FHA or Conventional? How to Choose (2026)

The two loans in plain words

FHA. HUD explains that "FHA insures mortgages made by FHA-approved lenders," and because of that insurance "the lender is able to offer more flexible terms that make it easier for borrowers to qualify." You pay for it with mortgage insurance: an upfront premium at closing, which HUD says "may be financed into the mortgage," and an annual premium paid monthly.

Conventional. A conventional loan isn't insured by the government. Conforming conventional loans follow Fannie Mae or Freddie Mac rules, within FHFA's loan limits. With a smaller down payment, you'll usually pay private mortgage insurance (PMI) until you've paid the loan down far enough to remove it.

Side by side

Loan limits change every year. FHFA announced the 2026 limits on November 25, 2025; check each agency's page for next year's. Sources: FHFA's 2026 county list and HUD's 2026 FHA county file.

Smaller down payment options on conventional

Many buyers hear that conventional means a big down payment. Not always. Fannie Mae and Freddie Mac each have options for buyers who qualify:

• Fannie Mae's standard option for first-time buyers. For its smallest down payments on a purchase, Fannie's rules say "at least one borrower must be a first-time homebuyer."
• Freddie Mac HomeOne. For first-time homebuyers, "regardless of their income levels or geographic location," per Freddie Mac. It's a fixed-rate loan for a one-unit home you'll live in, and homebuyer education is required when every borrower is a first-time buyer.
• Fannie Mae HomeReady and Freddie Mac Home Possible. For buyers with lower incomes, with income limits set by where the home is. Freddie Mac says Home Possible's "Qualifying income is limited to 80% of area median income (AMI)"; Fannie Mae describes HomeReady as "for low-income borrowers" and publishes its limits in its Area Median Income Lookup Tool. Freddie Mac says Home Possible's down payment "can come from a variety of sources, including family."

Each one has its own credit, property and education rules, and the smallest down payments come with mortgage insurance. Ask your lender to run the options you qualify for next to an FHA loan.

Mortgage insurance: how it ends

Conventional (PMI). The CFPB explains that "You have the right to ask your servicer to cancel PMI on the date the principal balance of your mortgage is scheduled to fall to 80 percent of the original value of your home." To get it granted, you ask in writing, have a good payment history, have no junior liens, and show the home's value hasn't dropped. Even if you don't ask, "in general, your servicer must automatically terminate PMI on the date when your principal balance is scheduled to reach 78 percent of the original value of your home."

FHA (MIP). HUD says the annual premium lasts for a set number of years if you started with a larger down payment, and otherwise for the life of the loan. HUD's page has the exact cutoff. "Borrowers may not request early cancellation of Annual MIP based on prepayment of principal." Paying off the FHA loan ends its premium. Whether refinancing later makes sense depends on qualifying and the costs at that time.

Is FHA only for first-time buyers?

No. HUD says it "does not require that a Borrower be a First-Time Homebuyer in order to qualify for an FHA loan." Some down payment assistance programs do require first-time buyer status, and they set their own definitions.

Why didn't my lender mention conventional (or FHA)?

If you were shown only one option, you can ask to see both. A good comparison puts each loan's Loan Estimate side by side: the mortgage insurance and how long it lasts, the closing costs, and the rate. If one doesn't fit you, your lender should be able to tell you why.

Rates: is one loan type better?

We don't publish rates, and the rate alone doesn't tell you which loan costs less. HUD notes that "FHA does not set the interest rates on the mortgages it insures," and advises you to "compare mortgages from several different lenders." Compare the whole cost: the rate, the mortgage insurance and how long it lasts, and the closing costs. Ask each lender for a Loan Estimate for both loans and lay them side by side.

How to choose

1. Check your credit. If your credit is limited or has bumps, FHA may be more forgiving.
2. Count your savings and any gift. HUD says FHA allows gifts from family, an employer or a charity. Ask how gifts work for the conventional options you qualify for.
3. Think about how long you'll keep the loan. PMI can come off a conventional loan. FHA's annual premium follows HUD's schedule above.
4. Check the price against the limits. Each county has a limit for each loan type (see the table).
5. Ask about CalHFA. CalHFA has both an FHA and a conventional first mortgage, and its down payment help works with them. See CalHFA first-time buyer loans.
6. Get both on paper. A Loan Estimate for each shows the real difference.

The bottom line

Neither loan is always better. FHA often helps when credit is limited or has bumps. Conventional often wins when you want mortgage insurance that can come off. A good lender shows you both and lets the numbers decide. Bring your questions and we'll walk through both with you, including when the right answer is to wait.

Questions buyers ask