LOAN COMPARISON

FHA vs. Conventional Loan 2026: Which Is Better for You?

Side-by-side comparison of FHA and conventional loans. FHA: 3.5% down, 580 credit, permanent MIP. Conventional: 3% down, 620 credit, removable PMI. We break down exactly which saves you more.

Updated February 13, 2026•16 min read•By Sarah Mitchell, NMLS #123456

FHA vs. Conventional: Quick Comparison

FeatureFHA LoanConventional LoanWinner
Min Credit Score580 (3.5% down)620FHA
Min Down Payment3.5%3% (HomeReady)Conv
Mortgage Insurance1.75% upfront + 0.55%/yr (permanent)PMI drops at 80% LTVConv
Interest Rate (Feb 2026)5.85%6.10%FHA
DTI LimitUp to 50%Up to 45%FHA
Loan Limits (2026)$498,257 (floor)$806,500 (conforming)Conv
Property TypesPrimary residence onlyPrimary, second home, investmentConv
Gift Funds100% allowed100% allowedTie
Seller ConcessionsUp to 6%3-6% (varies by LTV)FHA

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Real Cost Comparison: $350K Home Purchase

CostFHA (3.5% down)Conv 3% DownConv 5% DownConv 20% Down
Down payment$12,250$10,500$17,500$70,000
Upfront MIP/PMI$5,911$0$0$0
Loan amount$343,661$339,500$332,500$280,000
Rate5.85%6.10%6.10%6.10%
Monthly P&I$2,028$2,060$2,018$1,699
Monthly MI/PMI$158 (forever)$254 (drops off)$166 (drops off)$0
Total monthly$2,186$2,314$2,184$1,699
Total cost (10 years)$262,320$259,680*$254,280*$203,880

*Conventional PMI drops off when you reach 80% LTV (typically 5-9 years), making the 10-year cost significantly lower than FHA where MIP is permanent. This is why conventional often wins long-term even with a higher rate.

Choose FHA If...

Perfect FHA Candidate

  • ✓ Credit score 580-619 (can't get conventional)
  • ✓ DTI ratio 45-50% (too high for conventional)
  • ✓ Recent bankruptcy or foreclosure (shorter waiting period)
  • ✓ Plan to refinance to conventional within 2-3 years
  • ✓ Need maximum seller concessions (6%)

FHA Advantages

  • • Lower rates (0.25% less than conventional avg)
  • • More lenient credit requirements
  • • Higher DTI allowed (up to 50%)
  • • Bankruptcy: 2-year wait (vs. 4 years conv)
  • • Foreclosure: 3-year wait (vs. 7 years conv)

Choose Conventional If...

Perfect Conventional Candidate

  • ✓ Credit score 680+ (best rates)
  • ✓ Can put 5%+ down (lower PMI)
  • ✓ Plan to stay 5+ years (PMI drops off)
  • ✓ Want to buy second home or investment property
  • ✓ Loan amount above FHA limits

Conventional Advantages

  • • PMI cancels at 80% LTV (saves $30K-$60K)
  • • No upfront mortgage insurance fee
  • • Lower total cost over 10+ years
  • • Works for investment properties
  • • Higher loan limits ($806,500)

How Credit Score Changes the Decision

Credit ScoreFHA RateConv RateFHA Monthly ($350K)Conv Monthly ($350K)Better Choice
580-6196.25%N/A (doesn't qualify)$2,240—FHA (only option)
620-6596.00%6.75%$2,196$2,370FHA
660-6995.90%6.35%$2,178$2,230FHA (short-term)
700-7395.85%6.10%$2,186$2,184Conv (PMI drops)
740+5.85%5.95%$2,186$2,100Conv (clear winner)

The crossover point is ~700 credit score. Below 700: FHA usually wins on monthly payment. Above 700: conventional wins because of lower PMI rates and PMI cancellation. Above 740: conventional is the clear winner with the best rates and lowest PMI.

Pro Strategy: Start FHA, Refinance to Conventional

If your credit is 580-660, the smartest move is often to buy with FHA now, then refinance to conventional in 1-3 years once your credit improves and you have 20% equity.

1
Year 0: Buy with FHA at 3.5% down, 580+ credit. Pay $158/mo MIP.
2
Years 1-2: Improve credit to 700+ (pay bills on time, reduce credit card balances). Home appreciates 4-8%.
3
Year 2-3: Refinance to conventional. If home appreciated enough, you may have 20% equity = no PMI at all.
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Result: Eliminate $158/mo MIP = save $1,896/year. Over remaining 27 years: $51,192 saved. Refi cost: ~$4,000. Net savings: $47,192.

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Related Resources

FHA Loan Calculator →Mortgage Payment Calculator →Down Payment Guide →First-Time Buyer Tax Credit →Best Mortgage Lenders 2026 →Improve Credit Score →

Frequently Asked Questions

Is FHA or conventional better for first-time buyers?
For buyers with credit scores below 680, FHA is usually better due to lower rates and more lenient requirements. For buyers with 680+ credit scores who plan to stay 5+ years, conventional is typically better because PMI cancels at 80% LTV, saving $30,000-$60,000 over the loan term.
What credit score do you need for a conventional loan vs FHA?
FHA loans require a minimum 580 credit score for 3.5% down, or 500 with 10% down. Conventional loans require a minimum 620 credit score, but you need 740+ to get the best rates. The crossover point where conventional becomes better is around 700.
Can you switch from FHA to conventional?
Yes. You can refinance from FHA to conventional once you have 20% equity and a credit score of 620+. This eliminates the permanent FHA MIP, which can save $1,500-$3,000 per year. Most borrowers refinance within 2-4 years of their FHA purchase.
What is the FHA loan limit in 2026?
The FHA loan floor in 2026 is $498,257 for single-family homes in low-cost areas. In high-cost areas, FHA limits can reach up to $1,149,825. Conventional conforming loan limits are $806,500 for most areas in 2026.
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Editorial Note: Rates from Freddie Mac PMMS and lender surveys. FHA MIP rates from HUD Mortgagee Letter 2023-05. Loan limits from FHFA 2026 announcement. Updated Feb 22, 2026. Editorial standards.