FHA or conventional? Here's how to choose, in three questions.

A conventional loan is any mortgage that isn't insured by the government. Most are "conforming": they follow Fannie Mae and Freddie Mac's rules and stay under the conforming limit. In Minnesota in 2026, that limit is $832,750 for a single-family home. That's why conventional pricing is the benchmark every other loan gets compared to. Your rate and your mortgage insurance are both keyed to two things: credit score and down payment. So a 760 score with 5% down can price better than a 680 score with 15% down.

The down payment story most people get wrong

You don't need 20% down. You need 20% down to avoid private mortgage insurance, which is a different thing. First-time buyers can put 3% down. Buyers under 80% of the area median income can use HomeReady or Home Possible at 3% down with cheaper PMI. The PMI is cancellable: request removal at 80% of the original value, and it drops off automatically at 78%. That is conventional's quiet superpower over FHA.

• First-time buyer3%
• Standard5%
• 2–4 units you live in5%
• Rental, 1 unit15%
• No PMI at all20%
• Rental, 2–4 units25%
• Minimum down payment by situation. PMI: request removal at 80% of the original value; it ends automatically at 78%.

The house-hack rule

Buy a duplex, triplex or fourplex you'll live in, and Fannie Mae allows 5% down with the other units' rent counting toward your qualification. For a pure rental you'll need 15% down on a single unit and 25% on two to four units.

FHA doesn't lend you money. The Federal Housing Administration insures the loan, so the lender is protected if you default, and in exchange the lender relaxes the rules. That insurance is why FHA can say yes to a 580 score with 3.5% down when conventional says not yet.

What you pay for the flexibility

Two premiums. The upfront premium is 1.75% of the loan amount, usually rolled into the loan. The annual premium is 0.55% for most buyers (0.50% with 5 to 10% down), charged monthly. Here's the part that matters: with less than 10% down, the annual premium stays for the life of the loan. The way out is to refinance into a conventional loan once you have 20% equity, which is a normal move two to five years in.

1. At closing1.75% upfront premium, usually rolled into the loan
2. Every month0.55% a year (0.50% with 5–10% down)
3. When it endsUnder 10% down: life of the loan, or refinance to conventional at 20% equity. 10%+ down: after 11 years

Where FHA wins outright

• Credit scores from 580 (500 to 579 with 10% down), friendlier treatment of past collections, and a shorter wait after a bankruptcy or foreclosure.
• Debt-to-income ratios into the 50s with strong compensating factors, where conventional caps you lower.
• The seller can pay up to 6% of the price toward your closing costs, at any down payment.
• A 2 to 4 unit building with 3.5% down, as long as you live in one unit. That's the cheapest way into a duplex in Minnesota.

The catches

Primary residence only. The loan limit is lower: $552,000 for a single-family home in Hennepin County in 2026, $541,287 in most of the rest of Minnesota. And the FHA appraisal checks the house against minimum property standards. Peeling paint, a bad roof or a missing handrail can become a repair condition before closing.