01 Minimum Credit Score Requirements
Conventional loans typically require a 620 FICO score at minimum, and pricing improves meaningfully at every tier above that. FHA loans go lower: 580 with a 3.5% down payment, or as low as 500 if you can put down 10%. That 120-point gap is the single biggest reason FHA exists as a program.
The catch is that a low score doesn't cost the same amount in each program. Conventional pricing punishes a low score twice, once through a higher interest rate and again through steeper mortgage insurance. FHA charges a flat insurance rate regardless of score, so a 580 borrower and a 780 borrower pay the identical insurance premium, even though their interest rates still differ. Our breakdown of the three qualifying factors covers how lenders weigh score against down payment and debt load together, not as separate checkboxes.
Credit history length and account mix still matter within each program, even at the same score. A 620 borrower with three years of on-time payments across a mortgage-style tradeline reads very differently to an underwriter than a 620 borrower with a thin file built mostly on one credit card. FHA underwriting tends to look past this nuance more than conventional automated systems do, which is part of why FHA approval rates run higher for borrowers with limited credit history.
02 Down Payment Differences
FHA asks for 3.5% down once your score clears 580, or 10% down between 500 and 579. Conventional loans can go as low as 3% down for qualified first-time buyers, though 5% and 20% are the more common benchmarks lenders quote.
The 20% figure matters beyond the down payment itself:
- below 20% down on a conventional loan, you'll carry private mortgage insurance until you reach 20% equity;
- at or above 20% down, conventional loans skip mortgage insurance entirely, cutting your monthly payment noticeably;
- FHA loans require mortgage insurance no matter how much you put down, even 25% or more;
- a larger down payment on either program still reduces your loan balance and total interest paid.
A buyer with strong savings but a thin credit file often does better going conventional once the down payment clears 20%, since the insurance cost disappears completely. A buyer with less cash but a longer credit history in good standing sometimes comes out ahead with FHA's lower upfront requirement instead.
03 PMI and Long-Term Cost Comparison
Private mortgage insurance, or PMI, is priced by risk. A borrower with a 640 score and 5% down might pay around 1.15% annually, close to $287 a month on a $300,000 loan. A borrower with a 760 score and the same down payment might pay closer to 0.5%, roughly $125 a month for the identical coverage.
FHA's mortgage insurance premium, or MIP, works differently. It charges 1.75% of the loan amount upfront, usually rolled into the loan balance, plus an annual premium around 0.55% for most 30-year borrowers. On a $300,000 loan that's about $5,250 upfront and roughly $137 a month to start. The Federal Housing Administration sets these rates the same for every borrower, regardless of credit history.
Cancellation is where the two programs split hardest. Under the Homeowners Protection Act, conventional PMI must be dropped automatically once your balance hits 78% of the original value, and you can request cancellation even earlier at 80%. FHA MIP on a loan with less than 10% down runs for the entire loan term and only goes away through a refinance into a different loan type.
04 When Each Loan Type Makes Sense
A borrower rebuilding credit after a rough patch, with 3.5% saved and a score in the low 600s or high 500s, usually finds FHA the only realistic door open right now. A borrower with a strong score above 700 and at least 10% saved almost always pays less over time with conventional financing, since the insurance gap widens every year the loan stays open.
Somewhere in between sits the harder call. A 660 score with 5% down could qualify for either program, and the right choice depends on how soon you expect to refinance or sell. If you're planning to move again within five years, FHA's lower upfront insurance cost might outweigh conventional's long-term savings. If you're settling in for the full 30 years, run both numbers side by side before signing, because the insurance gap compounds every month you keep the loan.
There's also a middle path worth checking before you commit to either program: some conventional lenders offer reduced PMI for first-time buyers through state housing programs, which can close the gap with FHA even at a 5% down payment. Ask a loan officer to run that scenario specifically, since it rarely comes up unless you request it, and it can shift the entire comparison in conventional's favor even for a borrower with a middling score.