FHA vs Conventional Loan 2026
Side-by-side comparison: down payment, credit, mortgage insurance, loan limits, and the rule for picking. Current 30-year rate: 6.53% (FRED, 2026-05-28).
| Feature | FHA Loan | Conventional Loan |
|---|---|---|
| Min credit score | 580 (3.5% down) / 500 (10% down) | 620+ typical, 740+ for best rates |
| Min down payment | 3.5% | 3% (HomeReady/Home Possible) / 5% standard |
| Mortgage insurance | 1.75% upfront MIP + 0.55% annual | PMI 0.3-1.5% annual |
| PMI cancellation | Lasts loan life (or 11 years if 10%+ down) | Auto-cancels at 78% LTV |
| 2026 loan limit (baseline) | $541,287 | $832,750 |
| High-cost area limit | $1,249,125 | $1,249,125 |
| Max DTI typical | ~57% with comp factors | ~50% |
| Property condition | Strict FHA appraisal (safety items required) | Standard appraisal |
| Best for | First-time buyers, lower credit, smaller down payment | 700+ credit, 10%+ down, removable PMI plan |
FAQ
Which is better, FHA or conventional loan in 2026?
Neither is universally better. FHA can fit borrowers with lower credit, limited down payment, or harder qualification profiles. Conventional can fit borrowers with stronger credit, removable PMI, higher baseline loan limits, and no upfront MIP fee. The crossover usually depends on credit score, down payment, expected holding period, and whether PMI will cancel before FHA MIP becomes costly.
What is the minimum down payment for FHA vs conventional?
FHA: 3.5% with credit score 580+ (10% if 500-579). Conventional: 3% via Fannie Mae HomeReady (income limits) or Freddie Mac Home Possible. Standard conventional: 5% min for primary residence. To avoid PMI on conventional, you need 20% down.
How much is FHA mortgage insurance vs conventional PMI?
FHA charges (1) Upfront MIP of 1.75% of loan amount (financed into loan), and (2) Annual MIP of 0.55% (most loans <$726k with <5% down). Conventional PMI ranges 0.3%-1.5% based on credit score and LTV — usually around 0.5% for 700+ credit at 10% down. Critical difference: conventional PMI cancels at 20% equity automatically; FHA MIP often lasts the entire loan unless you put 10%+ down (then 11 years).
What are the 2026 FHA loan limits?
For 2026, FHA loan limits are $541,287 in low-cost areas for one-unit properties and up to $1,249,125 in high-cost areas. The 2026 conventional conforming loan limit is $832,750 baseline and $1,249,125 in many high-cost areas. Above the applicable conforming limit, you usually need a jumbo or portfolio loan with stricter requirements.
Can I refinance from FHA to conventional?
Yes, and many borrowers do once they reach 20% equity to drop FHA MIP forever. Requirements: (1) 620+ credit score, (2) 20% equity (verified by appraisal), (3) reasonable DTI (<43% typically). The savings can be significant — eliminating MIP saves $200-500/month on a $400k loan.
Why do sellers sometimes prefer conventional offers?
In competitive markets, sellers favor conventional because: (1) FHA appraisals are stricter — they can require seller-paid repairs for safety items conventional would overlook; (2) conventional buyers typically have stronger financial profiles; (3) FHA closing can take longer. In a buyer's market this matters less, but in 2026 competitive metros, conventional offers carry a 5-10% acceptance edge.