FHA vs. Conventional Loan in Arizona: Which Fits You?

Should you choose an FHA loan or a conventional loan in Arizona?

Choose an FHA loan if your credit score is in the 580 to 679 range, your down payment is thin, or your debt-to-income ratio is tight. Choose a conventional loan if your score is around 680 or higher and you can put down 5% or more, because mortgage insurance usually costs less and can be removed later. FHA is more forgiving at the door. Conventional is usually cheaper over time for buyers who qualify comfortably.

By Dr. Kevin Shufford | October 13, 2026

Most buyers I talk to think this is a question about who gets approved. It’s really a question about what you’ll pay for the next 5, 10, or 30 years.

Both loans can get you into an Arizona home with a small down payment. They differ in how they treat your credit, how they charge for mortgage insurance, and whether that insurance ever goes away. Because I’m both your agent and a licensed loan officer, I can price both on the same house before you write an offer.

The case for an FHA loan

FHA exists to open the door for buyers who don’t fit the conventional box. If your credit score is in the 600s, you’ve had a recent hiccup, or your monthly debts are high, FHA often says yes when conventional says no.

• Low down payment, easy to reach. 3.5% down on a $400,000 home is $14,000.
• Forgiving on credit. A lower score doesn’t push your mortgage insurance cost through the roof the way it can with PMI.
• Flexible on debt. Higher debt-to-income ratios can still work when your file has other strengths, like steady income and reserves.
• Generous seller credits. Sellers can contribute up to 6% toward your closing costs.

The trade-off is the insurance. You pay an upfront premium of 1.75% of the loan (most buyers finance it) plus a monthly premium. On a $400,000 home with 3.5% down, the base loan is $386,000, the upfront premium is about $6,755, and your loan balance starts near $392,755. The monthly premium on a loan like that commonly runs around 0.5% to 0.75% a year, or roughly $165 to $245 a month.

And with less than 10% down, that monthly premium stays for the life of the loan. The usual way out is a refinance once you have enough equity and your credit has improved. Your debt ratios drive all of this, which I break down in the DTI ratio: the number lenders use to decide what you can afford.

One more FHA reality: the appraiser checks the home against minimum property standards. Peeling paint on an older home, a failing roof, or a missing handrail can stop a deal until it’s fixed. That matters in competitive situations, because some sellers will prefer an offer that won’t trigger repair requests.

The case for a conventional loan

Conventional loans reward a strong file. The better your credit score and the bigger your down payment, the cheaper your mortgage insurance gets, and at the top end it can be very cheap.

• PMI goes away. Once you reach 20% equity you can ask to drop it, and it ends automatically at 22%. That can come from paydown, appreciation, or both.
• No upfront premium. You skip the 1.75% FHA charge on most conventional loans.
• Pricing follows your credit. A 740+ score can cut your monthly PMI dramatically.
• More property flexibility. The appraisal focuses on value, and you can use the loan for a second home or an investment property.

Run the same $400,000 home with 5% down. The loan is $380,000. Depending on your credit score, monthly PMI might range from about $95 for an excellent score to $320 or more for a score near the minimum, roughly 0.3% to 1.0% a year. That wide spread is the whole story: at the top of the credit range conventional beats FHA, and near the bottom FHA can win.

If you’re still sorting out what you can put down, start with how much down payment you need in Phoenix and the truth about down payments in Arizona. Many buyers assume they need 20%. Most don’t.

Which is right for you?

Skip the “it depends.” Here’s how I match buyers to loans:

• Credit score below about 640: FHA is usually the better price, and often the only approval.
• Credit score 680 to 739 with 5% down: price both. The answer can go either way, and the monthly cost difference is often modest.
• Credit score 740+ with 5% or more down: conventional almost always wins on monthly cost and long-term cost.
• High monthly debts but solid income: FHA’s debt flexibility can be the difference between approved and declined.
• 10% or more down: conventional becomes even more attractive, because PMI drops and your path to removing it shortens.
• You expect to refinance or move within 5 to 7 years: FHA’s lifetime insurance matters less, since you’re likely to leave the loan before it hurts.
• You’re buying an older home that needs work: conventional is usually easier to get through appraisal.
• You want to keep the home as a rental later: FHA requires you to live there first, so plan your next move before you choose.

Run your numbers both ways before you commit. Plug your price range into the What Can I Afford calculator to see how mortgage insurance changes your monthly payment. Then check the Arizona Down Payment Assistance Finder, because assistance programs have their own loan-type rules and can tip the decision. Many programs pair with both FHA and conventional loans, but terms differ.

Before you shop, get your approval in order. If you’re not sure which to ask for, read pre-qualification vs. pre-approval first. And remember, you have the right to shop lenders and choose your own settlement service providers. Compare Loan Estimates side by side.

Frequently Asked Questions

Is FHA or conventional better for first-time buyers in Arizona?

Neither is better for everyone. FHA is often better for first-time buyers with lower credit scores or higher debts, while conventional is often cheaper for first-time buyers with strong credit and at least 5% down. Ask for a side-by-side quote so you can see the monthly cost of each.

What credit score do you need for an FHA loan?

FHA guidelines allow 3.5% down with a score of 580 or higher, and 10% down for scores of 500 to 579. Most lenders add their own minimums, often 620 or higher, so the score you need depends on the lender you use.

Can you get rid of FHA mortgage insurance?

If you put down less than 10%, the monthly premium lasts for the life of the loan, and the usual exit is refinancing into a conventional loan. With 10% or more down, it ends after 11 years. Check your loan documents for the exact terms.

Is PMI cheaper than FHA mortgage insurance?

It depends on your credit score and down payment. With a high score, PMI is usually cheaper and removable. With a lower score, PMI can cost more than FHA’s premium. That’s why the comparison needs your real numbers.

Does Arizona charge a transfer tax on either loan?

No. Arizona has no state or local real estate transfer tax, and it applies to both loan types equally. Your closing costs come from lender fees, title and escrow, prepaid items, and insurance.

The bottom line

FHA buys you access. Conventional buys you savings once you qualify comfortably. The right loan is the one with the lowest total cost for your credit, your down payment, and how long you’ll keep it.

The fastest way to know is to see both on paper. I’ll price an FHA loan and a conventional loan side by side on the home you’re considering, and you can decide with real numbers. Visit thepropertyprofessor.blog or call 480-725-4658 to get pre-approved and see your FHA vs. conventional comparison.

About Dr. Kevin Shufford
Dr. Kevin Shufford holds a PhD in Communication and is a professor who teaches how to have healthy relationships, skills he brings directly to his real estate practice. As a licensed real estate agent and mortgage loan officer serving the Phoenix metro and Southern California markets, Kevin operates as The Property Professor under Real Broker LLC and One Real Mortgage. He specializes in helping first-time buyers, move-up buyers, and higher-income professionals navigate the buying and lending process with confidence. Connect with Kevin at thepropertyprofessor.blog or call 480-725-4658.