If you are a first-time home buyer in 2026, you are likely choosing between two loan programs: FHA and conventional. These are the two most common first-time buyer loans in the market, and together they cover roughly 99.9 percent of buyers who are not eligible for VA or USDA programs. I have been helping buyers compare these loans for over 23 years, and the decision comes down to your credit score, your down payment savings, your debt load, and a few other factors I will walk you through below.
Prefer to watch? Patrick walks through the full FHA vs conventional comparison in this video.
The Four First-Time Buyer Loan Options
There are really only four true first-time home buyer loans available: conventional, FHA, VA, and USDA. The latter two have strict eligibility requirements that restrict most people. VA loans are limited to active duty and former military personnel and their spouses. USDA loans are restricted to rural and deep rural areas and have low purchase price caps.
That means 99.9 percent of first-time buyers will choose between FHA and conventional. This article compares them side by side with actual numbers so you can see which one fits your situation. If you are still deciding, I cover the best first-time buyer loan options in my Ask Patrick guide.
Credit Score Requirements: FHA vs Conventional
The minimum credit score for an FHA loan is 580 with 3.5 percent down (or 500 with 10 percent down). For a conventional loan, the standard minimum is 620.
Here is the reality though: I recommend getting your credit score to 620 or better no matter which loan you choose. Anything below 620 makes it harder to get approved, even on an FHA loan. The good news is credit scores are not hard to move. I can give you specific action steps to improve your score in a short time.
Bottom line: The minimums are 580 for FHA and 620 for conventional, but 620 is the practical target for both.
Down Payment: How Much Cash Do You Need?
This is where FHA often wins for first-time buyers. Let me use a running example throughout this article: a household making $80,000 per year targeting a $300,000 home.
Down Payment Comparison on a $300,000 Home
FHA Loan
$10,500
3.5% down payment
Conventional Loan
$15,000
5% down payment
The FHA down payment saves you $4,500 upfront. However, there is an exception on the conventional side: if your household earns less than 80 percent of the area median income for your county, you can qualify for a 3 percent down conventional loan. On a $300,000 home, that is only $9,000.
Debt-to-Income: How Much Debt Can You Carry?
Your debt-to-income ratio is the percentage of your income that goes toward paying debts. This includes your housing payment (principal, interest, taxes, insurance, HOA dues, and mortgage insurance) plus credit cards, installment loans, student loans, and any other contractual debt.
FHA DTI Limit
56%
Up to 56% with compensating factors
Conventional DTI Limit
50%
Typically maxes out at 50%
On an $80,000 household income, that means FHA allows you to carry about $400 more in monthly debt than conventional. If you have student loans, car payments, or credit card debt, that extra room can be the difference between qualifying and not qualifying.
Interest Rates and Monthly Payment
In the current market, FHA loans have about a half-percent lower rate than conventional loans across the board. This has been consistent for a couple years now.
Using a 620 credit score on our $300,000 example: FHA comes in around 6 percent, while conventional is around 6.5 percent. The difference on a $300,000 loan is about $200 per month in savings with the FHA option. A lot of that difference comes from how mortgage insurance is priced, which I will explain next.
Mortgage Insurance: FHA MIP vs Conventional PMI
Whenever you put down less than 20 percent, you have to pay monthly mortgage insurance. This protects the lender in case you default. The way it is calculated is very different between FHA and conventional.
FHA MIP
0.55%
Annual premium, set rate regardless of credit score
Conventional PMI
Varies
Priced by credit score and loan-to-value
With a 620 credit score, the conventional PMI is significantly more expensive than the FHA MIP. That is a big reason why the FHA monthly payment comes out about $200 lower. At higher credit scores (720+), conventional PMI becomes much cheaper, which flips the math in favor of conventional.
The Non-Borrowing Spouse Factor
This is a nuance most people do not know about, and it can make or break your qualification. Let us go back to our $80,000 household income example, but this time the income comes from one spouse while the other is a stay-at-home parent.
With an FHA loan, you have to include the non-borrowing spouse's debt on top of the borrower's debt. If the stay-at-home spouse has student loans or credit card debt, that can push your total DTI over FHA's 56% limit.
With a conventional loan, you do not have to add the non-borrowing spouse's debt. Only the debts on the borrower's credit report count. If the spouse carrying the debt is not on the loan, that debt does not factor into your DTI calculation.
This is one of the few situations where conventional is clearly the better choice.
When to Choose Conventional vs FHA
There are really only three situations where you want to choose a conventional loan:
High Credit Scores (720-740+)
If you have excellent credit, conventional rates and PMI become very competitive, often beating FHA.
Non-Borrowing Spouse Has Lots of Debt
When only one spouse is on the loan and the other has significant debt, conventional wins because you do not have to add the non-borrowing spouse's debts.
Potential Collections on Credit
Conventional loans can be a bit more lenient with collections showing up on your credit report.
Patrick's Take
Outside of those three scenarios, most of the time you will use FHA. Why? It has a lower rate, usually a lower down payment, and it allows for more debt. On our $300,000 example, that $4,500 less in down payment plus $200 per month in payment savings adds up fast. But every situation is different, and that is why I recommend talking through your specific numbers before deciding.
Frequently Asked Questions
What credit score do I need for an FHA loan?
What credit score do I need for a conventional loan?
How much down payment do I need for FHA vs conventional?
Does FHA have lower rates than conventional?
When should I choose conventional over FHA?
Can I switch from FHA to conventional later?
Continue Your Education
Explore more resources from Patrick to deepen your home buying knowledge.
Not Sure Which Loan Fits Your Situation?
Every buyer's numbers are different. I will walk through your credit score, your income, your debts, and your down payment savings to tell you exactly which loan makes sense for your situation. That is what I do. That is what I have been doing for over 23 years.
Patrick Kevin Fagan
Loan Officer and Realtor · AXEN Realty LLC · San Antonio and Texas Hill Country
Licensed Sales Agent · 454749 · TX · NMLS 877741
Sincerely, Patrick Kevin Fagan