This is the most common fork in the road for a first-time buyer, and most of the advice online answers it with the down payment percentage. That is the least important variable. The one that decides it is mortgage insurance.
The side-by-side
- Minimum down payment: FHA 3.5% at a 580 score. Conventional 3% for qualified first-time buyers, 5% otherwise.
- Minimum credit score: FHA 580 (or 500 with 10% down). Conventional 620, with real pricing improvements at 680, 720, and 760.
- Debt-to-income ceiling: FHA is meaningfully more forgiving, often approving files near 57% back-end that conventional would decline at 46%.
- Upfront cost: FHA charges 1.75% of the loan as an upfront premium, usually financed. Conventional has no equivalent.
- Property standards: the FHA appraisal is also a minimum-property- standards inspection. Peeling paint, a bad roof, or missing handrails can hold up a closing.
The part that decides it
On a conventional loan, private mortgage insurance is priced off your credit score and loan-to-value, and it cancels. Automatically at 78% LTV, or on request at 80%. For a borrower with a 760 score putting 5% down, PMI might run 0.30% of the loan per year and disappear in six or seven years.
On an FHA loan originated after June 2013 with less than 10% down, the annual mortgage insurance premium lasts the entire loan term. It does not cancel at 78%. It does not cancel at 50%. The only way off it is to refinance out of FHA entirely.
That is the whole comparison, compressed. Over thirty years, permanent MIP on a $300,000 loan is roughly $60,000 that a conventional borrower does not pay.
Where the answer flips
Roughly at a 680 credit score, though it depends on the down payment.
Below 660, conventional PMI is priced so punitively that FHA usually wins on monthly payment even accounting for permanent MIP, and FHA's rate is often lower too. FHA is also frequently the only approval available.
Between 660 and 700, it is genuinely close, and the tiebreaker is your time horizon. Planning to refinance or move inside five years? FHA's permanent MIP never gets a chance to hurt you. Staying twenty years? Conventional.
Above 700, conventional almost always wins on total cost, sometimes by a wide margin.
The strategy nobody mentions
These are not mutually exclusive. A common and entirely legitimate play is to use FHA to get into the house when your credit or ratios leave no alternative, then refinance into conventional once your score has recovered and you have 20% equity. You get the approval now and shed the permanent MIP later.
The catch is that this only works if someone plans it. If you take the FHA loan and nobody revisits it, you pay permanent MIP for thirty years by default. When we write an FHA file at Northgate, the refinance trigger goes in the file notes on day one and we watch for it.
Run both
Any competent loan officer should price both programs for you rather than steering you to one. Read more on FHA loans and conventional loans, or get pre-qualified and we will send both comparisons in writing.