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Home / Loan programs / Compare / Conventional 3% vs FHA 3.5% down
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Short answer
Conventional loans allow as little as 3% down for eligible first-time buyers (or HomeReady borrowers under an income limit), while FHA allows as little as 3.5% down for eligible borrowers with a 580 or higher credit score. The bigger difference is usually mortgage insurance: conventional PMI is priced on your credit score and can be removed as you build equity, while FHA mortgage insurance costs the same regardless of score and, with less than 10% down, lasts for the life of the loan. With a small down payment, compare both on Loan Estimates for the same home.
| Feature | Conventional 97% LTV | FHA 96.5% LTV |
|---|---|---|
| Down payment | As little as 3% down for eligible first-time buyers | As little as 3.5% down for eligible borrowers with a 580+ score |
| Who qualifies | Standard: at least one first-time buyer. HomeReady: income up to 80% of AMI | Any borrower who meets FHA and lender rules |
| Credit score | No Fannie Mae DU minimum since Nov. 2025; lenders set their own | 580+ for 3.5% down; 500-579 limited to 90% LTV |
| Mortgage insurance | PMI, priced by down payment and credit score | Upfront MIP (1.75%) plus annual MIP; same price regardless of score |
| Removing mortgage insurance | Request at 80% of original value; ends automatically at 78% | With 3.5% down, annual MIP lasts the mortgage term |
| 2026 one-unit loan limit | $832,750 baseline; up to $1,249,125 in high-cost areas | $541,287 to $1,249,125, by county |
| Seller help with costs | Up to 3% at this LTV | Up to 6% of the sales price |
Fannie Mae allows conventional purchase loans up to 97% loan-to-value (LTV), which leaves a 3% down payment. There are two main versions:
If all occupying borrowers are first-time buyers, at least one must complete homebuyer education. With less than 20% down you pay private mortgage insurance (PMI). For 2026, the baseline conforming loan limit for a one-unit home is $832,750 (up to $1,249,125 in high-cost areas).
Under HUD Handbook 4000.1, a minimum decision credit score of 580 or higher is eligible for maximum financing, which is a 96.5% LTV on a purchase, so 3.5% down. Scores from 500 to 579 are limited to 90% LTV. FHA does not require you to be a first-time buyer and has no income limit, but loan amounts are capped by county ($541,287 to $1,249,125 for one unit in 2026).
The CFPB explains that PMI rates vary by down payment amount and credit score but are "generally cheaper than FHA rates for borrowers with good credit." FHA mortgage insurance, by contrast, "costs the same no matter your credit score, with only a slight increase in price for down payments less than five percent."
FHA charges an upfront MIP of 1.75% of the base loan amount. Under HUD Mortgagee Letter 2023-05, for most 30-year loans up to $726,200, annual MIP is 0.55% when your LTV is above 95%, and because the starting LTV is above 90%, it lasts for the mortgage term. To drop it later, borrowers typically refinance, if they qualify.
Conventional PMI can come off without refinancing. You can ask your servicer to cancel PMI when your balance is scheduled to reach 80% of the home's original value, if you meet the requirements, and it must end automatically at 78%.
What this means
With a higher credit score, conventional often comes out ahead on mortgage insurance. With a lower score or a higher debt-to-income ratio, FHA can be the better fit. The only way to know is to price both for your own scenario.
Conventional 3% down is often worth a close look if:
FHA 3.5% down is often worth a close look if:
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For Fannie Mae's standard 97% loan-to-value option, at least one borrower must be a first-time homebuyer. HomeReady does not require a first-time buyer but limits income to 80% of area median income.
Under HUD Handbook 4000.1, a minimum decision credit score of 580 or higher is eligible for maximum financing, which is 96.5% loan-to-value on a purchase. Scores from 500 to 579 are limited to 90% loan-to-value.
It depends on your credit. The CFPB says PMI rates vary by down payment and credit score and are generally cheaper than FHA rates for borrowers with good credit, while FHA mortgage insurance costs the same no matter your credit score. Compare both Loan Estimates.
On a conventional loan you can ask to cancel PMI when your balance is scheduled to reach 80% of the original value, and it ends automatically at 78%. On FHA with less than 10% down, annual MIP lasts for the mortgage term unless you refinance.
Fannie Mae's standard 97% option has no income limit. HomeReady limits income to 80% of area median income. FHA has no income limit.
Fannie Mae allows interested-party contributions of up to 3% when the loan-to-value is above 90%. FHA allows up to 6% of the sales price.
This page is general education, not a loan offer, commitment, or approval. Program rules and figures change; the figures here were checked against the sources below in October 2026. Your options depend on your credit, income, property, and each lender's guidelines. All loans are subject to approval.
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This page explains the rules. For your situation, compare options yourself or talk with a licensed loan officer.