FHA loan vs. Conventional loan
FHA and conventional are the two mainstream options, and the choice usually hinges on credit and down payment. FHA is more forgiving (580+ credit, 3.5% down) but carries mortgage insurance for the life of the loan. Conventional needs slightly stronger credit but its PMI cancels at 20% equity — making it cheaper over time.
For self-employed borrowers, both use the same income analysis (two years of returns, net income, add-backs); the difference is the credit and cost structure, not how your income is read.
Side by side
| Factor | FHA loan | Conventional loan |
|---|---|---|
| Minimum credit | 580 (3.5% down); 500–579 (10% down) | 620+ |
| Down payment | 3.5% | 3–5% |
| Mortgage insurance | MIP — usually life of loan under 10% down | PMI — cancels at 78–80% LTV |
| DTI flexibility | More forgiving | Stricter, but add-backs help |
| Long-run cost | Higher (permanent MIP) | Lower once PMI drops |
| Self-employed income | 2-yr returns, net income | 2-yr returns, net income |
Figures are representative ranges, not quotes, and vary by lender. Read the full guides: FHA loan · Conventional loan.
Who should pick fha loan
Buyers with lower credit (580–620), limited savings, or a higher DTI who need the most accessible entry point — FHA gets you in the door.
Who should pick conventional loan
Buyers with 620+ credit who want the lower long-run cost — cancelable PMI and no lifetime insurance premium make conventional cheaper over the years.
Bottom line
Still deciding? Take the 5-question loan quiz, compare every option on the loan types page, or size a purchase with the affordability calculator.
FAQ
No — FHA is open to repeat buyers too, as long as it's for a primary residence. It's popular with first-timers because of the low down payment and credit flexibility, but there's no first-time requirement.
Yes, by refinancing. Many buyers start with FHA, build equity to 20%, then refinance into a conventional loan to drop the lifetime MIP. Budget for refinance closing costs and confirm the new rate makes the move worthwhile.
Educational information only — not financial advice, and not a quote, pre-approval, or offer of credit. Mortgage Merlin is a publisher, not a lender or broker.