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.
FHA vs. Conventional: Quick Comparison
| Feature | FHA Loan | Conventional Loan | Winner |
|---|---|---|---|
| Min Credit Score | 580 (3.5% down) | 620 | FHA |
| Min Down Payment | 3.5% | 3% (HomeReady) | Conv |
| Mortgage Insurance | 1.75% upfront + 0.55%/yr (permanent) | PMI drops at 80% LTV | Conv |
| Interest Rate (Feb 2026) | 5.85% | 6.10% | FHA |
| DTI Limit | Up to 50% | Up to 45% | FHA |
| Loan Limits (2026) | $498,257 (floor) | $806,500 (conforming) | Conv |
| Property Types | Primary residence only | Primary, second home, investment | Conv |
| Gift Funds | 100% allowed | 100% allowed | Tie |
| Seller Concessions | Up to 6% | 3-6% (varies by LTV) | FHA |
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Real Cost Comparison: $350K Home Purchase
| Cost | FHA (3.5% down) | Conv 3% Down | Conv 5% Down | Conv 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 |
| Rate | 5.85% | 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 Score | FHA Rate | Conv Rate | FHA Monthly ($350K) | Conv Monthly ($350K) | Better Choice |
|---|---|---|---|---|---|
| 580-619 | 6.25% | N/A (doesn't qualify) | $2,240 | — | FHA (only option) |
| 620-659 | 6.00% | 6.75% | $2,196 | $2,370 | FHA |
| 660-699 | 5.90% | 6.35% | $2,178 | $2,230 | FHA (short-term) |
| 700-739 | 5.85% | 6.10% | $2,186 | $2,184 | Conv (PMI drops) |
| 740+ | 5.85% | 5.95% | $2,186 | $2,100 | Conv (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.
Get Quotes for Both FHA & Conventional
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Related Resources
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 13, 2026. Editorial standards.