Comparison
FHA vs conventional: which loan is better?
Short answer
The short answer: below a 620 credit score or with limited savings, an FHA loan usually wins on approval odds and rate. At 700 or higher, a conventional loan usually wins on total cost, because its private mortgage insurance cancels at 20% equity while FHA's often lasts the life of the loan. The right move for any Michigan borrower is to have a lender quote both ways and compare the all-in cost, not just the headline rate.
Down payment and credit
FHA is the more forgiving entry, while conventional rewards stronger credit over the long run.
- FHA: 3.5% down with a 580 score, or 10% down between 500 and 579
- Conventional: 620 minimum, best pricing at 740+, and as little as 3% down through first-time programs
So the choice often starts with your credit: thinner files lean FHA, stronger files open conventional's better long-run pricing.
The mortgage insurance difference
This is where the loans diverge most.
- Conventional PMI: paid below 20% down, cancels automatically at 78% loan-to-value and can be requested at 80% — it's temporary
- FHA: an upfront 1.75% premium plus an annual premium that, at minimum down payment, lasts the life of the loan
That lasting insurance is exactly why a strong-credit Michigan buyer usually comes out ahead with conventional-plus-PMI, even if the FHA note rate looks a touch lower.
When each wins in Michigan
- FHA wins: buyers rebuilding credit, those with just 3.5% down, or anyone pairing the loan with MSHDA assistance at a 640 score
- Conventional wins: buyers at 700+ who plan to reach 20% equity and shed insurance
Frequently asked questions
Is an FHA or conventional loan better for a first-time buyer?
It depends on your credit and cash. FHA is easier to qualify for and pairs with MSHDA assistance; conventional costs less long-term at 700+ credit because PMI cancels. Compare both Loan Estimates before deciding.