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FHA vs Conventional: Which Loan Is Right for You?

Two of the most common California home loans are FHA and conventional. They both work, but they fit different buyers. This page compares them fairly — the pros, the cons, and how to choose — in plain language.

There is no single winner. The right choice depends on your credit, your savings, and your plans. Let's compare them honestly.

A family viewing their new home while comparing FHA and conventional loans
Quick answer

FHA loans are more flexible on credit (scores from about 580) and allow 3.5% down, but the mortgage insurance often lasts the life of the loan. Conventional loans need stronger credit (about 620+) and allow as little as 3% down, and their PMI can be removed once you reach about 20% equity. Strong credit usually favors conventional; lower credit or smaller savings may favor FHA.

What this means

The biggest difference is mortgage insurance.

This single difference often decides the lower long-term cost. The other big factors are your credit score and down payment.

FHA: Insurance usually stays for the life of the loan unless you refinance.
Conventional: PMI can be removed once you build about 20% equity.

How They Compare (Side by Side)

FeatureFHAConventional
Minimum credit score~580 (or 500–579 with 10% down)~620
Minimum down payment3.5%3%
Mortgage insuranceUpfront + monthly, often for lifePMI only under 20%, removable
Best forLower credit, smaller savingsStronger credit, equity goals
Property standardsMust meet FHA safety rulesStandard appraisal

2026 California Loan Limits

Both loan types have limits that affect how much you can borrow.

Loan2026 California limit (one unit)
FHA$541,287 (floor) up to $1,249,125 (high-cost ceiling)
Conventional (conforming)$832,750 up to $1,249,125 in high-cost counties

In some areas, the conventional limit is higher than the FHA limit, which can matter for pricier homes.

Step by step

How to Choose (Step by Step)

1
Check your credit. Below 620? FHA may be your path. 620+? Compare both. See What Credit Score Do I Need.
2
Check your savings. Smaller savings may favor FHA's 3.5% down.
3
Think about insurance. Want to drop it later? Conventional allows PMI removal.
4
Consider the home. Fixer-uppers may struggle with FHA's property rules.
5
Plan ahead. Many buyers start FHA, then refinance to conventional to drop insurance. See Switch Loan Type (FHA to Conventional).

Benefits

FHA:
Flexible credit.
Low down payment.
Good for first-time buyers with thinner credit.
Works with California down payment assistance.
Conventional:
PMI can be removed.
Often cheaper long term for strong credit.
No upfront insurance fee like FHA's.
Works for primary, second, and investment homes.

Potential Drawbacks (The Honest Part)

FHA:
Insurance often lasts the life of the loan.
Upfront insurance fee adds cost.
Property must meet safety standards.
Conventional:
Stricter credit.
PMI under 20% down until you build equity.
May be harder to qualify with thin credit.
Real-world California examples

What it looks like in practice

Example 1 — FHA fits in Bakersfield.
Example 1 — FHA fits in Bakersfield.

Jasmine has a 600 score and modest savings. FHA lets her buy now with 3.5% down. She plans to refinance to conventional later to drop the insurance.

Example 2 — Conventional wins in San Diego.
Example 2 — Conventional wins in San Diego.

Marcus has a 760 score. A conventional loan costs less over time because he can remove PMI and avoids FHA's lifetime insurance.

Example 3 — Start FHA, switch later in San Jose.
Example 3 — Start FHA, switch later in San Jose.

The Lee family buys with FHA, then refinances into a conventional loan once their equity and credit improve, removing the insurance. See Switch Loan Type (FHA to Conventional).

Examples are for learning only. Your best choice depends on your finances and goals.

Common mistakes

1Assuming FHA is always easier or cheaper. Strong credit often favors conventional.
2Forgetting FHA insurance can last for life. Plan for it or plan to refinance.
3Ignoring PMI removal on conventional. Many people pay it longer than needed. See Remove PMI.
4Buying a fixer-upper with standard FHA. Property rules can be an issue.
5Not comparing both. Always run the numbers side by side.
6Overlooking the refinance path. FHA-to-conventional can save money later.
Good questions

Frequently asked questions

It depends. FHA is more flexible on credit; conventional is often cheaper long term for strong credit because PMI can be removed.

Next steps

Compare both for your real numbers

The honest answer is "it depends" — so the smart move is to compare both for your real numbers, including the long-term cost of mortgage insurance. EZ Online Mortgage can run FHA and conventional side by side so you can see the true cost of each for your situation.

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Keep learning

This page is for education only. It is not a loan offer or a promise of approval, rates, or terms. Loan rules and limits can change, and qualification depends on your individual circumstances. Equal Housing Opportunity · NMLS #362311 · CA DRE #01871814.

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