FHA vs Conventional Loan 2026: Which Is Better? Complete Comparison
Choosing between FHA and conventional loans? The right choice can save you $50,000-$100,000 over 30 years. Here's a complete comparison of down payments, PMI, credit requirements, rates, and total costs - with real examples to show which loan is better for YOUR situation.
⚡ Quick Comparison
✅ Choose FHA If:
- • 580-679 credit score
- • Less than 10% down
- • High DTI (up to 50%)
- • Need easier approval
✅ Choose Conventional If:
- • 680+ credit score
- • 10-20% down payment
- • Plan to stay 7+ years
- • Want PMI to drop off
🎯 See Which Loan You Qualify For
Get pre-approved to see if you qualify for FHA, conventional, or both. Compare rates and choose the best option:
Side-by-Side Comparison
Here's a complete FHA vs Conventional comparison across all major factors:
| Factor | FHA | Conventional | Winner |
|---|---|---|---|
| Down Payment | 3.5% | 3-20% | FHA (lower min) |
| Credit Score | 580 | 620 | FHA (lower min) |
| PMI Duration | Life of loan | Drops at 20% | Conventional |
| PMI Cost | 0.55-0.85% | 0.3-1.5% | Conventional (if 740+) |
| Upfront PMI | 1.75% | None | Conventional |
| Interest Rate | 6.5-7.0% | 6.25-6.75% | Conventional |
| DTI Limit | 50-57% | 43-50% | FHA (more flexible) |
| Loan Limits | $524K-$1.2M | $766K-$1.15M | Conventional |
| Property Standards | Strict | Flexible | Conventional |
Real Example: $400K Home Purchase
Let's compare total costs for a $400K home with FHA vs Conventional:
Scenario 1: Low Credit (620), 5% Down
FHA Loan (WINNER)
- • Down payment: $14,000 (3.5%)
- • Loan amount: $386,000
- • Rate: 6.75%
- • Upfront PMI: $6,755 (1.75%)
- • Monthly P&I: $2,504
- • Monthly PMI: $245
- • Total monthly: $3,149
- • 30-year cost: $1,133,640
Conventional Loan
- • Down payment: $20,000 (5%)
- • Loan amount: $380,000
- • Rate: 7.25% (higher for 620 score)
- • Upfront PMI: $0
- • Monthly P&I: $2,594
- • Monthly PMI: $380 (1.2% for 620 score)
- • Total monthly: $3,374
- • 30-year cost: $1,214,640
✅ WINNER: FHA
• Lower down payment ($14K vs $20K = $6K savings upfront)
• Lower monthly payment ($3,149 vs $3,374 = $225/month savings)
• Lower total cost ($1.13M vs $1.21M = $81K savings over 30 years)
Why FHA wins: With 620 credit and 5% down, conventional PMI is very expensive (1.2%). FHA PMI is lower (0.85%) despite being for life.
Scenario 2: Good Credit (720), 10% Down
FHA Loan
- • Down payment: $40,000 (10%)
- • Loan amount: $360,000
- • Rate: 6.5%
- • Upfront PMI: $6,300
- • Monthly P&I: $2,275
- • Monthly PMI: $228 (drops after 11 years)
- • Total monthly: $2,903
- • 30-year cost: $1,045,080
Conventional Loan (WINNER)
- • Down payment: $40,000 (10%)
- • Loan amount: $360,000
- • Rate: 6.25% (better for 720 score)
- • Upfront PMI: $0
- • Monthly P&I: $2,217
- • Monthly PMI: $108 (drops at 20% equity)
- • Total monthly: $2,725
- • 30-year cost: $981,120
✅ WINNER: CONVENTIONAL
• Lower monthly payment ($2,725 vs $2,903 = $178/month savings)
• PMI drops at 20% equity (vs 11 years for FHA)
• Lower total cost ($981K vs $1.04M = $64K savings over 30 years)
Why Conventional wins: With 720 credit, conventional PMI is very low (0.36%). Plus it drops off at 20% equity (5-7 years), while FHA PMI lasts 11 years.
Scenario 3: Excellent Credit (760), 20% Down
FHA Loan
- • Down payment: $80,000 (20%)
- • Loan amount: $320,000
- • Rate: 6.25%
- • Upfront PMI: $5,600
- • Monthly P&I: $1,971
- • Monthly PMI: $203 (for life!)
- • Total monthly: $2,574
- • 30-year cost: $926,640
Conventional Loan (BIG WINNER)
- • Down payment: $80,000 (20%)
- • Loan amount: $320,000
- • Rate: 6.0% (best rate)
- • Upfront PMI: $0
- • Monthly P&I: $1,919
- • Monthly PMI: $0 (no PMI!)
- • Total monthly: $2,319
- • 30-year cost: $834,840
✅ WINNER: CONVENTIONAL (BY FAR!)
• No PMI vs FHA PMI for life ($203/month = $73,080 over 30 years)
• Lower rate (6.0% vs 6.25%)
• Lower monthly payment ($2,319 vs $2,574 = $255/month savings)
• Lower total cost ($835K vs $927K = $92K savings over 30 years)
Why Conventional dominates: With 20% down, there's NO PMI on conventional. But FHA still charges PMI for life! Never use FHA with 20% down.
🎯 See Which Loan Saves YOU More Money
Get pre-approved for both FHA and conventional. Compare rates and total costs based on YOUR credit and down payment:
Get Pre-Approved (Compare Both Loans)PMI: The Biggest Difference
PMI (Private Mortgage Insurance) is the biggest cost difference between FHA and conventional loans.
FHA PMI Structure
❌ FHA PMI (EXPENSIVE LONG-TERM):
Upfront PMI: 1.75% of loan amount (rolled into loan)
• $400K loan = $7,000 upfront PMI
Monthly PMI: 0.55-0.85% annual (depends on down payment)
• 3.5% down = 0.85% annual = $283/month on $400K loan
• 10% down = 0.55% annual = $183/month on $360K loan
Duration:
• Less than 10% down = PMI for LIFE (30 years)
• 10%+ down = PMI drops after 11 years
Total Cost: $7,000 upfront + $283/month × 360 months = $108,880!
Conventional PMI Structure
✅ CONVENTIONAL PMI (BETTER):
Upfront PMI: $0 (no upfront fee)
Monthly PMI: 0.3-1.5% annual (depends on credit + down payment)
• 760 credit, 10% down = 0.36% annual = $108/month on $360K loan
• 680 credit, 5% down = 0.9% annual = $285/month on $380K loan
• 620 credit, 5% down = 1.2% annual = $380/month on $380K loan
Duration:
• Drops automatically at 20% equity (5-10 years typically)
• Can request removal at 20% equity
• Must drop at 22% equity (by law)
Total Cost: $108/month × 84 months (7 years) = $9,072 (saves $99,808 vs FHA!)
When to Choose FHA
FHA is better in these specific situations:
- Low Credit Score (580-679)
FHA accepts 580 credit. Conventional requires 620 minimum. Even at 620-679, conventional PMI is very expensive (1.0-1.5%), making FHA cheaper.
- Less Than 10% Down Payment
With 3.5-5% down, FHA PMI (0.85%) is often cheaper than conventional PMI (1.0-1.5%) if you have below-average credit.
- High DTI (45-50%)
FHA allows up to 50-57% DTI. Conventional maxes at 43-50%. If you have high debts, FHA is more flexible.
- Plan to Refinance in 2-5 Years
Buy with FHA 3.5% down, build equity, refinance to conventional when you hit 20% equity. This removes PMI and gets better rate.
- Recent Credit Issues
FHA is more forgiving of: Bankruptcy (2 years vs 4 years), Foreclosure (3 years vs 7 years), Collections (under $2K OK).
When to Choose Conventional
Conventional is better in these situations:
- Good Credit (680+)
Conventional PMI is much cheaper with good credit. 720+ score = 0.3-0.5% PMI vs 0.85% FHA. Saves $150-200/month.
- 10-20% Down Payment
With 10%+ down and good credit, conventional PMI is low AND drops off at 20% equity. FHA PMI lasts 11 years minimum.
- Plan to Stay 7+ Years
PMI drops at 20% equity (typically 5-10 years). If staying long-term, conventional saves $50K-$100K vs FHA PMI for life.
- Buying Expensive Home
Conventional limits are higher ($766K vs $524K). If home exceeds FHA limit, must use conventional.
- Buying Fixer-Upper
FHA has strict property standards. Conventional is more flexible. If home needs work, conventional is easier.
Can You Switch from FHA to Conventional?
Yes! This is a common strategy to remove FHA PMI. Here's how:
📐 FHA-TO-CONVENTIONAL REFINANCE STRATEGY:
Step 1: Buy with FHA 3.5% down (easier to qualify)
Step 2: Build equity for 2-5 years (pay down loan + home appreciation)
Step 3: When you hit 20% equity, refinance to conventional
Step 4: Remove PMI, get better rate, save $200-300/month
Requirements:
• 20% equity (loan balance ≤80% of home value)
• 620+ credit score (680+ for best rates)
• Stable income
• Good payment history
Costs: $3K-$6K closing costs
Savings: $200-300/month PMI removal
Break-even: 12-24 months
Decision Matrix: Which Loan Should YOU Choose?
| Your Situation | Best Loan | Why |
|---|---|---|
| 580-619 credit, 3.5% down | FHA | Only option (conventional requires 620) |
| 620-679 credit, 5% down | FHA | FHA PMI cheaper than conventional PMI |
| 680-719 credit, 10% down | Conventional | PMI drops at 20% equity, lower total cost |
| 720+ credit, 15% down | Conventional | Low PMI, better rate, PMI drops soon |
| Any credit, 20% down | Conventional | No PMI vs FHA PMI for life (saves $70K+) |
| High DTI (48-50%) | FHA | More flexible DTI limits |
| Plan to refinance in 2-3 years | FHA | Easier to qualify, refi to conventional later |
| Plan to stay 10+ years | Conventional | PMI drops, saves $50K-$100K long-term |
🎯 Ready to Choose Your Loan?
Get pre-approved for both FHA and conventional. See which loan saves YOU more money:
Frequently Asked Questions
Can I have both FHA and conventional loans?
Not on same property. You can only have one mortgage per property. However, you CAN have FHA on one property and conventional on another (if buying second home or investment property). Most people refinance FHA to conventional after building equity.
Is FHA only for first-time buyers?
No! Common myth. Anyone can use FHA loans, even if you've owned homes before. FHA is for anyone who meets credit/income requirements. However, you can only have ONE FHA loan at a time (must sell or refinance before getting another FHA loan).
Why do sellers prefer conventional over FHA?
FHA has stricter property standards. FHA appraisers are pickier about: Peeling paint, roof condition, foundation cracks, safety hazards. If issues found, seller must fix before closing (delays + costs). Conventional is more flexible. In competitive markets, sellers prefer conventional buyers.
Can I remove FHA PMI without refinancing?
Only if you put 10%+ down. FHA PMI rules: Less than 10% down = PMI for life (can't remove). 10%+ down = PMI drops after 11 years. Only way to remove earlier: Refinance to conventional when you hit 20% equity. This is why many people refinance after 2-5 years.
What if my credit improves after getting FHA?
Refinance to conventional! Example: Buy with FHA at 620 credit. Improve to 720 over 2 years. Refinance to conventional = Lower rate (6.0% vs 6.75%), Lower PMI (0.4% vs 0.85%), PMI drops at 20% equity. Savings: $200-300/month. This is a smart strategy!
📚 Related Loan Comparison Guides
Meet Michael
Reverse Mortgage & Senior Specialist
Michael Thompson is a leading expert in reverse mortgages and senior financing solutions with 15 years of specialized experience. As a certified HECM specialist, he has helped thousands of seniors access their home equity for retirement planning. His compassionate approach and deep knowledge of FHA reverse mortgage guidelines make him a trusted advisor for families navigating senior housing and financial planning decisions.
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