What is the difference between an FHA loan and a conventional loan?

FHA loans are backed by the federal government and designed to make homeownership more accessible, especially for buyers with lower credit scores or smaller down payments. Conventional loans follow guidelines set by Fannie Mae and Freddie Mac and offer more flexibility on mortgage insurance for buyers with stronger credit.

Which loan requires a lower down payment, FHA or conventional?

FHA requires 3.5% down. Conventional can go as low as 3% down. The difference on a $300,000 purchase is about $1,500, so down payment alone should not be the deciding factor.

Does FHA mortgage insurance ever go away?

If you put less than 10% down on an FHA loan, the monthly mortgage insurance premium stays for the life of the loan. It does not go away until you refinance out of the FHA loan into a conventional loan.

What credit score do I need for a conventional loan in Minnesota?

Conventional loans are generally strongest for buyers with credit scores above 680. Below 620, the mortgage insurance cost gets very expensive and automated underwriting approval becomes unlikely, making FHA a better option in most cases.

Can I use an FHA loan to buy a condo in Minnesota?

Only if the condo association is on the FHA approved list. FHA has specific requirements for the building, the association financials, and owner-occupancy rates. Conventional loans do not have the same restriction.

FHA Loan vs. Conventional Loan: Which One Is Right for You as a Minnesota Homebuyer?

April 19, 2026
Ken Graczak
Mortgage News

FHA Loan vs. Conventional Loan: Which One Is Right for You as a Minnesota Homebuyer?

I get this question almost every week.

Someone sits down with me and says “I heard FHA is easier to get.” Or “my friend said conventional is always better.” And almost every time, neither one is completely right.

Here’s the deal: the best loan is the one that costs you the least and fits your actual situation. Not your neighbor’s situation. Yours.

Let me break it down so you can walk into that first conversation knowing exactly what to ask.

FHA Loan vs. Conventional Loan: What Is the Real Difference?

FHA loans are backed by the federal government. They were designed to make homeownership more accessible, especially for buyers who are still building credit or working with a smaller down payment.

Conventional loans are not government-backed. They follow guidelines set by Fannie Mae and Freddie Mac and are what most people picture when they think of a standard mortgage.

Both can be the right answer. The difference is in the details.

FHA Loan vs. Conventional Loan: Which One Should You Choose?

FHA requires 3.5% down and is generally easier to qualify for if your credit score is lower. Conventional starts as low as 3% down and gives you more flexibility on mortgage insurance, especially if your credit is strong.

But here’s what most people miss. In some scenarios FHA actually gives you a lower monthly payment even if your credit is good. That’s why you can’t just assume one is better without running the numbers.

The only way to know which loan wins for you is to see both side by side with real numbers.

Down Payment: The Gap Is Smaller Than You Think

FHA requires 3.5% down. Conventional can go as low as 3%.

On a $300,000 purchase that’s $10,500 for FHA versus $9,000 for conventional. A $1,500 difference. Most buyers expect a much bigger gap.

What actually matters more is what each loan costs you every single month after that down payment is made.

Mortgage Insurance: This Is Where Most Buyers Get Surprised

This is the part I spend the most time explaining.

FHA mortgage insurance:

→ You pay a 1.75% upfront funding fee at closing. On a $300,000 loan that’s $5,250. It gets financed into your loan so it doesn’t come out of pocket at closing. → You also pay a monthly mortgage insurance premium for the life of the loan if you put less than 10% down.

That monthly MI doesn’t go away with FHA until you refinance out of it. That’s worth factoring into your long-term plan before you commit.

Conventional mortgage insurance:

→ No upfront funding fee. → Monthly MI is required if you put less than 20% down. But you can cancel it once you hit 20% equity. → You also have options most buyers never hear about. You can buy out the MI upfront as a lump sum, split it between an upfront payment and a lower monthly amount, or just pay it monthly. I always run all three scenarios so you can choose what fits your budget.

But there’s a catch. If your credit score is under 680, that conventional MI cost starts climbing fast. By the time you get below 620, the monthly mortgage insurance on a conventional loan gets so expensive it rarely makes financial sense anymore.

You’d also need automated underwriting approval below 620, which is not very likely. It’s possible. Just not probable.

First-Time Buyer Programs Most People Don’t Know About

A lot of first-time buyers skip right past this.

Conventional loans have two programs called HomeReady and Home Possible. Both are income-limited, meaning you have to fall within certain income limits to qualify. But if you do qualify, the mortgage insurance savings can be significant and the rate pricing is often better too.

If you’re a first-time buyer with moderate income, ask your loan officer to run these alongside a standard FHA comparison before you decide anything.

I’ve seen buyers leave real money on the table because nobody brought this up.

Credit Score: Here’s Where the Lines Are Drawn

FHA is still the stronger option for buyers with lower credit. That hasn’t changed.

Conventional can technically be approved below 620 in some cases. But here’s the honest truth. Below 620 you need automated underwriting to approve it, which doesn’t happen often. And even if it does, the monthly MI cost makes it almost impossible to justify financially.

Here’s a simple way to think about it:

→ Above 700: conventional usually prices better → 660 to 700: depends on the full picture, run both → 580 to 660: FHA is almost always the stronger call

Why does this matter? Because choosing the wrong loan at the wrong credit score can cost you hundreds of dollars a month. That adds up fast.

Want to understand how your credit score affects your options in more detail? This post on credit scores and buying a home breaks it down clearly.

Buying a Condo? Read This Before You Choose

Not all condo associations are FHA approved.

FHA has specific requirements for the building, the association’s financials, and how many units are owner-occupied. If the condo you want isn’t on the approved list, you can’t use an FHA loan. Full stop.

Conventional doesn’t have that restriction. If you’re looking at condos and want to keep your options open, this is a real factor in which direction you go.

So Which Loan Actually Wins?

FHA is often the better fit if:

→ Your credit score is below 680 → FHA prices out to a lower monthly payment in your scenario → You’re buying a single-family home or an FHA approved condo

Conventional is often the better fit if:

→ Your credit is strong and you want MI that goes away → You qualify for HomeReady or Home Possible → You’re buying a condo and want to avoid FHA restrictions → You plan to build equity and cancel MI down the road

I’ve had buyers come in convinced they needed FHA and end up with a better payment on conventional. I’ve had the exact opposite happen too. The math tells the story. Not the assumption.

You can learn more about FHA loans on the FHA loan page here. And if you want to see how your payment changes based on loan amount and rate, the mortgage calculator is a good place to start.

Ready to See the Numbers Side by Side?

The framework above gives you a solid foundation. But your credit, your income, and the property you’re buying will determine which loan actually wins for you.

Start your application here and I’ll run both scenarios side by side. No pressure. Just a clear look at your options so you can make a confident decision.

Or if you want to keep learning first, the Education Hub has more posts that walk through the homebuying process step by step.

FHA loan vs conventional loan. The right answer is the one that works best for your life. Let’s find it together.