This question gets asked at least once a day on my phone. Most loan officers answer it with a vague gesture toward credit score, as if that’s the only variable that matters. It isn’t. The honest comparison comes down to three numbers — and once you have them on the table, the right answer is usually obvious.
The Three Numbers That Actually Matter.
Forget the brochures. Forget the “FHA is for buyers with bad credit” cliché. The choice between FHA and conventional is determined by:
- Your credit score — but not how you think
- Your down payment as a percentage
- How long you’ll hold the loan before refinancing or selling
Each of those numbers pushes the math in one direction or the other. The interplay is what makes the call. Let’s walk through them.
Number One: Credit Score.
Both programs use the middle of three credit scores from the three bureaus. The thresholds and their consequences:
- 580 or above — FHA is available with 3.5% down. Conventional becomes practical at 620, available at 660+ on most files.
- 620–679 — FHA usually wins. Conventional pricing in this band carries a heavy loan-level price adjustment that makes the rate higher than the FHA equivalent.
- 680–719 — Toss-up. Depends on down payment and hold period.
- 720–759 — Conventional starts winning on most files.
- 760+ — Conventional almost always wins. The pricing tier here is excellent and PMI (when needed) is cheap.
That said: there is one scenario where a 780-credit buyer should still pick FHA — and we’ll get to it in a minute.
Number Two: Down Payment Percentage.
The two programs have wildly different minimums and treat the down payment very differently:
- FHA: 3.5% minimum with 580+ FICO. 10% minimum below that.
- Conventional: 3% minimum on Fannie Mae HomeReady or Freddie Mac Home Possible (income-limited programs). 5% minimum on standard conventional. 20% to avoid PMI entirely.
The pivotal number is 20% down. At 20% conventional, you skip PMI entirely. FHA, by contrast, makes you carry MIP regardless of down payment for the full loan term (with limited exceptions on shorter terms or low LTVs).
“If you can put 20% down with strong credit, conventional wins. Almost no exceptions.”
Number Three: Hold Period.
This is the variable nobody talks about. It changes the math.
FHA has both an upfront mortgage insurance premium (1.75% of the loan, financed) and a monthly MIP. The upfront is sunk cost — you pay it once. The monthly is what kills you if you hold the loan forever.
Conventional PMI, by contrast, is monthly only and drops off automatically at 78% LTV. You can also request removal at 80% LTV with a new appraisal.
The implication: if you’re going to sell or refinance within 3–5 years, the FHA upfront premium drags the math. If you’re going to hold for 20 years, conventional PMI dropping off makes it the long-term winner. The break-even is usually somewhere around year 4 or 5.
The Worked Example.
Buyer profile: 700 credit, $500,000 home, 5% down, planning to hold 7 years.
- FHA: 5% down ($25,000), $8,313 upfront MIP (financed), 0.55% annual MIP. Total monthly housing including taxes/insurance: roughly $4,180.
- Conventional: 5% down ($25,000), no upfront, monthly PMI of approximately 0.40%, PMI drops at year 9 in this scenario. Total monthly: roughly $4,090.
Conventional wins by about $90/month — over 7 years that’s $7,560. Plus the buyer’s loan balance is $8,313 lower at closing because there’s no financed MIP. Total advantage: roughly $15,000 over 7 years.
Now run the same buyer with a 650 credit score, and the pricing adjustment on conventional pushes the rate up roughly 0.5%. The math flips: FHA wins by about $190/month.
The One Counterintuitive Case.
Here is the scenario where I sometimes put a 780-credit buyer on an FHA loan: when they’re buying with very modest cash savings and plan to refinance to conventional within 24–36 months. The lower down-payment minimum and broader DTI tolerance get them into the property faster, and we have a documented refi-out plan in place before they sign.
This is an active strategy, not a default. It requires confidence in income trajectory, equity appreciation, and the broker’s willingness to follow through on the refi when the time comes. We do. It works.
The Mistake Most Loan Officers Make.
They quote you one program and stop. Pick FHA. Pick conventional. Move on.
The honest answer is that most files should be priced both ways and decided on the math. The lender is paid the same either way. The borrower is the one paying for the wrong choice — sometimes for decades.
— Jason Stern is the founder of Hero Mortgage Group, a firefighter-owned brokerage licensed in 12 states. NMLS #1569493.