FHA vs Conventional Loan: Which Is Right for You in 2026?
If you are choosing between an FHA loan and a conventional loan in 2026, the decision usually comes down to three things: your credit score, how much cash you have for a down payment, and how long you plan to keep the loan. One is not universally “better.” The right answer depends on your numbers.
The short version
- FHA loans are government-backed and built for buyers with lower credit scores or smaller down payments. They allow a 580 credit score with 3.5% down, but charge mortgage insurance (MIP) that, in most cases, you cannot cancel.
- Conventional loans are not government-backed. They reward stronger credit with better pricing and let you drop mortgage insurance (PMI) once you reach 20% equity.
2026 comparison table
| Feature | FHA loan | Conventional loan |
|---|---|---|
| Minimum down payment | 3.5% at 580+ FICO; 10% at 500–579 (HUD/FHA) | Typically 3% on many programs; 5%+ common |
| Minimum credit score | 580 for 3.5% down; 500 with 10% down (HUD/FHA) | Generally 620+ (lender-set) |
| 2026 loan limit (1-unit) | Floor $541,287 / ceiling $1,249,125 (HUD) | Baseline $832,750 / ceiling $1,249,125 (FHFA) |
| Mortgage insurance | MIP, usually for the life of the loan at 3.5% down | PMI under 20% down; cancellable at 20–22% equity |
| Upfront insurance fee | 1.75% upfront MIP financed into the loan (HUD/FHA) | None |
| Best for | Lower credit, smaller down payment | Stronger credit, plans to build equity |
Down payment: the gap is smaller than people think
The myth is that FHA always needs less cash. FHA requires 3.5% down at 580+ FICO (10% at 500–579). Many conventional programs allow as little as 3% down. On a $400,000 home: FHA at 3.5% = $14,000; conventional at 3% = $12,000. The conventional option can require less upfront cash — the real difference is in the mortgage insurance, not the down payment. See our conventional loan requirements guide.
Credit score: the real divide
Below ~620, conventional is often off the table or priced poorly, and FHA becomes the practical path (HUD floors: 580 for 3.5% down, 500 for 10% down; lenders set higher overlays). At 680+, conventional usually prices better and lets you escape mortgage insurance later. Details in FHA loan requirements.
Mortgage insurance: PMI vs MIP is the deciding factor
Conventional (PMI): applies under 20% down; cancellable at 20–22% equity (automatic at 22% under federal rules). Temporary. FHA (MIP): 1.75% upfront (financed) plus annual MIP that generally lasts the life of a 3.5%-down loan — removable only by refinancing into conventional. That single difference can outweigh a slightly lower FHA rate over time. See PMI vs MIP glossary.
2026 loan limits
- Conventional (conforming): baseline $832,750, high-cost ceiling $1,249,125 (FHFA, Nov 2025, +3.26% HPI).
- FHA: floor $541,287, ceiling $1,249,125 (HUD, case numbers on/after Jan 1, 2026).
In high-cost counties both cap at $1,249,125; in typical areas conventional lets you borrow more before jumbo territory.
How rates factor in
As of June 2026 the 30-year fixed averaged 6.47% (Freddie Mac PMMS, wk of Jun 18 2026 — down from 6.52% the prior week and 6.81% a year ago). FHA and conventional rates are quoted separately; compare live quotes on the same day. Run scenarios in our affordability calculator.
When each wins
FHA if: credit 500–619; recent credit hiccups but stable income; need flexible DTI allowances. Conventional if: credit ~680+; want to cancel MI at 20% equity; buying above the FHA floor but under the conforming limit; can put 3–5% down and qualify cleanly. A common smart play: start FHA to get in, refinance to conventional once credit/equity improve, ending MIP for good.
Frequently Asked Questions
Is FHA always cheaper?
No — FHA’s MIP often lasts the life of the loan while conventional PMI cancels at 20% equity; conventional can cost less for stronger credit.
Can I switch FHA → conventional later?
Yes, via refinance once score/equity rise, removing FHA MIP.
What credit score do I need?
FHA: 580 (3.5% down) / 500 (10% down). Conventional: typically 620+, best pricing ~680+.
2026 limits?
Conventional $832,750 baseline–$1,249,125 (FHFA); FHA $541,287–$1,249,125 (HUD).
CTA: Compare FHA and conventional payments in the affordability calculator.
Sources: FHFA 2026 conforming limits (Nov 2025); HUD HUD-No-25-145 (2026 FHA limits); HUD/FHA down-payment & credit minimums; Freddie Mac PMMS (wk Jun 18 2026, volatile).