FHA or conventional? It’s one of the most common questions California homebuyers face — and the answer isn’t one-size-fits-all. The right choice depends on your credit score, down payment, income, the property you’re buying, and how long you plan to stay. Here’s a clear comparison to help you decide.
The Core Difference
FHA loans are insured by the Federal Housing Administration and designed to help buyers with lower credit scores or smaller down payments qualify for financing. Conventional loans meet Fannie Mae and Freddie Mac guidelines and are available to a broader range of borrowers — but typically require stronger financial profiles.
Side-by-Side Comparison
| Factor | FHA Loan | Conventional Loan |
|---|---|---|
| Minimum credit score | 580 (for 3.5% down) | 620 (most lenders; best rates at 740+) |
| Minimum down payment | 3.5% (with 580+ score) | 3% (first-time buyers) / 5% (repeat) |
| Mortgage insurance | Required; stays for life of loan (if <10% down) | Required if <20% down; cancellable at 20% equity |
| Upfront mortgage insurance | 1.75% of loan amount | None |
| Loan limits (Marin/SF) | Up to $1,209,750 | Up to $1,209,750 (conforming) |
| Seller concessions | Up to 6% of purchase price | Up to 3% (for <10% down) |
| Property condition | Must meet FHA standards (stricter) | Standard appraisal guidelines |
| DTI maximum | Up to 57% with AUS approval | Up to 50% with AUS approval |
When FHA Wins
Lower credit score: If your score is 580-679, FHA is typically your best option. Conventional rates for borrowers in this range are significantly higher, often making FHA the better deal even with mortgage insurance.
High DTI: FHA’s higher DTI tolerance (up to 57%) can mean the difference between qualifying and not qualifying for buyers with significant existing debt.
Recovering from financial hardship: FHA is more forgiving of recent negative credit events — bankruptcy (as little as 2 years discharged), foreclosure (3 years), and collections.
Need seller credits: FHA allows sellers to contribute up to 6% of the purchase price toward buyer’s closing costs — double what conventional allows at lower down payments.
When Conventional Wins
Score of 700+: Conventional rates for well-qualified borrowers are typically lower than FHA rates, and when combined with cancellable PMI, conventional is usually the better long-term value.
Down payment of 10-20%+: With a 20% down payment on a conventional loan, you have no mortgage insurance at all. With FHA and 10%+ down, MIP still runs for 11 years.
Competitive markets: In California’s competitive real estate market, some sellers — and their agents — prefer conventional offers. FHA appraisals can be more rigorous and occasionally create friction. This is less of a factor than it used to be, but worth discussing with your agent.
Long-term cost: FHA MIP on a 30-year loan with less than 10% down never cancels. Once you have 20% equity on a conventional loan, your PMI disappears and your monthly payment drops.
The Mortgage Insurance Math
On a $600,000 California loan:
- FHA: Upfront MIP of $10,500 + annual MIP of ~$275/month for the life of the loan
- Conventional with 5% down: No upfront premium + PMI of ~$200-250/month until 20% equity reached (typically 7-10 years)
A conventional borrower with a 700+ score who puts 5% down and reaches 20% equity in 8 years will pay less total mortgage insurance than an FHA borrower — even though their monthly PMI is similar at the start.
Which Loan Is Right for You?
The answer depends on your specific numbers. The best way to know is to have a loan advisor run both scenarios for your exact credit score, down payment, loan amount, and timeline. At DiVita Home Finance, we do this comparison for every buyer — we don’t steer you toward one product, we show you what both actually cost.
Apply online or contact us to get your FHA vs. conventional comparison run today.
