The quick comparison
FHA allows lower credit (around 580) and 3.5% down but charges mortgage insurance (MIP) for the life of the loan. Conventional needs roughly 620+ and can go 3%–5% down, with PMI that drops off at 20% equity. FHA fits lower credit or thin savings; conventional is cheaper long-term for stronger borrowers.
Both loans buy the same California house. The difference is who they're built for. FHA is government-insured and forgiving — lower scores, easier debt ratios, more room for past credit hiccups. Conventional is the market standard, priced on your credit and cancelable mortgage insurance. Pick wrong and you overpay for years, so the details below matter.
| Feature | FHA Loan | Conventional Loan |
|---|---|---|
| Minimum credit score | 580 (500 with 10% down) | 620+ (740+ for best pricing) |
| Minimum down payment | 3.5% | 3% (first-time), 5% typical |
| Mortgage insurance | MIP for the life of the loan; upfront 1.75% fee | PMI cancels at 20% equity; none at 20% down |
| 2026 loan limit (CA) | $541,287 floor up to $1,249,125 high-cost | $832,750 baseline up to $1,249,125 high-cost |
| Interest rate | Often slightly lower base rate | Competitive; better once MI is added in |
| Best for | Lower credit, small down payment, recovering credit | 620+ credit, long-term ownership, lower lifetime cost |
Rule of thumb: If your credit is under 620 or your savings are tight, FHA opens the door. If you clear 620–680 and plan to hold the home, conventional's cancelable PMI usually makes it cheaper over the life of the loan.
What is an FHA loan?
An FHA loan is a mortgage insured by the Federal Housing Administration and issued by regular lenders and brokers. The government backing is what lets lenders say yes to buyers a conventional loan would decline. That translates into three things California buyers care about: a minimum credit score of 580 with just 3.5% down (or 500 with 10% down), flexible debt-to-income limits that often stretch past 50%, and a shorter waiting period after a bankruptcy or foreclosure.
The trade-off is mortgage insurance. Every FHA loan carries an upfront MIP of 1.75% of the loan amount (financed into the balance) plus an annual MIP added to your monthly payment. With the standard 3.5% down, that annual MIP stays for the life of the loan — it never cancels on its own. Put 10% or more down and it drops after 11 years. For most first-time buyers putting the minimum down, that permanent insurance is the single biggest reason to plan an exit through refinancing later.
What is a conventional loan?
A conventional loan is any mortgage not backed by a government agency — the conforming standard set by Fannie Mae and Freddie Mac. It rewards stronger credit. You'll generally need a 620 minimum score, and pricing improves in tiers up to 740 and above. Down payments start at 3% for qualified first-time buyers and 5% for most others, well below what many people assume conventional requires.
The mortgage-insurance math is where conventional pulls ahead. If you put less than 20% down you'll pay private mortgage insurance (PMI), but PMI is cancelable: you can request removal at 20% equity and it drops automatically at 22%. Put 20% down and there's no mortgage insurance at all. PMI is also priced on your credit, so a strong score can make it cheaper than FHA's fixed MIP. That cancelable structure is why conventional tends to win on lifetime cost for borrowers who qualify.
When FHA wins
FHA is the right tool when the barrier is credit or cash, not income. It tends to win when:
- Your credit is 580–619. Below the conventional 620 floor, FHA is often the only path to a competitive rate.
- You've had a recent credit event. Shorter waiting periods after bankruptcy, foreclosure, or short sale mean FHA can approve you sooner.
- Your debt-to-income is high. FHA's more generous DTI limits help when student loans, a car payment, or California's cost of living stretch your ratios.
- You're using down-payment assistance. FHA pairs cleanly with California DPA programs and gift funds for the full down payment.
- You plan to refinance later. FHA gets you in the door now; you can refinance to conventional once your credit and equity improve.
When conventional wins
Conventional is usually the cheaper long-term choice once you clear the credit bar. It tends to win when:
- Your score is 620 or higher. The stronger your credit, the more conventional's tiered pricing rewards you.
- You want mortgage insurance to end. PMI cancels at 20% equity; FHA MIP usually doesn't, so conventional saves money over time.
- You can put 20% down. That erases mortgage insurance entirely and delivers the lowest monthly payment.
- You're buying above the FHA limit. In pricier California counties, a conventional or jumbo loan reaches purchase prices FHA can't.
- You're buying a condo or second home. Conventional financing is often simpler for non-FHA-approved condos and isn't limited to primary residences.
The California angle
California prices change the calculus. In lower-cost inland markets — Sacramento, the Inland Empire, the Central Valley — many homes sit under the FHA floor of about $541,287, so FHA's low down payment is a genuine on-ramp. In coastal metros where entry prices run $800K to well over $1M, buyers bump into loan limits fast: both FHA and conventional reach roughly $1,249,125 in high-cost counties for 2026, and above that you're into jumbo territory. Because California homes appreciate quickly, many FHA buyers hit 20% equity within a few years and refinance into conventional to shed MIP — a move that can drop a monthly payment meaningfully. Running both loans on your actual price, county limit, and credit is the only way to see which pencils.
Broker advantage: As a broker, Save Financial shops both FHA and conventional lenders and prices your file both ways — down payment, monthly MI, rate, and county loan limit side by side — so you choose on true lifetime cost, not whatever one bank happens to offer.
Can you refinance FHA to conventional?
Yes — and for many California buyers it's the plan from day one. Once you reach roughly 20% equity and a 620-plus credit score, refinancing your FHA loan into a conventional loan cancels the FHA mortgage insurance premium completely. Because that MIP never falls off on its own at 3.5% down, the refinance is usually the cleanest way to stop paying it. In fast-appreciating markets, rising home values can get you to 20% equity faster than your principal payments alone would, so it's worth checking your numbers each year. If rates have also improved, you may lower both your rate and your insurance in a single move.
How to choose
Start with two questions: What's my credit score, and how much can I put down? If you're under 620 or short on savings, FHA's 3.5% down and forgiving underwriting get you into a home now. If you're at 620 or better and plan to stay, conventional's cancelable PMI and tiered pricing usually cost less over the years you own the house. The honest answer often comes down to your exact numbers, so we price both — and map the refinance path — before you commit. Try the FHA loan calculator or the mortgage payment calculator to see the monthly difference, and if you're new to all this, start with our first-time buyer resources.
Frequently asked questions
Is FHA or conventional better in California?
It depends on your credit and down payment. FHA fits buyers with scores near 580 or thin savings, since it allows 3.5% down and easier approval. Conventional is cheaper long-term for borrowers with 620+ credit because its PMI cancels at 20% equity, while FHA mortgage insurance often lasts the life of the loan.
Can you refinance an FHA loan to conventional to remove MIP?
Yes. Once you reach about 20% equity and a 620-plus score, refinancing an FHA loan into a conventional loan removes the FHA mortgage insurance premium entirely. In fast-appreciating California markets, many buyers hit that equity within a few years and refinance to drop MIP and lower their payment.
What credit score do you need for an FHA loan in California?
FHA allows scores as low as 580 with 3.5% down, and 500 to 579 with 10% down. Many California lenders set overlays around 600 to 620. Conventional loans generally start at 620, and the best pricing usually needs 740 or higher, so FHA is friendlier to lower credit.
How much is the down payment on an FHA vs conventional loan?
FHA requires 3.5% down with a 580 score. Conventional can go as low as 3% down for first-time buyers and 5% for most others. On a $600,000 California home, that is $21,000 down on FHA versus $18,000 to $30,000 on conventional, so the gap is often small.
Does FHA mortgage insurance ever go away?
Usually only if you put 10% or more down, in which case FHA MIP drops after 11 years. With the standard 3.5% down, MIP lasts the life of the loan. The common fix is refinancing into a conventional loan once you reach 20% equity, which cancels the insurance.
Save Financial, Inc. — NMLS #377740, DRE #01875766. Equal Housing Opportunity. Figures are illustrative for 2026 and not an offer of credit or a guarantee of rates or approval.