FHA vs conventional for a first-time buyer: which loan wins, and when

Both loans let a first-time buyer in with little money down. The right one depends mostly on two numbers — your credit score and how long you plan to keep the loan.

The core differences

Feature	FHA	Conventional
Minimum down payment	3.5% (credit score 580+); 10% (500–579)	3% (HomeReady, Home Possible, Conventional 97); 5% standard
Minimum credit score	500–580 by program; many lenders require 620+	620; pricing improves sharply above 740
Mortgage insurance	Upfront premium (1.75% of loan) + annual MIP; lasts the life of the loan with less than 10% down	PMI only; cancellable at 80% LTV, automatic at 78%
Loan limits	Lower FHA limits by county	Conforming limits (higher)
Debt-to-income	More flexible	Up to 45–50% with automated approval
Property rules	Stricter appraisal and condition standards; primary residence only	Standard appraisal; primary, second home or investment

When FHA usually wins

Credit score below roughly 680, a recent credit event (bankruptcy two years ago, foreclosure three years ago), a higher debt-to-income ratio, or a small down payment that came from a gift. FHA’s mortgage insurance does not rise much with a lower score, while conventional PMI becomes expensive below 700. FHA also allows non-occupant co-borrowers more readily.

When conventional usually wins

Credit score above roughly 700 with 5% or more down: PMI is cheaper, there is no upfront premium, and the insurance goes away. With 3% down through HomeReady or Home Possible (income at or below 80% of area median), conventional can beat FHA even at moderate scores because those programs carry reduced PMI pricing. Conventional is also the only route for condos not on FHA’s approved list and for homes that need work an FHA appraiser would flag.

The life-of-loan problem

FHA’s annual mortgage insurance premium (0.55% a year for most 30-year loans with less than 5% down, since the 2023 cut) cannot be cancelled unless you put 10% or more down — then it ends after 11 years. Most FHA borrowers escape it by refinancing into a conventional loan once they reach 20% equity and their credit improves. Plan for that refinance, and budget its closing costs, when comparing the two.

Frequently asked questions

Can I switch from FHA to conventional later?

Yes, by refinancing. You will need roughly 20% equity to avoid new PMI and a credit score the conventional lender accepts. There is no penalty for leaving FHA; you simply pay closing costs on the new loan.

Is FHA only for first-time buyers?

No. FHA loans are available to any borrower who will occupy the home as a primary residence, regardless of prior ownership.

Which one is easier to get approved for?

FHA, in general: lower score thresholds, more tolerance for higher DTI and for past credit problems. But “easier” is not “cheaper” — run both scenarios with the same lender on the same day and compare the Loan Estimates line by line.