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Short answer
An FHA loan is insured by the Federal Housing Administration and uses more flexible qualifying standards, while a conventional loan is not government-backed and usually follows Fannie Mae or Freddie Mac rules. The biggest practical difference is mortgage insurance: FHA charges an upfront premium plus an annual premium that can last for the life of the loan, while conventional PMI can be removed once you build enough equity. To see which costs less for you, compare an FHA and a conventional Loan Estimate for the same home on the same day.
| Feature | FHA loan | Conventional loan |
|---|---|---|
| Backed by | Insured by FHA (HUD) | Not government-backed; most follow Fannie Mae or Freddie Mac rules |
| Down payment | As little as 3.5% down for eligible borrowers with a 580+ score | As little as 3% down for eligible first-time buyers |
| Credit score | 580+ for maximum financing; 500-579 limited to 90% LTV | No Fannie Mae DU minimum score since Nov. 2025; lenders can set their own |
| Mortgage insurance | Upfront MIP plus annual MIP | PMI when you put less than 20% down |
| Removing mortgage insurance | Annual MIP lasts 11 years or the life of the loan, based on your starting LTV | Request removal at 80% of original value; ends automatically at 78% |
| 2026 one-unit loan limit | $541,287 to $1,249,125, by county | $832,750 baseline; up to $1,249,125 in high-cost areas |
| Seller help with costs | Up to 6% of the sales price | 3% to 9% by LTV on a primary home; 2% on investment property |
FHA is part of the U.S. Department of Housing and Urban Development (HUD). FHA does not lend money itself. It insures loans made by FHA-approved lenders, which protects the lender if a borrower stops paying. According to the CFPB, the cost of that insurance is passed along to the homeowner, and the standards for qualifying are generally more flexible than for conventional loans.
FHA's rules live in HUD Handbook 4000.1. Two of them matter most for buyers:
The CFPB defines a conventional loan as any mortgage that is not insured or guaranteed by the government. Conventional loans can be conforming, meaning they fit Fannie Mae and Freddie Mac rules and size limits, or non-conforming, such as jumbo loans.
For 2026, FHFA set the baseline conforming loan limit for a one-unit home at $832,750, with a ceiling of $1,249,125 in high-cost areas. Eligible first-time buyers can put as little as 3% down on a conventional loan. Under Fannie Mae's rules, a standard 97% LTV purchase requires at least one first-time homebuyer, and the HomeReady version uses income limits (80% of area median income) instead.
FHA charges two premiums. The upfront MIP is 1.75% of the base loan amount, and it is usually financed into the loan. The annual MIP is divided into your monthly payment. Under HUD Mortgagee Letter 2023-05, for most loans with terms longer than 15 years and base loan amounts up to $726,200, the annual premium is 0.50% of the loan when your LTV is 95% or lower and 0.55% when it is above 95%. Larger loan amounts and shorter terms use different rates.
How long you pay depends on where you start. If your starting LTV is 90% or less, annual MIP lasts 11 years. Above 90%, it lasts for the mortgage term. Some FHA borrowers who later want to drop MIP refinance into a conventional loan once they have enough equity and qualify.
PMI works differently. Under federal law, the CFPB explains, you can ask your servicer to cancel PMI when your balance is scheduled to reach 80% of your home's original value, if you are current, have a good payment history, and meet the other conditions. PMI must end automatically when the balance is scheduled to reach 78%. PMI pricing typically depends on your credit score and down payment, so the comparison can come out differently for two buyers looking at the same house.
FHA's score rules are written into the handbook (580 and 500, above). Conventional is changing. Fannie Mae removed the 620 minimum credit score from its Desktop Underwriter (DU) system for new loan files created on or after November 16, 2025, and now relies on its own risk assessment. A score is still pulled and still affects pricing, and individual lenders can keep their own minimums. FHFA also now lets lenders use either Classic FICO or VantageScore 4.0 on loans sold to Fannie Mae and Freddie Mac.
The takeaway: a score in the low 600s does not automatically rule out conventional anymore, but it often makes conventional PMI and pricing more expensive than FHA. Run both.
Both loan types let a seller or other interested party pay some of your costs. FHA allows interested-party contributions of up to 6% of the sales price. Fannie Mae's limits for a primary home or second home are 3% when the LTV is above 90%, 6% from 75.01% to 90%, and 9% at 75% or less, and 2% for an investment property. If you plan to ask for seller credits, read our guide to how seller concessions work.
An FHA loan is often worth a close look if:
A conventional loan is often worth a close look if:
Many buyers qualify for both. The only reliable way to compare is side by side, with the same price, down payment, and lock date.
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No. FHA loans are open to any borrower who meets FHA's requirements, and at least one borrower generally must move into the home within 60 days of signing the mortgage and plan to live there at least a year. First-time buyers use FHA often because of its flexible credit rules.
Under HUD Handbook 4000.1, a minimum decision credit score of 580 or higher is eligible for maximum financing. Scores from 500 to 579 are limited to a 90% loan-to-value. Lenders review your full credit history, not just the score.
It depends on your starting loan-to-value. If it is 90% or less, annual MIP lasts 11 years. Above 90%, it lasts for the life of the loan. Many borrowers refinance into a conventional loan later to remove it, if they qualify.
You can ask your servicer to cancel PMI when your balance is scheduled to reach 80% of your home's original value, if you meet the requirements. It must end automatically when the balance is scheduled to reach 78%.
FHFA set the 2026 baseline conforming loan limit for a one-unit home at $832,750, with a ceiling of $1,249,125 in high-cost areas. Limits are updated every year.
Yes, within limits. FHA allows interested-party contributions of up to 6% of the sales price. Fannie Mae allows 3% to 9% on a primary home depending on your loan-to-value, and 2% on an investment property.
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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