When Conventional Beats FHA: Eight Borrower Profiles

For most qualifying borrowers, conventional is the correct answer. Here is when the math is unambiguous.

Profile 1: FICO 680+ with 5% or More Down

Verdict: Conventional wins by $93/mo and $18,000+ over 10 years on a $300k home

At 680+ FICO with 5% down, conventional beats FHA on every time horizon beyond 5 years. Monthly savings on a $300k home: approximately $98 per month (conventional $2,354 vs FHA $2,452 at 680 FICO with 5% down). PMI at 680-699 FICO is approximately 0.55% and cancels in year 8. FHA MIP is 0.55% and never cancels without a refi. Total 10-year conventional advantage: approximately $18,700 in insurance plus the lower starting payment. By year 30 the gap is $75,000+.

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Profile 2: FICO 700+ Planning to Stay 10+ Years

Verdict: Conventional wins by $50,000+ over the loan lifetime

At 700+ FICO with a long-term hold intention, conventional's PMI cancellation mechanic creates a massive advantage. PMI cancels at year 8 (with 3% appreciation on 5% down). Remaining 22 years are PMI-free. FHA's MIP continues the full 30 years. Total conventional insurance advantage on a $300k home: $52,586 (FHA UFMIP $5,066 + MIP $47,520) vs $12,052 (conventional PMI). Net saving: $40,534. For a 10-year hold: conventional saves approximately $18,700. For a 20-year hold: savings exceed $40,000.

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Profile 3: 20%+ Down Payment

Verdict: Conventional wins unambiguously - no PMI, no UFMIP

If you have 20% down, do not use FHA. Period. Conventional at 20% down: no PMI, no upfront premium, best rates, maximum flexibility. FHA at 20% down: 1.75% UFMIP ($5,066 on a $300k loan rolled into balance), MIP for 11 years ($16,600 total), and all the FHA property standard restrictions. There is no scenario where a borrower with 20% down benefits from FHA vs conventional. The only possible exception is if a borrower's FICO is 580-619 and conventional is unavailable, but 20% down with 580 FICO is an unusual combination.

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Profile 4: Income-Qualified for HomeReady or Home Possible

Verdict: HomeReady beats FHA 3.5% down on every metric for qualifying borrowers

For borrowers at or below 80% of Area Median Income (AMI), HomeReady (Fannie Mae) or Home Possible (Freddie Mac) offers 3% down conventional with reduced PMI rates of approximately 0.17% vs standard 0.55%. On a $300k home: HomeReady PITI approximately $2,303 vs FHA PITI $2,452, a saving of $149 per month. No UFMIP. PMI cancels in year 11. FHA MIP runs 30 years without a refi. HomeReady beats FHA by $149/month and $40,000+ over the loan for income-qualified borrowers. The constraint: 80% AMI income cap. See income limits by metro on the first-time buyer programmes page.

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Profile 5: Investment Property or Second Home

Verdict: Conventional wins by default - FHA does not allow these property types

FHA loans are for primary residences only. There is no FHA option for investment properties (rental properties you do not occupy) or second homes. If you are purchasing a rental property or vacation home, conventional is your only conforming-loan path. Investment property conventional loans typically require 15-25% down, 640-680+ FICO, and carry higher LLPAs in the rate. But they are available. FHA is not an option for these property types regardless of FICO or down payment.

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Profile 6: Competitive Seller Market, Multiple Offers

Verdict: Conventional wins strategically - FHA MPR can kill deals

In a competitive market with multiple offers, FHA Minimum Property Requirements can disadvantage a buyer. If the property has peeling paint (pre-1978 homes), missing handrails, or any deferred maintenance that triggers FHA MPR, the seller may prefer a conventional-financed offer with no repair contingency. A competitive offer with conventional financing is often stronger than an equally-priced FHA offer. For buyers in markets with high-competition for older housing stock, conventional financing is strategically smarter even if FHA would be mathematically cheaper.

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Profile 7: High-Cost County Near the FHA Ceiling

Verdict: Conventional required for loans above $524,225 in most counties

In most US counties, the FHA floor is $524,225 for a one-unit home in 2026. The conventional conforming limit is $806,500. For borrowers purchasing between $524,225 and $806,500 in a non-high-cost county, conventional is the only conforming option. A $600,000 home in a floor county (most of America outside coastal metros) requires conventional financing or a jumbo loan because FHA maxes out at $524,225. This is a significant practical constraint for buyers in mid-priced growing markets.

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Profile 8: FHA-Ineligible Condos

Verdict: Conventional wins on property eligibility for non-FHA-approved condo projects

Not all condominiums are FHA-approved. FHA maintains an approved condo project list (the FHA Condo Approval List at HUD.gov). A condo development must meet specific HUD requirements: occupancy ratios, owner-occupancy percentages, reserve fund levels, and homeowner association financial health thresholds. Many condo projects are not on the approved list. Conventional is far more flexible for condos: Fannie Mae's condo questionnaire process is more accommodating. For buyers looking at condominiums in newer or smaller developments, conventional is often the only financing option.

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Compare: When FHA Wins

For borrowers who do not meet these conventional criteria, FHA often wins. See our counterpoint page.

When FHA Beats Conventional

Frequently Asked Questions

When should I choose conventional over FHA?+

Choose conventional if your FICO is 680 or above with 5%+ down, you have 20%+ down at any FICO, your income qualifies for HomeReady or Home Possible, you are buying an investment property or second home, or you are in a competitive market where FHA appraisal requirements could cost you a deal.

Is HomeReady better than FHA?+

Yes, for income-qualified borrowers at or below 80% AMI. HomeReady offers 3% down, PMI that cancels, no upfront premium, and monthly savings of approximately $149/month vs FHA 3.5% down on a $300k home. The constraint is the 80% AMI income cap, which excludes higher-income borrowers in most markets.

Can I buy investment property with conventional?+

Yes. Conventional allows investment properties with typically 15-25% down depending on the lender and loan type. Investment property LLPAs increase the effective rate by 1-3%. FHA does not allow investment properties under any circumstances.

Does conventional have better rates than FHA?+

At 680+ FICO, conventional rates are typically 0.1-0.3% higher than FHA rates for the same borrower. But conventional's lack of UFMIP and cancellable PMI more than offset this rate difference over any hold period beyond 7 years. At sub-620 FICO, conventional rates are significantly higher (1%+) and FHA wins on rate.

When does conventional PMI cancel?+

PMI cancels automatically when the loan balance reaches 78% of the original purchase price per the Homeowners Protection Act (12 USC 4902). You can request removal at 80% LTV with a current appraisal. On a $285,000 conventional loan with 3% annual appreciation, automatic cancellation occurs around year 8.

When FHA Wins Conventional $300k Case Study HomeReady Income Limits Conventional Requirements 2026

Last verified April 2026.