FHA vs Conventional Loans: Which Is Better for First-Time Buyers?
FHA gets you in with less down. Conventional costs less long-term. Run the numbers.
The two loans first-time buyers compare most are FHA and conventional. FHA is easier to qualify for; conventional is cheaper long-term if you can swing it. Here is the comparison without the brochure language.
FHA loans
FHA loans are mortgages insured by the Federal Housing Administration and issued by regular banks. They are designed to help buyers who would not qualify for a conventional loan.
- Down payment: 3.5% with a credit score of 580 or higher; 10% if 500-579.
- Credit score minimum: 500 (some lenders set their own minimums at 580 or 620).
- Debt-to-income: Up to 50% in many cases.
- Mortgage insurance: Required, and it sticks for the life of the loan unless you put 10%+ down.
Conventional loans
Conventional loans are mortgages not backed by a government program. They follow Fannie Mae and Freddie Mac guidelines.
- Down payment: As low as 3% for first-time buyers; 5% is more common.
- Credit score minimum: 620 typically; better rates above 740.
- Debt-to-income: 43-45% is the typical cap.
- Mortgage insurance: Required if down payment is less than 20%, but it drops off automatically at 22% equity.
Side-by-side
| Factor | FHA | Conventional |
|---|---|---|
| Minimum down | 3.5% | 3-5% |
| Min credit score | 500-580 | 620+ |
| Mortgage insurance | Permanent (with low down) | Drops off at 22% equity |
| Loan limits | Lower in most areas | Higher |
| Property condition | Stricter (FHA appraisal) | More flexible |
Which to pick
Pick FHA if: Your credit score is under 620, you have very limited savings, or you are buying a home in a market where conventional financing is hard to get.
Pick conventional if: Your credit is 680+ and you can hit 5-10% down. The long-term cost is meaningfully lower because mortgage insurance eventually disappears.
If you are on the line, run both scenarios with a real lender. The difference in monthly payment is often only $40-$80 - and conventional almost always wins on a 30-year horizon.
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