One of the first big decisions first-time homebuyers face is choosing the right type of mortgage. For many, that means comparing two popular options: FHA loans and Conventional loans.
Both loans have their benefits — but depending on your credit score, income, and goals, one may fit better than the other.
What Is an FHA Loan?
An FHA loan is insured by the Federal Housing Administration. It’s designed to help people with lower credit scores or smaller down payments buy a home.
- Minimum down payment: 3.5%
- Credit score requirement: 580+ (or 500 with 10% down)
- Mortgage insurance: Required (upfront and monthly)
What Is a Conventional Loan?
Conventional loans are not backed by the government. They usually follow Fannie Mae or Freddie Mac guidelines.
- Minimum down payment: 3% (for first-time buyers)
- Credit score requirement: 620+ (higher scores get better rates)
- Mortgage insurance: Required if <20% down but can be removed later
FHA vs. Conventional: Side-by-Side
| Feature | FHA Loan | Conventional Loan |
|---|---|---|
| Minimum Down Payment | 3.5% | 3% |
| Credit Score Requirement | 580 (or 500 w/10% down) | 620+ |
| Mortgage Insurance | Required for life of loan* | Removable at 20% equity |
| Upfront Fees | 1.75% upfront MIP | No upfront MIP |
| Best For | Lower credit, small savings | Good credit, higher income |
*Unless you refinance later into a Conventional loan.
Which Loan Is Cheaper Over Time?
If you have excellent credit and can put down at least 5%, a Conventional loan is often cheaper in the long run. That’s because PMI can be removed, and rates may be lower.
But if you’re working with lower credit or a smaller down payment, an FHA loan may be easier to qualify for — even if it costs more in the long term.
How to Decide What’s Best for You
Consider these questions:
- Is your credit score under 640? FHA may be easier to qualify for.
- Do you want to put down less than 5%? Both options work, but FHA has easier requirements.
- Do you want lower payments over time? Conventional may save you money if you remove PMI later.
Bootcamp For Buyers can help you compare real quotes based on your financial profile. The best choice depends on your full picture — not just the rate.
Common Myths About FHA and Conventional Loans
- Myth: FHA is only for low-income buyers.
Truth: FHA loans are for anyone who qualifies — there’s no income cap. - Myth: You need 20% down for a Conventional loan.
Truth: First-time buyers can qualify with as little as 3% down. - Myth: You can’t buy a fixer-upper with FHA.
Truth: FHA has a 203(k) loan for renovations.
Can I Switch From FHA to Conventional Later?
Yes! Many buyers start with an FHA loan, then refinance into a Conventional loan later to:
- Remove mortgage insurance
- Lower their interest rate
- Access home equity
That flexibility can make FHA a great entry point even if you don’t stick with it forever.
Conclusion: There's No One-Size-Fits-All
As a first-time homebuyer, your goal is to get a safe, affordable loan that fits your budget — now and in the future.
Whether that’s FHA or Conventional depends on your:
- Credit score
- Debt-to-income ratio
- Down payment amount
- Long-term goals