FHA vs Conventional Loan — Which Is Right for You? (2026)

Brianna Torres bought her first home in 2018 with 3.5% down. FHA was the only loan she qualified for. Seven years later, she's still paying mortgage insurance — and she can't get rid of it.

Brianna's MIP Diary — FHA $280,000, 3.5% down, 6.5%
─────────────────────────────────────────────────────
Year    FHA MIP/yr   Conv PMI/yr   PMI Status
1       $2,940       $1,960        Both paying
3       $2,940       $1,540        PMI shrinking
5       $2,940       $0            Conv PMI eliminated ✅
7       $2,940       $0            FHA MIP still running
─────────────────────────────────────────────────────
7-yr total MIP:   $20,580
7-yr conv PMI:     $7,140
Extra FHA cost:   $13,440

Brianna's situation reflects what many FHA borrowers with low down payments commonly face. Details are illustrative.

FHA loans let you buy a home with as little as 3.5% down and a 580 credit score — making them the default option for first-time buyers who haven't built up savings or credit history. Conventional loans require higher credit (typically 620+) and larger down payments, but they cost less over time because mortgage insurance drops off once you hit 20% equity. FHA mortgage insurance, by contrast, stays for the life of the loan if you put less than 10% down.

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Side-by-Side Comparison

Feature	FHA Loan	Conventional Loan
Min down payment	3.5% (580+ credit)	3% (620+ credit)
Min credit score	580 (3.5% down) / 500 (10% down)	620
Mortgage insurance	MIP: 1.75% upfront + 0.55%/year	PMI: 0.3-1.5%/year
Insurance duration	Life of loan (< 10% down)	Until 20% equity
Loan limits (2026)	$498,257 (standard)	$766,550 (standard)
Loan limits (high-cost)	$1,149,825	$1,149,825
DTI limit	Up to 57%	Up to 50%
Property requirements	Strict (FHA appraisal)	Standard appraisal
Assumable?	Yes	No
Best for	Lower credit, smaller down payment	Better credit, lower total cost

The Cost Difference: Real Numbers

$350,000 Home, 5% Down, 30-Year Fixed

Cost	FHA	Conventional
Down payment	$12,250 (3.5%)	$17,500 (5%)
Loan amount	$337,750	$332,500
Upfront MIP	$5,911 (added to loan)	$0
Effective loan	$343,661	$332,500
Interest rate	6.20%	6.50%
Monthly P&I	$2,098	$2,102
Monthly insurance (MIP/PMI)	$155	$166
Total monthly	$2,253	$2,268
Insurance drops off?	Never (< 10% down)	Yes (~year 7-9)

The FHA starts out slightly cheaper, but the conventional loan wins long-term because PMI drops off while FHA MIP stays forever.

After PMI Drops Off (Year 9)

	FHA (year 9)	Conventional (year 9)
Monthly P&I	$2,098	$2,102
Monthly insurance	$155 (still paying)	$0
Total monthly	$2,253	$2,102
Savings per month	—	$151

From year 9 onward, the conventional loan saves $151/month — $1,812/year — for the remaining 21 years.

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When FHA Wins

1. Credit Score 580-679

FHA is more forgiving with lower credit scores. Below 620, conventional loans aren't available. Between 620-679, conventional loans come with significantly higher rates.

2. Higher Debt-to-Income Ratio

FHA allows DTI up to 57% with compensating factors (large down payment, significant savings). Conventional typically caps at 45-50%.

3. Recent Credit Events

FHA has shorter waiting periods after negative credit events:

Event	FHA Waiting Period	Conventional Waiting Period
Bankruptcy (Chapter 7)	2 years	4 years
Foreclosure	3 years	7 years
Short sale	3 years	4 years

4. Gift Money for Entire Down Payment

FHA allows 100% of the down payment to come from gift funds. Some conventional programs require a minimum borrower contribution.

When Conventional Wins

1. Credit Score 700+

At 700+, conventional rates are competitive with FHA, and PMI is cheaper than MIP. At 760+, conventional is almost always the better deal.

2. 10%+ Down Payment

With 10%+ down, conventional PMI is low and drops off at 20% equity. FHA MIP stays for the life of the loan unless you put 10%+ down (then it drops after 11 years).

3. Long-Term Ownership

If you plan to stay 10+ years, the ability to cancel PMI makes conventional significantly cheaper over time.

4. Higher Home Prices

Conventional conforming limits ($766,550) are higher than FHA limits ($498,257 in most areas). For homes in the $500k-$766k range, conventional is your only conforming option.

5. Investment Properties / Second Homes

FHA is only for primary residences. Conventional loans are available for investment properties and second homes.

The Breakeven Point

At what credit score does conventional beat FHA?

Credit Score	FHA Monthly (MIP)	Conventional Monthly (PMI)	Winner
580-619	$2,253	N/A (can't qualify)	FHA
620-659	$2,253	$2,380	FHA
660-699	$2,253	$2,300	FHA (short-term)
700-739	$2,253	$2,240	Conventional
740-759	$2,253	$2,190	Conventional
760+	$2,253	$2,150	Conventional

The crossover happens around credit score 700. Above 700, conventional is almost always better.

FHA-to-Conventional Refinance Strategy

Start with FHA (easier to qualify), then refinance to conventional once you have:

20% equity (no PMI)
Higher credit score (better rate)
Stable income history

This "graduate" strategy lets you buy sooner while planning to reduce costs later. Refinancing costs 2-3% of the loan, so make sure the savings justify it.

Frequently Asked Questions

Can I switch from FHA to conventional without refinancing?

No. Changing loan types requires a refinance — a new loan that pays off the old one. You'll pay closing costs again.

Is FHA only for first-time buyers?

No. FHA loans are available to any buyer, not just first-timers. However, it's only for primary residences.

Does the FHA appraisal kill deals?

FHA appraisals are stricter — the property must meet health and safety standards (no peeling paint, working utilities, structural soundness). Some sellers prefer conventional offers because FHA appraisals occasionally flag issues that delay or kill the deal.

Can I get an FHA loan on a condo?

Yes, but the condo complex must be on the FHA-approved list. Not all condos qualify, which limits your options.

Official Resources

CFPB — Consumer financial protection and mortgage tools
FDIC — Deposit insurance and banking information

This article is for informational purposes only and does not constitute financial advice. Consult a qualified financial advisor for guidance tailored to your personal circumstances.