Last updated: October 5, 2026 · Interest rates and PMI pricing in the example are illustrations, not quotes.
FHA and conventional loans are the two most common ways to buy a home with a small down payment. FHA loans are insured by the Federal Housing Administration and are easier to qualify for. Conventional loans follow Fannie Mae and Freddie Mac guidelines and usually reward strong credit. Which one costs less depends mostly on your credit score, your down payment and how long you keep the loan.
FHA vs. conventional at a glance
| FHA loan | Conventional loan | |
|---|---|---|
| Minimum down payment | 3.5% (credit score 580+); 10% (500–579) | 3% on some programs; 5% common |
| Typical minimum credit score | 580 for 3.5% down | Usually 620 |
| Upfront mortgage insurance | 1.75% of the base loan | None (with monthly PMI) |
| Monthly mortgage insurance | Annual MIP, 0.55% for most 30-year loans with under 5% down | PMI, priced mainly on credit score and down payment |
| When it ends | 11 years with 10%+ down; otherwise life of the loan | Can be cancelled at 80% of original value; ends automatically at 78% |
| 2026 loan limit (one unit) | Varies by county; from $541,287 to $1,249,125 | $832,750 in most areas; up to $1,249,125 in high-cost areas |
Worked example: a $350,000 home
To compare fairly, we use example terms that reflect a common pattern: FHA rates are often a bit lower than conventional rates, while conventional PMI disappears over time.
- FHA: 3.5% down ($12,250). Base loan $337,750 plus a 1.75% upfront premium of $5,910.63 added to the loan, for a total of $343,660.63 at 6.25%. Annual MIP of 0.55%.
- Conventional: 5% down ($17,500). Loan of $332,500 at 6.5%, with PMI of 0.6% of the loan per year until the balance reaches 78% of the original value.
| FHA | Conventional | |
|---|---|---|
| Monthly principal & interest | $2,115.98 | $2,101.63 |
| First-year monthly mortgage insurance | $156.52 | $166.25 |
| Mortgage insurance ends | Never (less than 10% down) | After 135 payments (about 11.3 years) |
| Interest + mortgage insurance + upfront premium, first 5 years | $119,119 | $114,829 |
| Same costs over 30 years | $460,637 | $446,529 |
In this example the monthly payments start almost identical, but the conventional loan costs about $14,100 less over 30 years, mainly because its PMI ends while FHA MIP continues. The FHA loan needs $5,250 less cash at closing. With a lower credit score, conventional PMI could be much more expensive and FHA could easily come out ahead.
When an FHA loan makes sense
- Your credit score is below about 680, where conventional PMI and rates get expensive.
- You have a small down payment and limited savings.
- Your debt-to-income ratio is on the higher side. See how much house you can afford.
- You plan to refinance into a conventional loan once you have more equity and better credit.
When a conventional loan makes sense
- Your credit score is strong, typically 700 or higher.
- You can put down 5% or more, or reach 20% to avoid mortgage insurance entirely.
- You plan to keep the loan for many years and want mortgage insurance to end. See how PMI is removed.
- You are buying a second home or investment property, which FHA does not allow.
Other differences to know
- Property standards: FHA appraisals check that the home meets minimum safety and livability standards, which can complicate buying a fixer-upper.
- Occupancy: FHA loans are for primary residences.
- Seller concessions: both allow sellers to help with closing costs within program limits.
- Assumability: FHA loans can generally be assumed by a qualified buyer, which can be valuable if rates rise.
How to decide
Ask a lender for Loan Estimates for both an FHA and a conventional loan on the same home and the same day. Compare the rate, the mortgage insurance, the cash to close and the total cost over the number of years you expect to keep the loan. You can model the payments in our mortgage calculator.
Frequently asked questions
What is the minimum down payment for an FHA loan?
FHA loans allow 3.5% down with a credit score of 580 or higher. Borrowers with scores from 500 to 579 generally need 10% down. Lenders can set stricter requirements.
How much is FHA mortgage insurance in 2026?
Most FHA borrowers pay an upfront premium of 1.75% of the base loan amount, usually added to the loan, plus an annual premium that is 0.55% for most 30-year loans with less than 5% down.
Does FHA mortgage insurance ever go away?
If you put down at least 10%, annual FHA mortgage insurance ends after 11 years. With less than 10% down, it lasts for the life of the loan unless you refinance into a conventional loan.
Is a conventional loan always cheaper than FHA?
Not always. Conventional PMI is priced heavily on credit score, so borrowers with lower scores may pay less upfront and monthly with FHA. Borrowers with strong credit often pay less over time with a conventional loan because PMI can be removed.
Sources: U.S. Department of Housing and Urban Development (HUD); Federal Housing Finance Agency (FHFA), 2026 conforming loan limits; CFPB: Buying a House. Example calculations by ToolStackIA; FHA annual MIP calculated on the average outstanding balance each year.
This article is for educational purposes only and is not financial advice. Loan programs, rates and rules change; confirm details with your lender or a HUD-approved housing counselor.