Last reviewed: October 2026 · By the MortgageCompass Editorial Team · How we research
The short answer: an FHA loan is usually cheaper if your credit score is below about 680 or your debts are high, while a conventional loan usually wins with a score of 740 or more, because its mortgage insurance is cheaper and can be removed. Between those levels it depends on your down payment and how long you will keep the loan. FHA mortgage insurance usually lasts for the life of the loan with less than 10% down, while conventional private mortgage insurance ends automatically once you owe 78% of the home’s original value.
FHA vs conventional at a glance
| Feature | FHA loan | Conventional loan |
|---|---|---|
| Minimum credit score | 580 with 3.5% down (500 with 10%) | Usually 620 |
| Minimum down payment | 3.5% | 3% for some first-time buyer programs, often 5% |
| Mortgage insurance | 1.75% upfront plus 0.50% to 0.55% a year | PMI if under 20% down, priced by credit score |
| When mortgage insurance ends | Life of the loan with under 10% down, 11 years with 10% or more | Can be cancelled at 80% of original value, ends automatically at 78% |
| Debt-to-income | 31% / 43% guideline, higher with strengths | Up to 45% to 50% with automated approval |
| 2026 loan limit (one unit) | $541,287 to $1,249,125 by county | $832,750 in most areas |
| Property | Must meet HUD minimum property standards, main home only | Standard appraisal; main home, second home or investment |
| Seller help with closing costs | Up to 6% | 3% to 9%, depending on down payment |
Program rules from HUD and Fannie Mae for 2026. Lenders can set stricter requirements of their own, so always confirm with the lender. The full FHA rules are in our guide to FHA loan requirements.
Compare the cost over time
The monthly payment in the first year only tells part of the story. The chart shows how each payment changes as mortgage insurance ends, and the table adds up what you would pay over 5, 10, 15 and 30 years.
FHA vs conventional: monthly cost over the life of the loan
See how the monthly payment of each loan changes over time as mortgage insurance falls away, and which one costs less over the years you plan to keep it.
30-year fixed loans, principal, interest and mortgage insurance only. FHA: 1.75% upfront premium added to the loan, annual premium of 0.55% (0.50% with 5% or more down), for the life of the loan with less than 10% down or 11 years with 10% or more. Conventional: private mortgage insurance estimated from typical rates for your score and down payment, removed automatically when the balance reaches 78% of the original value. Real PMI quotes vary. Not financial advice.
Which loan wins: three examples
Illustrative examples for a $350,000 home at 7.25% for both loans, kept for 10 years, using the tool above.
- Score 620 to 679, 3.5% down: FHA costs about $2,502 a month against $2,656 for a conventional loan, and comes out about $14,500 cheaper over 10 years. High PMI at lower scores makes conventional expensive.
- Score 680 to 719, 5% down: the first-year payments are almost the same, about $2,449 for FHA and $2,468 for conventional. Over 10 years conventional is slightly cheaper, by about $1,750, mainly because FHA adds its upfront premium to the balance.
- Score 760 or higher, 5% down: conventional costs about $2,368 a month against $2,449 for FHA and saves about $13,700 over 10 years, before its PMI ends around year 13.
With 20% down, a conventional loan has no mortgage insurance at all, while FHA still charges its premiums for 11 years, so conventional is almost always cheaper.
Starting with FHA and switching later
Many buyers choose FHA because they qualify more easily today, then refinance into a conventional loan once their credit improves and they have around 20% equity, which removes mortgage insurance. That can work well, but it depends on future rates and costs. A refinance has closing costs, and if rates are higher at that point the saving may disappear. Our guide on whether to refinance includes a break-even timeline you can use when the time comes.
Other differences that can decide it
- Property condition: FHA appraisals check HUD’s minimum standards, so a home needing significant repairs may not qualify without them being fixed first.
- Type of property: FHA is only for a home you will live in. For a second home or an investment property you need a conventional loan.
- Higher-priced homes: in most areas the conventional limit of $832,750 is well above the FHA limit, so larger loans are more likely to need a conventional mortgage.
- Flexibility on credit events: FHA generally allows a new loan sooner after bankruptcy or foreclosure than conventional loans do.
Frequently asked questions
Are FHA interest rates lower than conventional rates?
Often slightly, because the government insures the loan. But FHA mortgage insurance can outweigh a lower rate, so compare the full monthly cost and the cost over time, not just the rate.
Can I remove FHA mortgage insurance?
If you put down 10% or more, the annual premium ends after 11 years. With less than 10% down it lasts for the life of the loan, and the usual way to remove it is to refinance into a conventional loan.
Which is better for first-time buyers?
Neither by default. Both have low down payment options, and first-time buyer programs exist for each. Our guide to the best lenders for first-time buyers compares cash needed at closing for FHA, conventional, VA and USDA loans.
Sources
- HUD: Single Family Housing Policy Handbook 4000.1
- CFPB: When can I remove private mortgage insurance from my loan?
- CFPB: Buying a House
This guide is for informational purposes only and is not financial advice. Mortgage insurance estimates for conventional loans are approximate and actual quotes vary. Compare official Loan Estimates for both loan types before you decide.