FHA vs. Conventional Loan: Which Is Right for You?
Last updated September 2026
Quick answer
FHA loans let you buy with a lower credit score (as low as 580, or even 500 with 10% down) and a 3.5% down payment, but the mortgage insurance is harder to shake — under 10% down, it lasts the entire loan term. Conventional loans need better credit (usually 620+) but the PMI is cancellable once you hit 80% equity, and gets cheaper the better your credit score is. On our $400,000 example, FHA at 3.5% down runs about $2,595/month; conventional at 3% down runs about $2,654/month — but that gap can flip entirely based on your credit score.
The example we'll use throughout
Same $400,000 home, same 6.25% rate, five different ways to finance it:
| Scenario | Down payment | Loan amount | Monthly P&I | Monthly MI | Total monthly | MI duration |
|---|---|---|---|---|---|---|
| FHA, 3.5% down | $14,000 | $392,755* | $2,418 | $177 | $2,595 | Life of loan |
| FHA, 10% down | $40,000 | $366,300* | $2,256 | $150 | $2,406 | 11 years |
| Conventional, 3% down | $12,000 | $388,000 | $2,389 | $265 | $2,654 | Until 80%/78% LTV |
| Conventional, 5% down | $20,000 | $380,000 | $2,340 | $215 | $2,555 | Until 80%/78% LTV |
| Conventional, 20% down | $80,000 | $320,000 | $1,970 | $0 | $1,970 | N/A |
*FHA loan amounts include the 1.75% upfront mortgage insurance premium (UFMIP) financed into the loan, which is how most FHA borrowers pay it.
Notice FHA at 3.5% down actually beats conventional at 3% down here — but that's specific to the PMI rate we assumed (0.82%, representing good-not-exceptional credit). FHA's MIP rate doesn't care about your credit score at all. Conventional PMI does. That single difference is the real decision driver, covered below.
The core differences
| FHA | Conventional | |
|---|---|---|
| Minimum down payment | 3.5% (580+ credit) or 10% (500–579 credit) | 3% on select first-time-buyer programs; 5% typical |
| Minimum credit score | 500–580 depending on down payment | ~620 (meaningfully better pricing above 680–740) |
| Typical max DTI | ~43%, up to ~50% with compensating factors | ~45%, up to ~50% with strong credit/reserves |
| Mortgage insurance | UFMIP (1.75% upfront) + annual MIP (0.50%–0.55% for most 30-yr loans) | PMI only, rate scales with credit score and LTV |
| MI cancellation | Only with 10%+ down (cancels at 11 years); otherwise life of loan | Request at 80% LTV; automatic at 78% LTV |
| 2026 loan limits | $541,287 floor – $1,249,125 ceiling, by county | $832,750 baseline – $1,249,125 high-cost ceiling |
| Property use | Primary residence only; stricter appraisal/condition standards | Primary, second home, or investment (with adjustments) |
| Seller concessions cap | Up to 6% of price | 3%–9% depending on down payment |
| Assumable by a future buyer | Yes, with lender approval | Generally no |
Base loan: $400,000 home × 96.5% (3.5% down) = $386,000
UFMIP: $386,000 × 1.75% = $6,755 (financed into the loan)
Financed loan: $386,000 + $6,755 = $392,755
Annual MIP: $386,000 (base loan) × 0.55% = $2,123/year → $177/monthHow the FHA numbers are calculated
Two things trip people up here: MIP is calculated on the base loan amount, not the financed total — and the 0.55% rate applies because this loan is over 95% LTV with a 30-year term. Put 5% down instead of 3.5%, and the rate drops to 0.50% along with the loan-to-value.
The credit-score crossover
This is the part a single example can't show: conventional PMI is priced off your credit score, and FHA MIP isn't. Roughly speaking:
- Below ~660–680 credit: conventional PMI rates climb fast, often past FHA's flat 0.50%–0.55%. FHA is frequently the cheaper monthly payment, and sometimes the only approvable option at all.
- Above ~680–740 credit: conventional PMI often drops well below FHA's rate — and unlike FHA under 10% down, it actually cancels. Conventional usually wins both monthly and lifetime cost.
See What Is PMI for the full PMI rate gradient by down payment size.
Things to consider
- Life-of-loan MIP is a real number. Stay on a sub-10%-down FHA loan for the full 30 years and you can pay tens of thousands more in insurance than the equivalent conventional loan, where PMI cancels once you cross 78–80% LTV.
- FHA appraisals are stricter. The home has to meet FHA's minimum property standards — safety, soundness, and livability — which can complicate buying a fixer-upper or an older home with deferred maintenance.
- Assumability is an underrated FHA/VA perk. If you buy at today's rate and rates rise later, a qualified buyer can take over your FHA loan and its rate when you sell — a real advantage a conventional loan doesn't offer.
- You're not locked in. Plenty of buyers start on FHA to get in the door, then refinance to conventional once their credit improves and MIP starts costing more than it's worth.
- Compare your actual quotes, not just rates. The MI cost swing above is bigger than most rate differences between lenders — get both an FHA and a conventional quote before deciding.
Run your own numbers
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Frequently asked questions
Can I get an FHA loan with a 500 credit score?
Yes, with at least 10% down. A 3.5% down payment requires a credit score of 580 or higher.
Does FHA mortgage insurance ever go away?
Only if you put down 10% or more at closing — then it cancels after 11 years. Below 10% down, MIP lasts for the entire loan term; the only way out early is to refinance into a conventional loan once you have enough equity.
Is FHA or conventional cheaper overall?
It depends mainly on your credit score. FHA's MIP rate is flat regardless of credit; conventional PMI gets sharply cheaper as your score rises. Below roughly 680, FHA is often the lower monthly payment. Above that, conventional usually wins — especially over time, since its PMI actually cancels.
Can I use an FHA loan for an investment property?
No. FHA loans require the home to be your primary residence, and you generally must occupy it within 60 days of closing.
What credit score do I need for a conventional loan?
Most lenders want at least 620, including on the 3%-down first-time-buyer programs. Pricing improves noticeably as your score climbs past 680 and again past 740.
Related guides
What Is PMI (Private Mortgage Insurance)?
What PMI costs by down payment size, how it's calculated, and the two ways it legally comes off your loan.
Read moreVA Loans Explained: Eligibility, Benefits, and How They Work
Zero down, no mortgage insurance ever, and a one-time funding fee — what a VA loan actually costs across five scenarios.
Read moreHow Much House Can I Afford?
The 28/36 rule applied to a real budget — and why $500 of monthly debt costs $70,000 of buying power.
Read moreHow to Remove PMI From Your Mortgage
The 80% and 78% LTV triggers, how extra payments pull them forward, and how to submit the request.
Read moreFigures on this page are generated from the same amortization engine that powers the MortMetrix dashboard, using the example loan stated in each table. They are estimates based on a fixed-rate loan at a constant rate and are not your actual loan terms. This is educational information, not financial advice.