require mortgage insurance.

Consider shopping around with multiple lenders and applying for a conventional loan if you meet these requirements:

• Your credit score is at least 620. Higher scores may let you secure an even lower rate.
• You have enough for a down payment. Larger down payments can help you get a lower interest rate. With a 20% down payment, you can completely skip mortgage insurance.
• Your debt-to-income ratio is below 50%. The lower your DTI ratio, the better when it comes to getting a low rate.

When an FHA loan makes sense

FHA loans are typically aimed at people with less savings or lower credit scores. They can cost more in the long run due to their mortgage insurance requirements, but they can be a good option if you might not qualify for a conventional loan.

Consider applying for an FHA loan if these statements sound true to you.

• You don’t have a high credit score. In some cases, you can get a loan with a credit score as low as 500 or 580.
• You don’t have much money for a down payment. FHA loans have down payment requirements of just 3.5%.
• You have a higher debt-to-income ratio. FHA loan DTI ratio requirements can be more flexible than the requirements for conventional loans.

FAQ

When applying for a conventional or FHA loan, keep these things in mind.

Which loan option is better – FHA or conventional?

Neither an FHA or a conventional loan is strictly better than the other. They’re designed for different situations. If you have strong credit and a large down payment saved, apply for a conventional loan. Otherwise, look into FHA loans.

Do you have to put 20% down on a conventional loan?

No, you don’t need 20% down to get a conventional loan, though having a down payment of that amount can mean avoiding having to pay for mortgage insurance.

Why do sellers prefer conventional loans over FHA loans?

Sellers may prefer conventional loans over FHA loans because FHA loans have a more involved appraisal process.

Which loan is more expensive, a conventional or an FHA loan?

Generally, FHA loans are more expensive than conventional loans because of their upfront MIP payments and ongoing mortgage insurance, which can be difficult to get out of.

Who pays closing costs for either loan?

Usually, the buyer primarily pays closing costs for both types of mortgages. In some cases, you can negotiate with the seller to have them cover some or all of the closing costs.

The bottom line: Explore all financing options to achieve homeownership

If you’re planning to buy a home, it’s important to consider all of your options. Both FHA loans and conventional mortgages can be a good way to get the money you need to buy property. In general, you should look to conventional loans first if you can meet their stricter requirements, then consider an FHA loan if you have lower credit or less savings.

If you’re ready to begin your homebuying journey, you can reach out to Rocket Mortgage² today.

¹ The 3% down payment option is only available on certain conventional loan products and is not available in all states. Additional terms and conditions may apply.

² Rocket Mortgage is a trademark of Rocket Mortgage, LLC or its affiliates.