Your first mortgage decision is often FHA loan or conventional loan. For many first-time buyers it is the single biggest mortgage decision they will make. The choice shapes your down payment, your monthly cost, and how much house you can buy.

Both are 30-year fixed-rate options most lenders offer side by side. The difference is who backs them and who they are built for. Get the match right and you can save tens of thousands of dollars over the life of the loan. Here is how they stack up in 2026.

What is the difference between an FHA loan and a conventional loan?

An FHA loan is insured by the Federal Housing Administration, part of the U.S. Department of Housing and Urban Development. The government does not lend you the money — a regular bank or lender does — but the federal insurance lets that lender say yes to borrowers with smaller down payments and lower credit scores. FHA loans were designed to widen access to homeownership, and that is still their core job.

A conventional loan is not backed by a government agency. Most are written to standards set by Fannie Mae and Freddie Mac, the two companies that buy mortgages from lenders. Because they carry no federal insurance, conventional loans lean harder on your credit profile — but they reward a strong one with lower long-term costs.

The headline trade-off: FHA is easier to qualify for, conventional is usually cheaper once you are in. With today’s borrowing costs squeezing buyers — high rates are reshaping mortgages across the board — that trade-off matters more than it did a few years ago.

Down payment: how little can you put down?

This is where FHA built its reputation. With a credit score of 580 or higher, an FHA loan requires just 3.5% down. On a $400,000 home, that is $14,000. If your score sits between 500 and 579, you can still qualify, but the down payment jumps to 10%.

Conventional loans are no longer the 20%-down product many buyers assume. Through programs like Conventional 97, HomeReady, and Home Possible, first-time and lower-income buyers can put down as little as 3% — slightly less than FHA’s minimum, and on a smaller loan.

Putting 20% down is still the cleanest path on a conventional loan, because it eliminates mortgage insurance entirely. The further below 20% you go, the higher your loan-to-value (LTV) ratio — and the more the lender charges to cover its risk.

Credit score: which loan is easier to qualify for?

FHA wins on flexibility. The program’s floor is a 580 score for 3.5% down, and it is generally more forgiving on past credit bumps, higher debt-to-income ratios, and thinner credit histories. For buyers rebuilding after a setback, FHA is often the only door that opens.

Conventional loans typically want a minimum score around 620, and they price heavily off your number. A borrower with a 760 score and one with a 660 score get very different rates and insurance costs on the same conventional loan. If your credit is strong, that pricing works in your favor; if it is shaky, FHA may be both easier and cheaper.

Mortgage insurance: the real long-term cost difference

This is the line item that decides the contest for most buyers, and it is where the two loans diverge the most.

FHA charges two layers of mortgage insurance premium (MIP): an upfront premium of 1.75% of the loan amount, which is usually rolled into the balance, plus an annual premium — 0.55% of the loan for most 30-year borrowers — paid monthly. The catch is duration. If you put down less than 10%, that annual MIP lasts the entire life of the loan. The only way to get rid of it is to refinance out of the FHA loan altogether.

Conventional private mortgage insurance (PMI) works differently, and in your favor over time. You pay it only while your loan-to-value is above 80%, and it falls off automatically once you build enough equity. Under the federal Homeowners Protection Act, your servicer must cancel PMI on request when your balance reaches 80% of the original value, and “PMI must be terminated automatically when your mortgage balance is first scheduled to reach 78% of the original value of your home,” the Consumer Financial Protection Bureau explains. Put 20% down and you skip PMI from day one.

The practical upshot: an FHA loan can be cheaper to get into but more expensive to keep, because its insurance may never go away. A conventional loan often costs more upfront in credit terms but lets you shed insurance in a few years of payments or rising home values.

Loan limits in 2026

Both programs cap how much you can borrow, and both limits rose for 2026.

The baseline conforming loan limit for a one-unit home is $832,750 in 2026, up from $806,500 a year earlier, after the Federal Housing Finance Agency raised it 3.26% to track national home-price gains. In high-cost markets, conventional limits run up to $1,249,125.

FHA sets its limits as a band tied to that conforming figure. For 2026, HUD set the FHA “floor” at $541,287 for a one-unit home in most of the country and the “ceiling” at $1,249,125 in the most expensive counties. Loans above these caps are “jumbo” loans, a separate product with its own rules. Check today’s mortgage rates against the price range you are shopping to see which ceiling you are bumping against.

So which one is right for you?

There is no universal winner — only the right fit for your numbers. A simple way to decide:

  • Choose an FHA loan if your credit score is below 620, you have had recent credit trouble, your debt-to-income ratio is high, or 3.5% down is what gets you to the closing table this year.
  • Choose a conventional loan if your credit score is roughly 680 or higher, you can put down at least 5% to 20%, and you want mortgage insurance that disappears as you build equity.

A useful rule of thumb: if you plan to stay in the home long term and can reach 20% equity within a few years, conventional usually wins on total cost. If getting approved at all is the hurdle, FHA is the program built for you.

The smartest move is to get quotes for both from the same lender and compare the all-in monthly payment — principal, interest, and insurance — not just the rate. The cheaper headline rate is not always the cheaper loan.

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