# FHA vs conventional: which loan actually costs you less?

Source: https://nobullshitloans.com/loans/fha-vs-conventional/
By Tyler Rood, Loan Officer, NMLS ID # 2064776, Edge Home Finance, LLC (NMLS ID # 891464). Updated 2026-11-09.

## The short answer

At the same rate, a conventional loan usually costs less when your credit score is about 720 or higher, because its PMI is priced to your score and you can drop it once your balance reaches 80% of the original value. FHA's mortgage insurance doesn't depend on your score: 1.75% upfront plus 0.50% to 0.55% a year on a typical 30-year loan, for the loan's life with under 10% down. Under 680, FHA usually wins in my pricing.

Most people frame FHA vs conventional as bad credit versus good credit. That's not how I pick: both are good loans that solve different problems, and what decides which one costs you less is the mortgage insurance, what it costs at your score and how long you pay it. Here are the two side by side, then the math for one buyer at two credit scores.

## FHA and conventional in two sentences each

**FHA** loans are insured by the federal government through HUD, which is why they accept lower credit scores and higher debt ratios, with 3.5% down at a score of 580 or higher. You pay for that insurance with a premium that costs the same at any score and, with less than 10% down, stays for the life of the loan; everything else is on my [FHA loan page](https://nobullshitloans.com/loans/fha/).

**Conventional** loans carry no government insurance, and most follow Fannie Mae and Freddie Mac rules, so pricing rewards strong credit, with as little as 3% down if you fit one of the 3% options. Under 20% down you pay private mortgage insurance (PMI) priced to your score, and you can ask to drop it once your balance reaches 80% of the home's original value; the requirements are on my [conventional loan page](https://nobullshitloans.com/loans/conventional/).

You don't have to pick the program before you apply. I look at your credit, income, debts and cash, price both, and show you the payment on each.

## FHA vs conventional mortgage: the comparison table

Program rules as of November 2026, with 2026 loan limits for the Richmond area.

| | FHA | Conventional |
|---|---|---|
| Minimum down payment | 3.5% with a 580+ score; 10% with 500 to 579 | As little as 3% on a fixed rate, with conditions; 5% on an adjustable rate |
| Credit score | 580+ for the minimum down; 500 to 579 allowed at 10% down; under 500 not eligible | No set minimum when the automated system approves the loan; 620 for a manually underwritten Fannie Mae fixed rate; many lenders set their own floor, often 620 |
| Upfront mortgage insurance | 1.75% of the base loan, usually added to the loan | None |
| Annual mortgage insurance | 0.50% to 0.55% a year on a typical 30-year loan, the same at any score | PMI under 20% down, priced to your score, down payment and debts: 0.38% a year at 760+ up to 0.96% at 680 to 699 at 5% down, on a typical published rate card |
| How long it lasts | 11 years with 10% or more down; the life of the loan with less | Cancel on request at 80% of the original value; ends on its own at 78% |
| Debt-to-income room | More: automated approvals often allow higher ratios | Less, and PMI costs more once your ratio is over 45% |
| Seller credits allowed | Up to 6% of the price at any down payment | 3% with under 10% down, 6% with 10% to under 25%, 9% with 25% or more |
| Waiting period after bankruptcy or foreclosure | Generally shorter | Generally longer |
| Property standards | FHA's minimum property standards: health and safety items get fixed before closing | Has to be livable as is; small items usually aren't a problem |
| Condos | The project has to be FHA-approved, or the unit approved on its own | The project gets its own review |
| 2026 loan limit, one unit, Richmond area | $707,250 | $832,750 |
| Occupancy | A home you live in | Your home, a second home or a rental |
| Refinancing later | FHA streamline: no appraisal, lighter paperwork | Full documentation every time |
| Can a buyer take it over? | Yes, if the buyer qualifies | Rarely |

Two rows decide most files: mortgage insurance and debt-to-income. A lower score costs you more on conventional and nothing extra on FHA's insurance, and a high debt ratio fits more easily on FHA. One more row matters now that sellers are paying closing costs again: on a $350,000 home with 5% down, FHA lets the seller cover up to $21,000 of your costs, and conventional stops at $10,500.

## FHA vs conventional interest rates: the rate isn't the whole cost

A rate quote leaves out the mortgage insurance, and on these two loans the insurance is the difference. You have to treat interest rate plus mortgage insurance as one number. HUD does exactly that when it tests an FHA streamline refinance: it adds the annual premium to the interest rate and calls it the combined rate.

So at an example rate of 6.5%, an FHA loan at 3.5% down, with its 0.55% annual premium, carries roughly like a 7.05% loan, before the upfront premium. A conventional loan at the same example rate with 0.38% PMI (a 760 score at 5% down on a typical card) carries like about 6.88%. At 680 to 699, the same card's 0.96% makes it about 7.46%.

The rates themselves rarely match, either. Conventional pricing adds surcharges for lower scores and smaller down payments, and FHA pricing is flatter. In 2026 pricing I've run for buyers near 680, the FHA rate has often come in lower than the conventional rate. On a loan around $338,000, every quarter point of rate is worth about $55 a month, which can swing the answer more than the insurance does. That's why the example below holds the rate equal on purpose: to show you the insurance by itself.

## The same buyer, side by side: a $350,000 home at 5% down

One hypothetical buyer: a $350,000 home, 5% down ($17,500), a 30-year fixed at an example rate of 6.5% on both loans. Conventional PMI comes from a typical mortgage insurer's published rate card, and a live quote can differ. FHA comes from HUD's premium table: at 5% down (95% loan-to-value) the annual premium is 0.50%, and the 1.75% upfront premium, $5,819, is added to the loan.

| Credit score | Conventional PMI | FHA: annual premium plus payment on the upfront premium | Lower each month |
|---|---|---|---|
| 760 or higher | $105 | $175 | Conventional, by $70 |
| 740 to 759 | $147 | $175 | Conventional, by $28 |
| 720 to 739 | $183 | $175 | FHA, by $8 |
| 700 to 719 | $216 | $175 | FHA, by $41 |
| 680 to 699 | $266 | $175 | FHA, by $91 |


**Chart: Monthly mortgage insurance at 5% down, by credit score.** FHA's $175 is the same at every score, and conventional PMI is lower at 740 and up and higher below it.

|  | Conventional PMI | FHA mortgage insurance |
|---|---|---|
| 760 or higher | $105 | $175 |
| 740 to 759 | $147 | $175 |
| 720 to 739 | $183 | $175 |
| 700 to 719 | $216 | $175 |
| 680 to 699 | $266 | $175 |

_$350,000 home, 5% down, example rate of 6.5% on both loans, 30-year fixed. PMI from a typical published rate card; FHA is the $139 annual premium plus about $36 a month of payment on the financed upfront premium. Hypothetical, not a quote._


FHA's $175 is the $139 annual premium plus about $36 a month of payment on the financed upfront premium. It's the same at every score. Here is the 680 buyer's full payment both ways.

**Worked example: The 680 buyer: monthly payment before taxes and homeowners insurance**
Conventional loan of $332,500
- Principal and interest: $2,102
- plus PMI (0.96% a year): $266
- equals: Conventional: $2,368
FHA loan of $338,319 (includes the $5,819 upfront premium)
- Principal and interest: $2,138
- plus Annual premium (0.50% a year): $139
- equals: FHA: $2,277
Note: FHA is about $91 a month lower here. Taxes and homeowners insurance are the same on both loans.
_Hypothetical buyer, rounded. Example rate of 6.5% on both, 30-year fixed. PMI from a typical published rate card. Not a quote._


Month to month, FHA looks better anywhere under 740. But the monthly view hides the upfront premium. Finance the $5,819 and, seven years in, you've paid about $2,500 of interest on it and still owe about $5,300 of it when you sell or refinance. Count that, and the picture changes: at 720 to 739, conventional comes out about $4,100 ahead over seven years, $15,372 of PMI against FHA's $19,479.

| Seven years of mortgage insurance, home value flat | 680 to 699 score | 760 or higher |
|---|---|---|
| Conventional PMI | $22,344 | $8,820 |
| FHA annual premium | $11,129 | $11,129 |
| FHA upfront premium, with interest | $8,350 | $8,350 |
| FHA total | $19,479 | $19,479 |
| Lower | FHA, by about $2,900 | Conventional, by about $10,700 |


**Chart: Seven years of mortgage insurance, home value flat.** Over seven years FHA costs about $2,900 less at a 680 to 699 score, and conventional costs about $10,700 less at 760 or higher.

| | Part | Amount |
|---|---|---|
| Conventional at 680 to 699 | Conventional PMI | $22,344 |
| Conventional at 680 to 699 | Total | $22,344 |
| FHA at 680 to 699 | FHA annual premium | $11,129 |
| FHA at 680 to 699 | FHA upfront premium, with interest | $8,350 |
| FHA at 680 to 699 | Total | $19,479 |
| Conventional at 760 or higher | Conventional PMI | $8,820 |
| Conventional at 760 or higher | Total | $8,820 |
| FHA at 760 or higher | FHA annual premium | $11,129 |
| FHA at 760 or higher | FHA upfront premium, with interest | $8,350 |
| FHA at 760 or higher | Total | $19,479 |

_A $350,000 home with 5% down, example rate of 6.5% on both loans, 30-year fixed, PMI from a typical published rate card. Hypothetical, not a quote._


I use seven years because my planning range for how long people keep a first home is 3 to 7 years. At 760 the answer isn't close at any horizon. At 680 it is, and three things move it:

1. **Home values.** If the home gains about 3.5% a year, my planning number, the conventional loan drops to about 75% of the home's value around year five. On Fannie Mae loans you can then ask to cancel PMI with a new valuation and a clean payment record, and Freddie Mac's rules are similar. Stop the PMI there and the 680 buyer's seven-year bill is $15,960, about $3,500 less than FHA's. FHA has no version of that: with less than 10% down, its premium ends only with a refinance or a sale.
2. **The rate.** If FHA prices just a quarter point lower, which I often see near 680, that's about $55 a month on FHA's side, or about $4,600 over seven years. That flips the result back to FHA.
3. **How long you keep it.** Sell or refinance within about four years and the upfront premium makes FHA the more expensive loan even at 680; by year five it's about even. Keep the loan past about 15 years with flat values and conventional wins again, because its PMI stopped years earlier.

What if you put FHA's minimum down instead? At 3.5% ($12,250), you're over 95% loan-to-value, so the premium rises to 0.55%, and the loan grows to $343,661 with the upfront premium. The FHA payment before taxes and insurance comes to about $2,327, roughly $50 more than at 5% down, and you keep $5,250 in the bank.

## How long each loan's mortgage insurance lasts

Conventional PMI has an end date. You can ask your servicer to cancel it once your balance reaches 80% of the home's original value, and it ends on its own at 78%; in the example above that's about year 10 and year 11 on the regular schedule, extra payments get you to the 80% request sooner, and a rise in value can open an earlier path. The full removal rules are on my [mortgage insurance page](https://nobullshitloans.com/buy/mortgage-insurance/).

FHA follows HUD's rule instead: 11 years if you put 10% or more down, the life of the loan if you put down less. The federal cancellation rules that cover PMI don't apply to FHA. So if you're close to 10% saved, look hard at that line, because a few hundred dollars short of 10% can keep the premium for 30 years instead of 11.

## Conventional vs FHA with a 680 credit score

Near 680 I usually start the file on FHA. Three reasons from my own pricing: the FHA rate has often come in lower, FHA's insurance doesn't get more expensive as your score drops, and FHA leaves more room on debt-to-income.

But 680 isn't a hard line. If your income is at or below 80% of the area median for the address, HomeReady or Home Possible can put conventional back in front. Both require less mortgage insurance coverage above 90% loan-to-value than a standard conventional loan (on HomeReady, 25% instead of 30% to 35%), which usually means a cheaper premium. I've had buyers in the mid-670s go to one of those programs first, with FHA as the backup. Your scores, income and debts decide it, which is why I run both before you start shopping.

## Is FHA worse than conventional?

No. They're both good loan programs; they just solve different problems. FHA is the access loan: it's built to get you to the closing table with the credit and debts you have today. Conventional is the leverage loan: put a little down, keep your cash working, and let the PMI fall off as you build equity. That trade is box one of my [Wheel of Wealth](https://nobullshitloans.com/wealth/wheel-of-wealth/) plan.

A high score doesn't automatically mean conventional, either. I've had buyers with scores in the high 700s whose debt-to-income only fit on FHA. Good credit gets you better pricing; it doesn't make a tight debt ratio go away.

## When FHA wins, and when conventional wins

FHA usually wins when:

- Your middle credit score is under about 680, or close to it with a lot of monthly debt.
- Your debt-to-income ratio runs high. How lenders count it is on my [how much house can I afford](https://nobullshitloans.com/buy/how-much-house-can-i-afford/) page.
- You've had a bankruptcy or foreclosure, since FHA's waiting periods are generally shorter. Here are the [waiting periods by loan program](https://nobullshitloans.com/buy/after-bankruptcy-or-foreclosure/).
- You want the seller to cover a lot of your costs on a small down payment: 6% of the price on FHA against 3% on conventional with under 10% down.

Conventional usually wins when:

- Your score is about 720 or higher.
- You can put 10% or more down. At 90% loan-to-value the typical card charges 0.28% a year at 760, about $74 a month on a $315,000 loan.
- You'll keep the loan a long time or expect the home to gain value, because PMI comes off and FHA's premium, under 10% down, doesn't.
- The loan is bigger than FHA's 2026 Richmond-area limit of $707,250, up to the 2026 conforming limit of $832,750.
- It's a second home or a rental, which FHA doesn't finance.

## Refinancing out of FHA later

If FHA is the right way in, plan the way out before you sign. The target is a conventional refinance at 80% loan-to-value or less, where there's no mortgage insurance at all. In my pricing, conventional refinances get noticeably better again around 25% equity, so I'd rather wait for that when the rate allows it.

Take the 5%-down FHA buyer above. At my 3.5%-a-year planning number, the loan is about 80% of the home's value in year four and about 76% in year five. That's the window to run the numbers. By then the annual premium is about $130 a month. Dropping it helps, but on its own it rarely pays for a refinance; a lower rate plus the premium is what usually makes it work. Divide the total cost of the refinance by the monthly savings to get your break-even in months, the way I lay out on my [when to refinance page](https://nobullshitloans.com/refinance/when-to-refinance/).

Two more things to know:

- If rates drop before you have the equity, an FHA streamline can lower your rate with no appraisal, as long as the interest rate plus the annual premium drops at least half a point on a fixed-to-fixed refinance. That's on my [FHA streamline page](https://nobullshitloans.com/refinance/fha-streamline/).
- The upfront premium is gone when you leave FHA. HUD credits part of it back only when you refinance into another FHA loan within three years.

And if you put 10% or more down at the start, you may never need to refinance for the insurance: it ends after 11 years on its own.

Here's the version I'd give you across the kitchen table. Line up the full payment on both loans, mortgage insurance included, at your real score, then ask how long you'll keep the house. Whichever loan wins that comparison is the one that costs you less, whatever it's called.

## Frequently asked questions

### Which is easier to qualify for, FHA or conventional?

For most people, FHA. It takes lower scores (580 for the minimum down payment), gives more room on debt-to-income and has shorter waits after a bankruptcy or foreclosure. Conventional asks more of your credit, but it's usually more forgiving about small repairs on the house itself.

### Can I streamline a conventional loan the way I can an FHA loan?

No. Conventional is conventional, no streamlines. Every conventional refinance means fresh income, asset and credit documentation. The FHA streamline only works from one FHA loan into another, with no appraisal and lighter paperwork, as long as the rate plus the annual premium drops enough.

### Does 10% down change the FHA vs conventional answer?

Yes, and usually toward conventional if your credit is good. At 10% down on a $350,000 home, the typical rate card puts conventional PMI at about $74 a month at 760 and about $171 at 680 to 699. At an example rate of 6.5%, FHA comes to about $166 a month counting the upfront premium, although at 10% down its annual premium ends after 11 years instead of lasting the life of the loan.

### Is FHA mortgage insurance cheaper with a higher credit score?

No. FHA's annual premium depends on your loan amount, down payment and term, not your score, so a 760 pays the same premium as a 600. Your score still moves the interest rate a lender offers you on FHA, just not the insurance.

### FHA vs conventional loan: which is better for a first-time buyer with good credit and no debt?

Usually conventional. With strong credit, no other debts and the down payment saved, PMI is cheap and it comes off, so FHA's flat premium and upfront fee rarely make sense. I still price FHA beside it, because a small down payment or a tight budget can change the math.

## Sources

- [HUD Handbook 4000.1 (Update 18), FHA mortgage insurance premiums, seller contributions and streamline refinances](https://www.hud.gov/sites/default/files/Housing/documents/40001-hsgh-Update-18.pdf)
- [Fannie Mae Selling Guide B3-5.1-01, general requirements for credit scores](https://selling-guide.fanniemae.com/sel/b3-5.1-01/general-requirements-credit-scores)
- [Fannie Mae Selling Guide B3-4.1-02, interested party contributions](https://selling-guide.fanniemae.com/sel/b3-4.1-02/interested-party-contributions-ipcs)
- [CFPB Compliance Bulletin 2015-03, private mortgage insurance cancellation and termination](https://files-prod.consumerfinance.gov/f/documents/201508_cfpb_compliance-bulletin_private-mortgage-insurance-cancellation-and-te_jpbfQUl.pdf)
- [FHFA, conforming loan limit values for 2026](https://www.fhfa.gov/news/news-release/fhfa-announces-conforming-loan-limit-values-for-2026)
- [HUD, FHA forward mortgage limits for 2026 (data file)](https://apps.hud.gov/pub/chums/cy2026-forward-limits.txt)

## Disclosures

Individual Originator: Tyler Rood, Loan Officer, NMLS ID # 2064776 (www.nmlsconsumeraccess.org). Licensed in NC, PA, TX and VA.
Edge Home Finance, LLC | NMLS ID # 891464 | www.nmlsconsumeraccess.org. Licensed in all U.S. states & D.C., EXCEPT New York. Edge Home Finance, LLC is a mortgage broker, not a direct lender or creditor. Virginia Broker License MC-7006. North Carolina Mortgage Broker License B-201539. Pennsylvania Mortgage Broker License 81041. Texas: Mortgage Company License, Department of Savings and Mortgage Lending.
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