Comparing Conventional 97 and FHA Loans
The Conventional 97 and FHA loan are two popular low-down-payment mortgage options for first-time buyers. Both programs let buyers buy homes with almost nothing down, but qualifying standards and costs aren't the same.
Most first-time buyers narrow their decision to one of these two programs, so understanding the differences can help you choose the right loan for your needs. If you need to see the complete qualification checklist for Conventional 97, review our Loan Requirements guide.
Side-by-Side Comparison
Here’s how the two programs compare on key features:
| Feature | Conventional 97 | FHA Loan |
|---|---|---|
| Down Payment | 3% | 3.5% |
| Credit Score | 620 | 580 |
| Mortgage Insurance | PMI, ends at 20% equity | MIP, does not end |
| Upfront Insurance | None | 1.75% |
| Monthly Insurance | Varies by credit | Same for most |
| Income Limits | No | No |
| Property Types | 1-unit | 1-4 unit |
| Property Standards | Standard | Stricter |
Down Payment Differences
The Conventional 97 allows for a smaller downpayment than an FHA-backed loan, although both are low-downpayment loans. Conventional 97 requires buyers to make a 3% downpayment based on the purchase price, and the FHA requires buyers to a 3.5 percent downpayment.
Here’s how the minimum down payment compare for different home purchase prices using Conventional 97 and FHA loans. The last column shows how much less of a downpayment you need with Conventional 97 vs FHA.
| Purchase Price | Conventional 97 (3%) | FHA (3.5%) | Difference |
|---|---|---|---|
| $150,000 | $4,500 | $5,250 | $750 |
| $200,000 | $6,000 | $7,000 | $1,000 |
| $250,000 | $7,500 | $8,750 | $1,250 |
| $300,000 | $9,000 | $10,500 | $1,500 |
| $350,000 | $10,500 | $12,250 | $1,750 |
| $400,000 | $12,000 | $14,000 | $2,000 |
| $450,000 | $13,500 | $15,750 | $2,250 |
| $500,000 | $15,000 | $17,500 | $2,500 |
Conventional 97 always requires less downpayment than an FHA mortgage for the same home price, which may help if you’re working with a tight budget.
Mortgage Insurance Rules
Conventional mortgages and FHA mortgages treat mortgage insurance differently, and that's often a deciding factor among buyers choosing between the Conventional 97 and an FHA mortgage.
Conventional 97 PMI:
- Required with less than 20% down
- Cancellable at 20% equity
- Cost depends on credit score and loan amount
- Learn more in our PMI Rules for Conventional 97
FHA MIP:
- Required on all FHA loans
- Often lasts for the life of the loan unless you refinance
- Includes a 1.75% upfront fee plus monthly premiums
PMI vs MIP Cost Comparison
Here's how monthly Conventional 97 PMI costs compare to FHA MIP at different credit scores. Remember that FHA MIP lasts for the life of your loan, and Conventional 97 MIP goes away at 20% equity.
| Credit Score | Conventional 97 PMI | FHA MIP | Monthly Savings |
|---|---|---|---|
| 780+ | $137.50 | $137.50 | $0.00 |
| 740 | $172.50 | $137.50 | -$35.00 |
| 680 | $300.00 | $137.50 | -$162.50 |
| 620 | $487.50 | $137.50 | -$350.00 |
| 580 | Not Eligible | $137.50 | N/A |
For buyers planning to sell or move in the near term, the FHA may offer a better package. But for buyers planning to stay in their home long-term or to rent it out someday, Conventional 97's cancellable PMI can reduce monthly expenses.
Credit Score Requirements
Conventional mortgages require a credit score of 620 or higher, and FHA mortgages with a 3.5% downpayment allow credit scores as low as 580. Therefore, if your credit score is at least 620, you may be eligible for either mortgage option.
However, if your score is between 580 and 619, FHA will be your only option. For more on Conventional 97 credit rules, see Loan Requirements.
Property Eligibility and Condition
Both programs require the home to be your primary residence, but FHA allows multi-unit properties up to four units so long as you live in one of the home's units. On Reddit, they call this "house hacking". It's when you live in one unit and use the rents from the other to pay some or all of your mortgage.
FHA also has stricter property condition standards, which can make the process longer or require repairs before closing. Conventional 97 follows standard appraisal rules.
Which Is Better for First-Time Buyers?
The best choice between Conventional 97 and FHA depends on your specific financial situation and homebuying goals. Here's a breakdown to help you decide:
Choose Conventional 97 if:
- You have a credit score of 680 or higher
- You want to cancel mortgage insurance later
- You’re buying a standard single-family home or condo
Choose FHA if:
- Your credit score is below 620
- You need more flexible debt-to-income allowances
- You’re buying a multi-unit property
If your decision hinges on how to cover your upfront costs, review Gift Funds for Conventional 97 and Down Payment & Closing Costs.
Key Takeaway
Both Conventional 97 and FHA loans can help first-time buyers get into a home with minimal down payment. The right choice depends on your credit profile, property type, and how long you plan to keep the mortgage. Compare costs with your lender before deciding.
Frequently Asked Questions About Conventional 97 vs FHA
Find answers to common questions about choosing between a Conventional 97 loan and an FHA loan for your first home.
Is Conventional 97 better than FHA?
It depends on your credit score, savings, and long-term plans. Conventional 97 may cost less over time for borrowers with good credit, while FHA may be easier to qualify for with lower credit scores.
Which has the lower down payment?
Conventional 97 requires 3% down, while FHA requires 3.5% down.
Which is better for removing mortgage insurance?
Conventional 97 allows you to remove PMI at 20% equity. FHA mortgage insurance often lasts for the life of the loan.
Does FHA have income limits?
No. FHA loans are available to buyers at all income levels.
Which has lower credit score requirements?
FHA loans allow credit scores as low as 580 with 3.5% down, while Conventional 97 requires at least a 620 score.
Which program is faster to close?
Closing times are similar, but FHA loans may require additional property condition checks that can delay closing.
