FHA loans trade easier qualification for permanent mortgage insurance; conventional loans demand better credit and more cash up front but let you cancel insurance once you build equity. Neither is universally cheaper — the right one depends on your credit score, down payment, and time horizon. Here is the full comparison.
FHA vs conventional at a glance
| FHA loan | Conventional loan | |
|---|---|---|
| Minimum credit score | 580 for 3.5% down; 500–579 needs 10% down | Typically 620 (some lenders require more) |
| Minimum down payment | 3.5% | 3% for qualifying first-time buyers; typically 5% otherwise |
| Mortgage insurance | Upfront premium plus monthly MIP for the life of the loan with less than 10% down | PMI only under 20% down — and removable once you reach 20% equity |
| Debt-to-income flexibility | More forgiving; approvals possible with higher DTIs | Tighter; typically 43–45% ceiling |
| Property rules | Stricter appraisal and condition standards | More flexible, including some homes FHA would reject |
| Who it's designed for | Lower credit, smaller savings, higher debt | Stronger credit profiles and larger down payments |
The mortgage insurance difference is the real story
Buyers focus on interest rates, but mortgage insurance is where FHA and conventional diverge most over time:
- FHA: you pay an upfront mortgage insurance premium (rolled into the loan) plus a monthly premium. With less than 10% down, the monthly premium lasts for the life of the loan — the only ways out are refinancing or selling.
- Conventional: private mortgage insurance applies only when you put down less than 20%, and it can be removed once your equity reaches 20% of the home's value. Put down 20% and you never pay it at all.
This is why the classic FHA playbook is buy now with FHA, refinance into conventional later — and why borrowers who already have strong credit and 10–20% saved rarely benefit from FHA at all.
Choose FHA if…
- Your credit score sits between 580 and 660 — conventional lenders either decline or price this range punitively
- You have 3.5% saved but not 5% or more
- Student loans or other debt push your DTI past conventional limits
- You are buying a primary residence and plan to hold it long-term or refinance later
Choose conventional if…
- Your score is roughly 680+ and your DTI is comfortably under 43%
- You can put 10–20% down — at 20%, PMI disappears entirely
- The home needs work or has condition issues that FHA appraisals flag
- You want the cheapest total cost over a long hold, not just the lowest barrier to entry
The honest answer: compare both in dollars
Because FHA pricing varies less by credit score while conventional pricing rewards strong credit, the crossover point is different for every buyer. The only reliable method is to get quotes for both loan types from two or three lenders and compare the full monthly payment — principal, interest, taxes, insurance, and mortgage insurance — plus closing costs. Any lender worth your time will run both scenarios without being asked twice.
Once you know which direction fits, work the numbers backward through our affordability framework, and if you are buying in Colorado, check the down payment assistance programs — many are compatible with FHA and can shrink the cash you need at closing.