FHA vs Conventional Loans
Data as of Oct 22 2026
Both loan types will buy you a house, and the rate difference between them is usually small. The differences that cost real money are narrower than the marketing suggests: the down payment, the credit floor, and above all the mortgage insurance — how much it costs and whether it ever stops.
The comparison at a glance
| FHA | Conventional | |
|---|---|---|
| Minimum down payment | 3.5% with a 580+ score | 3% |
| Credit floor | 580 for 3.5% down; 500 with 10% down | 620 is the usual cut-off |
| Upfront fee | 1.75% UFMIP, financed into the loan | none |
| Ongoing insurance | annual MIP from 0.5%, billed monthly | PMI only while under 20% down |
| When insurance ends | 11 years if 10%+ down; life of loan below that | 78% LTV automatically (HPA 1998) |
| Loan limits | county-based FHA limits, generally lower | conforming limits, generally higher |
| Property condition | FHA appraisal with minimum property standards | conventional appraisal |
| Seller-paid costs | up to 6% of the price | capped by LTV; 3% under 10% down |
The insurance is the whole argument
FHA charges 1.75% of the base loan upfront — on a $360,000 base loan that is $6,300 — and it is added to the balance rather than paid in cash. Then it charges annual MIP of at least 0.5% a month by month. Conventional charges nothing upfront and PMI only while you are under 20% down.
The monthly figures are closer than people expect. The difference is whether the payment ever stops. With a 10% or larger down payment, HUD terminates FHA annual MIP after 11 years of payments. Below 10% down, it runs for the life of the loan unless you refinance out of it. Conventional PMI must end at 78% LTV under the Homeowners Protection Act, and on a typical 7.32% loan that happens around month 119.
What the two insurances cost on the same house
Take a USD $400,000 home with 10% down — a $360,000 base loan. Conventional PMI at this LTV and a 750 score is about $126 a month and ends around month 119, which is roughly $14,868 in total. FHA adds $6,300 of UFMIP to the balance and bills about $153 a month for 11 years, about $20,147 in total.
Read the two totals together with the upfront fee and the answer is usually clear: on this loan the FHA route costs more, and it keeps costing for longer. Conventional needs a 620-ish score to be available at all, which is the trade — FHA buys you approval with weaker credit, and you pay for it in insurance that does not end.
Both totals are summed from the same amortisation engine the calculator uses, on the balance as it actually declines, so they include the fact that insurance is charged on a shrinking loan.
Who should pick which
- FHA is often the only door when credit is the constraint: a 580 score can buy a house with 3.5% down, and FHA is more forgiving of thin credit files and high debt-to-income ratios.
- FHA also has an edge when the down payment is small and the credit is only fair, because its rate pricing does not punish a mid-600s score the way a conventional loan-level price adjustment does.
- Conventional wins as soon as you have 5%–10% down and a 620+ score: no upfront fee, insurance that ends at 78% LTV, and a cost that falls sharply as the score improves.
- Conventional also wins on expensive houses, where FHA county limits can bind, and on properties that would fail FHA minimum property standards — a fixer with peeling paint or a shared well is the classic example.
Run both before you decide
The mortgage calculator on this site prices conventional, FHA and VA on the same house with the right upfront fee, the right monthly insurance and the right cancellation rule for each. Over a five- to ten-year horizon the comparison usually comes down to two inputs — your credit score and your down payment — and both are fields you can change in a few seconds rather than assumptions to argue about.
Frequently asked questions
Is FHA or conventional cheaper?
FHA often shows a lower rate and a lower payment in the first year, because its upfront fee is financed rather than paid. Conventional is usually cheaper over the life of the loan, because its insurance ends at 78% LTV while FHA's can last the full term. The crossover depends on your score and down payment.
Can I get rid of FHA mortgage insurance?
Only two ways. With a 10% or larger down payment HUD terminates annual MIP automatically after 11 years of payments. With less than 10% down the MIP runs for the life of the loan and the only exit is to refinance into a conventional loan — typically once you have 20% equity.
What credit score do I need for an FHA loan?
580 is the usual floor for the 3.5% down programme, and 500 is the floor with 10% down. Many FHA lenders overlay stricter requirements of their own, so a 580 score does not guarantee approval.
Do FHA loans have lower interest rates?
They are often slightly lower, because FHA loans are insured by the federal government and carry less credit risk for the lender. The gap is usually smaller than the difference in mortgage insurance, which is why the insurance, not the rate, is what should decide the comparison.
Related guides
Twenty percent down is not a rule, it is where PMI stops. What a smaller down payment costs each month, and when it is worth waiting to have more.
When private mortgage insurance can come off a conventional loan: the 78% automatic rule, the 80% request, appraisals, and what PMI costs each month.
What a 15-year mortgage costs per month against a 30-year at today's rates, how much interest it saves, and what the 20-year term in between looks like.
Freddie MacU.S. Census BureauFannie MaeU.S. Department of Housing and Urban Development (HUD)U.S. Department of Veterans AffairsPrivate mortgage insurersNAICState statutes and departments of revenue