Pros: conventional loans offer cancelable PMI (FHA's doesn't cancel), no occupancy restriction (primary, second home, or investment), down payments as low as 3%, no upfront mortgage-insurance fee, and the best long-term pricing for strong credit. Cons: stricter credit (~620 vs FHA's 580), longer waiting periods after bankruptcy/foreclosure, PMI under 20% down, tighter DTI, and credit-based pricing that penalizes lower scores. Net: conventional is usually the cheaper long-term choice for good-credit buyers, while FHA is often better for lower credit or a recent credit event. See the overview, requirements, and eligibility for the details.
On this page
The pros of a conventional loan
✓ Advantages
- PMI cancels — removed at ~20% equity (auto at 22%), unlike FHA's lifetime insurance
- No occupancy limit — primary, second home, or investment; up to 10 properties
- Low down payment — from 3% (first-time) / 5% (repeat), even below FHA's 3.5%
- No upfront MI fee — FHA charges 1.75% upfront; conventional doesn't
- Best pricing for strong credit — 740+ earns the lowest rates & PMI
- Higher loan limits + a clean path to jumbo
- Wide property eligibility and possible appraisal waivers
- Gift funds allowed for the down payment and closing costs
In short, for a financially solid buyer, conventional is usually the most cost-efficient path — and its flexibility on occupancy and property count makes it the default for California investors.
The cons of a conventional loan
✕ Drawbacks
- Stricter credit — ~620 practical floor vs FHA's 580 (or 500 with more down)
- Credit-based pricing — a 640 borrower pays notably more than a 760 for the same loan
- Longer waiting periods — 4 yrs after Ch.7 bankruptcy, 7 after foreclosure (FHA: ~2 and ~3)
- PMI under 20% down — cancelable, but still a monthly cost while it lasts
- Tighter DTI — generally ≤43–45% vs FHA up to ~57%
- Self-employed friction — write-offs can shrink qualifying income
- Reserves — may be required for investment or jumbo files
None of these are dealbreakers for the right borrower — but if your credit is thin, your down payment is minimal, or you're rebuilding after a credit event, they're the reasons FHA or another program may serve you better.
The biggest advantage, spelled out: PMI that actually goes away
If you take one thing from this page, make it this. Both conventional and FHA loans charge mortgage insurance when you put down less than 20% — but they behave completely differently over time:
| Conventional PMI | FHA MIP | |
|---|---|---|
| Upfront fee | None | 1.75% of loan |
| Cancels? | Yes — at ~20% equity | Usually never (life of loan) |
| Auto-removal | At 22% equity | Not on most FHA loans |
| Priced on | Credit & LTV | Flat, regardless of credit |
On a typical California loan, that difference can be worth tens of thousands of dollars over the years you'd otherwise keep paying FHA insurance. It's the single biggest reason a good-credit buyer usually comes out ahead with conventional, even when FHA's headline rate looks a touch lower. You pay PMI for a while, then it disappears — versus paying FHA insurance for as long as you hold the loan.
Conventional vs. FHA — the real decision
This is the choice most California buyers are actually weighing. Here's the honest breakdown:
| Factor | Conventional wins if… | FHA wins if… |
|---|---|---|
| Credit | 700+ (best pricing) | Below ~660 |
| Mortgage insurance | You want it to cancel | You need the lower upfront hurdle |
| Down payment | 3–20% with good credit | 3.5% with lower credit |
| Credit event | None recently | Recent BK/foreclosure |
| Property use | Second home / investment | Primary residence only |
| High DTI | Under ~45% | Up to ~57% |
The short version: good credit and staying a while → conventional (PMI cancels, cheaper long-term). Lower credit, minimal down, or a recent credit event → FHA (easier to qualify, cheaper upfront). Because we're a broker, we can quote both side by side and show you the actual dollar difference over the years you plan to own — not a rule of thumb.
Who conventional is best for
✓ Great fit
- Buyers with solid credit (700+) and stable income
- Anyone financing a second home or investment property
- Buyers who want PMI that eventually disappears
- Higher-income buyers who don't need government flexibility
- Investors building a portfolio (up to 10 properties)
A note on "best" — it's personal
There's no universally best loan, only the best loan for your situation and timeline. A 780-credit buyer putting 15% down on a primary residence they'll keep for a decade is a textbook conventional win. A 620-credit buyer with a recent short sale and 3.5% saved is a textbook FHA win. Most people fall somewhere in between, which is exactly where running both scenarios pays off. That comparison — in real dollars over your expected years in the home — is the most useful thing we can hand you.
Conventional pros & cons FAQs
What's the biggest advantage?
Cancelable PMI. Conventional mortgage insurance drops off at ~20% equity (auto at 22%), while FHA's typically lasts the life of the loan — a difference worth tens of thousands over time.
What's the biggest drawback?
Stricter credit and credit-based pricing. You generally need ~620+, and lower scores pay materially higher rates and PMI than they would on FHA's flat structure.
Is conventional better than FHA?
For good credit (700+) and a buyer staying a while, usually yes — PMI cancels and it's cheaper long-term. For lower credit, minimal down, or a recent credit event, FHA is often better. We compare both in dollars.
Do I need 20% down?
No — that's a myth. 3% (first-time) or 5% (repeat) is the minimum; 20% just removes PMI. Many buyers put 5–10% down and cancel PMI later.
Who is it best for?
Good-credit, stable-income buyers; anyone buying a second home or investment property; and anyone who wants mortgage insurance that eventually goes away.
Reviewed by the licensing team at Save Financial, a California-licensed mortgage brokerage (NMLS #377740, DRE #01875766) founded in 2009 and serving all 58 counties from offices in Newport Beach and Marina del Rey.