FHA vs Conventional Loan Comparison
Compare FHA and conventional mortgages side by side — calculate MIP vs PMI costs, monthly payments, total interest, and total loan cost to instantly see which option saves you more money.
FHA vs Conventional: Key Differences
FHA loans are government-backed mortgages insured by the Federal Housing Administration, a division of HUD (source: hud.gov). They are designed to help borrowers with lower credit scores or smaller down payments qualify for a home loan. Conventional loans, by contrast, are not government-insured — they conform to guidelines set by Fannie Mae and Freddie Mac and are backed entirely by the private lender. The key trade-off is that FHA loans accept credit scores as low as 580 (with 3.5% down) but require mortgage insurance for the life of the loan in most cases, while conventional loans require stronger credit (typically 620+) but allow you to cancel private mortgage insurance (PMI) once you reach 20% equity. For borrowers with good credit and a modest down payment, conventional loans often win on total cost over time despite the slightly higher rate, because PMI eventually goes away.
FHA Mortgage Insurance Premium (MIP) Explained
FHA loans carry two layers of mortgage insurance (source: hud.gov). The Upfront MIP (UFMIP) is 1.75% of the base loan amount, charged at closing — it can be rolled into the loan. The Annual MIP is charged monthly and its rate depends on loan term, LTV ratio, and loan amount. For a 30-year loan with LTV above 95%, the 2026 annual MIP rate is 0.55% of the outstanding balance per year (divided by 12 for the monthly charge). Critically, if your LTV at closing is above 90%, MIP stays for the life of the loan — you cannot cancel it by reaching 20% equity. If your LTV is 90% or below (meaning you put at least 10% down), MIP drops off after 11 years. This lifetime insurance requirement is the single biggest cost disadvantage of FHA loans for most borrowers.
When FHA Beats Conventional (and Vice Versa)
FHA wins in these scenarios: your credit score is below 660, making conventional PMI rates extremely high or disqualifying; you have very little savings and need the 3.5% minimum down payment; or you cannot qualify at all for conventional due to debt-to-income ratio limits, where FHA allows up to 57% DTI vs the typical 45% conventional cap. Conventional wins when: your credit score is 700 or above, conventional PMI rates are low; you plan to stay in the home 7+ years and PMI cancellation becomes significant; your down payment is 20% or more (no PMI at all); or you want a loan above the FHA conforming limit. For most borrowers with a 5-10% down payment and a credit score above 680, a side-by-side calculation like this tool provides is essential — the winner depends on how long you keep the loan and the exact rate spread between the two products. Last updated April 2026.
2026 FHA Loan Limits
FHA loan limits are set annually by FHFA and vary by county (source: fhfa.gov). For 2026, the national baseline (floor) limit for a single-family home is $524,225 in low-cost areas, and the ceiling limit is $1,209,750 in high-cost areas such as parts of California, Hawaii, and New York. Conventional conforming loans share the same baseline limit of $806,500 for most of the country — amounts above this become "jumbo" loans. If your home price exceeds FHA limits in your county, FHA is simply not an option regardless of credit profile, and you must use conventional or jumbo financing. Check the HUD loan limits page for your specific county before assuming FHA is available for your purchase price.
How to Decide Between FHA and Conventional
Use this four-step framework before choosing your loan type. Step 1 — Check your credit score: if it is below 620, FHA is likely your only option. Between 620 and 679, run the numbers — PMI rates are elevated but MIP-for-life may still cost more. At 680 and above, conventional typically wins on total cost. Step 2 — Calculate total cost over your planned horizon: use this tool to compare total cost at 5, 7, and 10 years (the most common ownership periods in the US). Step 3 — Factor in the rate spread: FHA rates are typically 0.25-0.50% lower than conventional rates because of the government backing. A wider spread favors FHA; a narrow spread favors conventional due to PMI cancellation. Step 4 — Consider refinance plans: many FHA borrowers refinance to conventional once they reach 20% equity, eliminating MIP. If you plan to refi within 3-5 years, the FHA-to-conventional refinance path is a legitimate strategy — use the refinance savings calculator to model that scenario.
Frequently Asked Questions
What credit score do I need for an FHA loan vs a conventional loan?
FHA loans require a minimum credit score of 580 to qualify for the 3.5% down payment option, or 500–579 with at least 10% down. Conventional loans typically require a minimum score of 620, though lenders may require 640 or 660 for better terms. Borrowers with scores above 720 generally get the best conventional rates with the lowest PMI premiums.
Can I cancel FHA mortgage insurance (MIP)?
It depends on your down payment. If your down payment was less than 10% (LTV above 90% at origination), FHA MIP stays for the life of the loan — you cannot cancel it. If you put at least 10% down (LTV of 90% or below), MIP automatically cancels after 11 years. The only way to eliminate MIP from a high-LTV FHA loan is to refinance into a conventional mortgage once you reach 20% equity.
What is the FHA upfront mortgage insurance premium (UFMIP)?
The FHA UFMIP is 1.75% of the base loan amount, charged at closing. On a $350,000 home with 5% down ($332,500 loan), that is $5,819 upfront. Most borrowers roll this cost into the loan rather than paying cash at closing, which slightly increases the loan balance and monthly payment. The UFMIP applies to all FHA loans regardless of credit score or LTV.
When does conventional PMI go away?
Conventional PMI automatically cancels when your loan balance reaches 78% of the original purchase price (based on the amortization schedule), as required by the Homeowners Protection Act. You can also request cancellation once your balance reaches 80% LTV based on the original value, or sooner if your home has appreciated and an appraisal confirms the new value. This cancellation is a major long-term cost advantage over FHA MIP.
Is the FHA interest rate always lower than conventional?
FHA rates are typically 0.25% to 0.50% lower than conventional rates because government backing reduces lender risk. However, this advantage must be weighed against the added MIP costs. The net monthly payment for FHA can still be higher than conventional once you add the annual MIP. Always compare total monthly cost (P&I + insurance), not just the interest rate, when choosing between the two.
What is the FHA loan limit for 2026?
For 2026, the FHA loan limit floor (low-cost areas) is $524,225 for a single-family home, and the ceiling (high-cost areas) is $1,209,750. These limits vary by county and are updated annually by FHFA. If your loan amount exceeds the FHA limit for your county, you will need to use a conventional or jumbo loan. Check the HUD FHA loan limits page for your specific county.
Should I choose FHA or conventional with a 5% down payment?
With 5% down, the answer depends largely on your credit score. At 740+ credit, conventional PMI rates are typically 0.20%–0.50% annually and will cancel once you reach 78% LTV — conventional often wins on total cost over 7+ years. At 620–660 credit, PMI rates jump to 0.80%–1.50%, and FHA may actually be cheaper over the same period despite lifetime MIP. Use this comparison calculator with your actual credit score to see which option is cheaper over your expected ownership horizon.