This is the most common fork in the road for a first home, and the answer genuinely depends on your file. Anyone who tells you one is simply better than the other is not looking at your numbers.
The short version
FHA is more forgiving on credit and easier to qualify for. Conventional is cheaper over time if you can qualify comfortably, mostly because of how the mortgage insurance behaves.
Getting in the door
FHA accepts lower credit scores, a higher debt load relative to income, and a shorter time since a bankruptcy or foreclosure. Its minimum down payment is three and a half percent.
Conventional starts at three percent down, slightly lower, but it wants a stronger file to get there. Once your score climbs into the 700s the pricing improves noticeably.
The mortgage insurance, which is the real difference
Both loans carry mortgage insurance when you put less than twenty percent down. They behave completely differently.
On a conventional loan it is PMI. It is priced against your credit score, so a strong score makes it cheap, and it comes off. You can request cancellation once you hold twenty percent equity, and it drops automatically at twenty two percent of the original value. Equity from appreciation counts toward that.
On an FHA loan taken with the minimum down payment, the monthly premium generally stays for the life of the loan. There is also a one time premium of one and three quarter percent of the loan, normally financed into it. The usual exit is a refinance into a conventional loan once you have the equity, which is a real and common plan, but it is a second transaction with its own costs.
The property itself
FHA has condition standards. Peeling paint, a failing roof, unsafe electrics or missing handrails can all stop an FHA appraisal. If you are buying something tired, that matters, and a rehab loan may be the better route.
How I would decide it
- Credit in the 600s, or a recent rough patch: FHA, usually comfortably.
- Credit in the 700s with a modest down payment: run both. Conventional often wins on the monthly number once PMI is priced against the score.
- Planning to stay a long time: the fact that PMI ends and MIP does not becomes the biggest number in the comparison.
- A house needing work: conventional or rehab, because the appraisal standard is the constraint.
The way to settle it is not an article. Put your figures into the affordability calculator, switch between the Conventional and FHA tabs, and watch the total monthly payment change. Then send me both and we will look at the ten year picture together.
This article is general information, not financial advice. Your situation is specific, so let's talk about it.
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