When a first-time buyer asks me "which loan should I get?", the answer usually comes down to these two. Both can get you into a home with a small down payment. The difference is in the details.

The quick comparison

  • Minimum down payment: Conventional from 3% for qualified buyers. FHA 3.5%.
  • Credit: FHA is more forgiving of lower scores and past credit issues. Conventional pricing improves a lot as your score rises.
  • Debt-to-income: FHA generally allows higher ratios.
  • Mortgage insurance: Conventional uses private mortgage insurance (PMI) when you put down less than 20%, and it can be removed as you build equity. FHA charges an upfront premium plus an annual premium, which often lasts for the life of the loan with a small down payment.
  • Property standards: FHA appraisals check that the home meets minimum safety and condition standards. A home needing major repairs can be harder to finance with FHA.

Who conventional fits best

  • Buyers with good to excellent credit
  • Buyers who want to drop mortgage insurance down the road
  • Buyers putting down 5% to 20%
  • Moderate-income buyers who may qualify for special conventional programs with reduced mortgage insurance

Who FHA fits best

  • Buyers rebuilding credit or with limited credit history
  • Buyers with higher debt, including big student loans
  • Buyers getting gift funds from family for the down payment
  • Buyers who want the most flexible approval

The real answer: run both

For a lot of buyers, the "obvious" choice isn't the cheapest. The total cost depends on your credit score, down payment, the home's price and how long you'll keep the loan. I run both side by side for most first-time buyers so you can see the monthly payment, cash to close and the long-term cost of mortgage insurance.

Don't forget the other options

If you're a veteran, a VA loan is often the best deal available. If you're buying in a smaller town, a USDA loan may let you buy with zero down. And Iowa's assistance programs can be paired with several of these loans.

More details on each loan: FHA loans and conventional loans.