FHA vs Conventional Loans: Which Is Right for You?
By Team Prosper ยท Updated July 2026
This is the single most common question we get from Central Valley buyers, and the honest answer is: it depends on your credit, your down payment, and how long you plan to keep the home. Here is the plain-English comparison, without the sales pitch.
The Quick Comparison
| Factor | FHA | Conventional |
|---|---|---|
| Minimum down payment | 3.5% | 3% (first-time buyers) |
| Typical credit floor | 580+ | 620+ |
| Mortgage insurance | Required, usually for the life of the loan | Cancellable at 20% equity |
| Upfront insurance fee | Yes (financed into loan) | No |
| Property standards | Stricter appraisal | More flexible |
| Best for | Lower credit, higher debt ratios | Strong credit, long-term hold |
Where FHA Wins
- Credit flexibility: scores in the 580 to 660 range often price better with FHA than conventional.
- Higher debt-to-income tolerance: FHA can approve ratios that conventional declines, which matters in households with one income or existing car payments.
- Recent credit events: FHA has shorter waiting periods after bankruptcy or foreclosure.
Where Conventional Wins
- Mortgage insurance you can escape: conventional PMI drops off once you reach 20 percent equity. FHA insurance usually stays for the life of the loan unless you refinance.
- Lower total cost with good credit: above roughly 700, conventional usually beats FHA on monthly payment.
- Condition-challenged homes: conventional appraisals are more forgiving on older Merced homes that need work.
- No upfront insurance premium: FHA adds an upfront fee to your loan balance. Conventional does not.
The Merced Reality Check
In our market, the decision often comes down to two profiles. A first-time buyer with a 600 credit score buying a $400K home in South Merced new construction usually does better with FHA. A buyer with a 740 score and 10 percent down buying in North Merced usually does better conventional. Everyone in between needs the math run both ways, which takes us about ten minutes.
The Refinance Escape Hatch
Starting FHA is not a life sentence. Many of our clients buy with FHA while their credit is building, then refinance into conventional once they hit 20 percent equity and a better score, dropping the mortgage insurance entirely. Central Valley appreciation has made that timeline shorter than most people expect.
The Bottom Line
Do not pick a loan program from a blog post, including this one. The right answer is personal, and the difference can be tens of thousands of dollars over the life of the loan. We price every buyer both ways and show you the side-by-side. Start with our first-time buyer guide or jump straight to a pre-qualification.
See Your Numbers Both Ways
We will price you FHA and conventional side by side, free.
Get Pre-Qualified