FHA vs conventional loans: what our calculator can show side by side
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By Editorial team
A $350,000 home purchase comparing an FHA loan (3.5% down, 6.50%) against a conventional loan (5% down, 6.75%) produces nearly identical starting payments - $2,330 FHA versus $2,295 conventional. But the FHA borrower will pay $31,537 more in total interest over 30 years because FHA MIP never cancels on loans with less than 10% down, while conventional PMI disappears once the borrower reaches 20% equity. This is for US buyers who have saved enough for a down payment but are deciding between FHA and conventional financing.
The scenario modeled
The FHA loan rolls the 1.75% upfront mortgage insurance premium (UFMIP) into the loan balance, a common approach that eliminates out-of-pocket cost at closing but slightly increases the loan amount. Conventional PMI is estimated at 0.50% annual premium, which is typical for a 720 credit score with 5% down. Both use a 30-year term.
| Input | FHA Loan | Conventional Loan |
|---|---|---|
| Purchase price | $350,000 | $350,000 |
| Down payment | $12,250 (3.5%) | $17,500 (5.0%) |
| Base loan amount | $337,750 | $332,500 |
| Upfront MIP (1.75% FHA) | $5,911 rolled in | - |
| Total loan amount | $343,661 | $332,500 |
| Interest rate | 6.50% | 6.75% |
| Annual MI rate | 0.55% (MIP, permanent) | ~0.50% (PMI, cancels at 20% equity) |
| Monthly MI | ~$157 | ~$139 |
| Loan term | 30 years | 30 years |
The findings
The monthly starting payments are almost identical - a $35 difference - because the FHA loan's lower interest rate partly offsets the slightly larger loan amount and higher MIP. The gap widens dramatically over time. Conventional PMI cancels automatically once the loan-to-value ratio reaches 80% (roughly year 10 at 5% down on a $350,000 home at this rate). FHA MIP does not cancel for loans with under 10% down originated after 2013.
After the conventional PMI drops at year 10, the conventional borrower's payment falls to $2,157 - while the FHA borrower continues paying $2,329. That $172/month difference runs for the remaining 20 years of the loan.
| FHA | Conventional | Difference | |
|---|---|---|---|
| Monthly P&I + MI (yrs 1-10) | $2,330 | $2,295 | $35/month more FHA |
| Monthly payment after yr 10 | $2,330 | $2,295 (no PMI) | $174/month more FHA |
| MI duration | Life of loan (<10% down) | Cancels at ~yr 10 (80% LTV) | FHA never cancels on this scenario |
| Total interest over 30 years | $475,409 | $443,872 | $31,537 more FHA |
| Down payment required | $12,250 | $17,500 | $5,250 less FHA |
US context
FHA's primary advantage is accessibility: credit scores as low as 580 with 3.5% down. Conventional lenders typically require at least 620, and the best PMI rates are reserved for borrowers above 740. The trade-off is that FHA annual MIP is permanent on most 30-year loans that started with under 10% down, per HUD's FHA Single Family Housing Policy Handbook (4000.1), while conventional PMI is required by federal law to terminate at 78% of the original value. For many buyers, FHA is the only available path, but plan a refinance into conventional once equity reaches 20% to escape the permanent MIP.
Source: U.S. Department of Housing and Urban Development, "FHA Single Family Housing Policy Handbook 4000.1," accessed April 2026. URL: https://www.hud.gov/program_offices/housing/sfh/handbook_4000-1
When this comparison applies - and when it doesn't
FHA makes the most sense when: Your credit score is between 580 and 619 (making conventional financing unavailable or very expensive), or when you have saved $12,000-$14,000 but cannot stretch to the conventional 5% plus closing costs. For buyers in this position, FHA is a legitimate entry point - provided they understand the MIP commitment and plan for a future refinance.
Conventional is the better choice when: Your credit score is 720 or above and you can manage the 5% down payment. At that profile, PMI rates are lower, the rate difference versus FHA shrinks, and PMI cancellation makes the 30-year cost substantially cheaper. If you can bring 20% down, avoid mortgage insurance entirely - neither FHA nor conventional PMI applies.
This comparison does not cover: VA loans (available to eligible veterans with no down payment and no PMI), USDA loans (rural properties), or down-payment assistance programs that change the effective down payment for either loan type. If you qualify for a VA loan, it will almost always outperform both FHA and conventional for total cost.
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Frequently asked questions
- When does FHA mortgage insurance premium (MIP) go away?
- For FHA loans originated after June 3, 2013 with less than 10% down, MIP is permanent - it never cancels regardless of how much equity you build. If you put 10% or more down on an FHA loan, MIP cancels after 11 years. The only way to remove MIP on a less-than-10%-down FHA loan is to refinance into a conventional mortgage once you have at least 20% equity.
- What credit score do I need for an FHA loan vs a conventional loan?
- FHA loans allow credit scores as low as 580 with 3.5% down, or 500 with 10% down. Conventional loans typically require a minimum score of 620, with the best rates reserved for scores above 740. If your score is between 580 and 619, FHA is often the only viable path to homeownership without a large down payment.
- Can I refinance from FHA to conventional to remove mortgage insurance?
- Yes, and this is the most common strategy for FHA borrowers who started with less than 10% down. Once your home has appreciated or your payments have reduced the balance enough to give you 20% equity, you can refinance into a conventional loan and drop all mortgage insurance. The refinance does involve closing costs - typically 2-4% of the loan amount - so you need to calculate the break-even on those costs versus the monthly MI savings.
- What is the FHA loan limit for 2026?
- FHA loan limits are set by county and updated annually by HUD. For 2026, the national floor (low-cost areas) is $524,225 for a single-family home, and the ceiling (high-cost areas) is $1,209,750. Loans above the limit for your county cannot use FHA financing and must use conventional or jumbo products.
- Does a lower interest rate on an FHA loan offset the higher mortgage insurance cost?
- In the short term, sometimes - but rarely over a full mortgage life. FHA rates are often 0.10-0.25% below comparable conventional rates for the same borrower profile. However, annual MIP of 0.55% on an FHA loan versus PMI that cancels at 20% equity usually means the conventional loan is significantly cheaper over 10 or more years, especially once you account for the permanent nature of FHA MIP.