FHA vs. conventional: which loan fits you?
The rate is only part of the story. Mortgage insurance, credit tiers and your plans for the next five years decide the winner.
Aisha Rahman, Loan OfficerAugust 27, 2026 · 6 min read
FHA and conventional loans are the two most common ways to buy a home with less than 20% down. They can look similar on a rate sheet, yet the total monthly cost and long-term cost can differ by thousands of dollars. The right choice depends on your credit, your down payment and how long you expect to keep the loan.
The quick comparison
- Minimum down payment: FHA 3.5%; conventional 3% for first-time buyers, 5% otherwise.
- Minimum credit score: FHA 580; conventional 620.
- Mortgage insurance: FHA charges 1.75% upfront plus an annual premium; conventional PMI has no upfront charge and can be removed.
- Debt-to-income: FHA can go above 50% with automated approval; conventional usually tops out at 45% to 50%.
- Property: FHA requires the home to meet HUD standards; conventional appraisals focus on value.
Why mortgage insurance decides most cases
Conventional PMI is priced on your credit score. With a 760 score and 5% down, PMI might be 0.3% of the loan per year. With a 660 score, it can exceed 1%. FHA mortgage insurance is the same for almost everyone, currently 0.55% per year for most 30-year loans with less than 5% down, plus the 1.75% upfront premium added to your balance.
So strong credit usually favors conventional, and lower credit often favors FHA. There is also the question of how long you pay. Conventional PMI ends automatically at 78% of the original value. FHA insurance with less than 10% down lasts for the life of the loan unless you refinance.
A Dorchester example
Take a $600,000 two-family purchase with 5% down. Borrower A has a 770 score; Borrower B has a 650 score. For Borrower A, the conventional payment with PMI is about $160 a month lower than FHA. For Borrower B, FHA comes out roughly $95 a month lower because conventional PMI pricing climbs quickly below 680. Same house, opposite answers.
When FHA is clearly the better fit
- Your credit score is below 680 and you have a small down payment.
- Your debt-to-income ratio is above 45%.
- You had a bankruptcy two or three years ago.
- A family member who will not live in the home is co-signing to help you qualify.
When conventional is clearly better
- Your score is 720 or higher.
- You are buying a condo that is not FHA approved, which is common in smaller Boston buildings.
- You expect your home to appreciate and want PMI removed as soon as possible.
- You are buying a second home or investment property, which FHA does not allow.
Compare the full payment and the five-year cost, not the rate. That is where the difference shows up.
Planning to refinance later
Many buyers choose FHA to get into a home, then refinance to conventional once their credit improves and they reach 20% equity. That can be a smart path, but it is not guaranteed: rates may be higher when you are ready, and a refinance has closing costs. Choose the loan that works today and treat a future refinance as a bonus.
At Harborview, we price both loans on the same worksheet for every borrower who qualifies for each. You will see the rate, APR, monthly mortgage insurance, cash to close and estimated five-year cost side by side, and your loan officer will tell you which one they would pick and why.
Aisha makes self-employed income simple, working with restaurant owners, rideshare drivers and consultants across Dorchester and Roxbury.
This article is for general education and is not financial, tax or legal advice. Figures are examples for illustration only.
