FHA vs Conventional: Which Should You Choose?
An FHA loan is usually cheaper for borrowers with lower credit scores and small down payments, because its mortgage insurance costs the same at every score. A conventional loan is usually cheaper for borrowers with strong credit, because its mortgage insurance is priced by score and can be cancelled once the loan reaches 80% of the home’s original value. FHA premiums last the full loan term unless you put down 10% or more.
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Key Numbers
| Statistic | Value | Source |
|---|---|---|
| FHA upfront mortgage insurance premium | 1.75% of the base loan amount | HUD Mortgagee Letter 2023-05 |
| FHA annual premium, 30-year loan up to $726,200 with less than 5% down | 0.55% of the balance, for the full loan term | HUD Mortgagee Letter 2023-05 |
| When you can ask to cancel conventional PMI | When the balance reaches 80% of the home’s original value | CFPB |
| When conventional PMI ends automatically | When the balance is scheduled to reach 78% of the original value | CFPB |
| FHA minimum down payment | 3.5% of the purchase price | HUD |
FHA Loan
Insured by the Federal Housing Administration. Low down payment and flexible credit, with mortgage insurance premiums on every loan.
Conventional Loan
Not government-backed. Rewards stronger credit, and its mortgage insurance can be removed as equity builds.
Side-by-Side Comparison
| Feature | FHA | Conventional |
|---|---|---|
| Minimum down payment | 3.5% with a 580 score or higher | Set by the program; low-down-payment options exist for qualified buyers |
| Credit score | More forgiving; the score does not change the insurance premium | Score drives both the rate and the mortgage insurance cost |
| Upfront mortgage insurance | 1.75% of the loan amount, usually financed | None on standard monthly PMI |
| Monthly mortgage insurance | Required on every loan | Required only with less than 20% down |
| Removing mortgage insurance | Ends after 11 years with 10% or more down; otherwise lasts the full term | Can be cancelled at 80% of original value; ends automatically at 78% |
| Loan limits | Lower than conforming limits in most counties | Up to the conforming limit; above it the loan is a jumbo |
| Property use | Primary residence only | Primary, second home or investment property |
When to Choose Each Option
Choose FHA If:
- Your credit score makes conventional mortgage insurance expensive
- You have 3.5% to put down and limited savings beyond it
- You are buying a two- to four-unit home to live in
- You plan to refinance once your credit or equity improves
Choose Conventional If:
- Your credit score is strong
- You can put down 20% and avoid mortgage insurance entirely
- You want mortgage insurance that goes away without refinancing
- The loan is above the FHA limit for your county, or the home is not your primary residence
The Bottom Line
Price both on the same day. Compare the full monthly payment including mortgage insurance, then the total cost over the years you expect to keep the loan. FHA often wins the first few years for lower scores; conventional often wins over a longer hold because its insurance ends.
The Questions Everyone Asks
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