FHA vs conventional loan: which fits a first-time buyer?

An FHA loan is a mortgage insured by the Federal Housing Administration, part of the federal housing department (HUD). It allows lower credit scores and a down payment as low as 3.5%. A conventional loan has no government program behind it and often costs less for buyers with good credit. Get quotes for both.

This guide compares the official rules side by side. Mortgage insurance, a fee that protects the lender if you stop paying, is part of the cost of most low-down-payment loans. For the full list of FHA rules, see our guide to FHA loan requirements. For the wider map of buyer help, read our guide to first-time home buyer programs.

How do FHA and conventional loans compare?

The CFPB, a federal agency, says conventional loans typically cost less than FHA loans but can be harder to get.

Which one costs less?

It depends on your numbers. The CFPB says that for borrowers with good credit and a medium down payment of 10% to 15%, FHA loans tend to be more expensive than conventional loans. For borrowers with lower credit scores or a smaller down payment, FHA loans can often be the cheapest option. It adds that there are no hard rules and a lot depends on the market, so ask lenders for quotes on both and compare total costs.

The CFPB also says private mortgage insurance rates vary by down payment and credit score and are generally cheaper than FHA rates for borrowers with good credit. FHA insurance costs the same whatever your score, with a small increase for down payments under 5%.

How does mortgage insurance differ?

Mortgage insurance protects the lender, not you. The two kinds work differently.

• FHA. According to HUD's premium chart, you pay 1.75% of the loan at closing (the day you sign the final papers), which you can add to the loan, plus a yearly premium paid monthly. For a loan over 15 years up to $726,200, the yearly rate is 0.50% to 0.55% depending on your down payment. It lasts 11 years if you put down 10% or more, and for the whole loan if you put down less.
• Conventional. Private mortgage insurance is arranged by the lender and is mostly paid monthly, with little or nothing at closing. You can ask your servicer, the company that collects your mortgage payments, to cancel it when your balance is scheduled to reach 80% of the home's original value. The servicer must grant a written request if you have a good payment history, no second mortgage and proof the value has not dropped. It must end automatically on the date your balance is scheduled to reach 78%, or at the loan's halfway point, if you are current on payments. Different rules cover FHA loans and insurance that the lender pays for.

A worked example. Say you borrow $285,000 with 5% down on a $300,000 home. On an FHA loan the upfront premium is 1.75%, or $4,987.50, which can be added to the loan. The yearly premium is 0.50%, which is about $1,425 a year at the start, or about $119 a month, and it lasts the life of the loan. A conventional loan usually has no upfront premium, and its monthly premium can stop once you have paid your balance down to $240,000, which is 80% of the original value. The conventional premium amount depends on your credit score, so ask for a quote. This is arithmetic from published rates, not an offer.

What are the 2026 loan limits?

A loan limit is the most a loan program will back. FHA sets loan limits by county. For a one-unit home in 2026, HUD's limit is at least $541,287 and at most $1,249,125, according to Mortgagee Letter 2025-23. The Federal Housing Finance Agency says the 2026 baseline limit for conventional loans that Fannie Mae and Freddie Mac buy is $832,750 in most of the country, with a ceiling of $1,249,125 where homes cost more. Alaska, Hawaii, Guam and the Virgin Islands have different limits. Look up your county on HUD's mortgage limits tool.

Do you need to be a first-time buyer?

Not for an FHA loan, according to HUD's handbook. Some conventional programs are open to first-time and repeat buyers, and Fannie Mae's HomeReady page says that if all borrowers who will occupy the home are first-time buyers, at least one must take homeownership education. State and city down payment programs often add their own first-time rules and income limits. Our Texas guide and Florida guide show how those programs pair with a first mortgage.

Which loan fits which buyer?

• A lower credit score or a small down payment. FHA is built for this. A score of 580 or higher allows 3.5% down, and 500 to 579 allows 10%.
• Good credit and a larger down payment. The CFPB says that with good credit and 10% to 15% down, FHA tends to cost more. At 5% down, get quotes for both and compare.
• Planning to stay a long time. With less than 10% down, FHA insurance lasts the whole loan, so long-term cost matters.
• Buying a below-market home. Ask the program which loans it takes. See our guide to affordable homes for sale. As of October 5, 2026, we track 361 open homes for sale on our listings page, with the largest number in Colorado, and none mentions FHA in the text we collected.

How do you decide?

1. Check your credit reports and score.
2. Ask three lenders for a Loan Estimate, a standard form that shows a loan's costs, on an FHA loan and on a conventional loan. Then compare the total cost, as the CFPB suggests.
3. See a HUD-approved housing counselor. The CFPB's counselor search lists agencies that give independent advice, often at little cost.
4. Check your income against program income limits with our qualify check. What you type stays in your browser. Read about area median income, the middle income in your area, to see how limits are set.