Most buyers pick FHA or conventional before running the numbers — and that order costs money. The right loan type depends on your credit score, down payment, how long you will keep the loan, and whether the property meets FHA standards. FHA's 3.5% down and flexible credit attract first-time buyers, but lifetime mortgage insurance can add $25,000 or more over 30 years compared with conventional PMI that drops at 20% equity. This guide compares both programs side by side, walks through the insurance math, and shows which credit score ranges favor each path in 2026.
FHA Loans — What They Actually Are
FHA loans are government-insured through HUD, not issued by the government directly. Lenders take less risk, so they approve borrowers with lower credit scores and smaller down payments. Minimum 3.5% down with a 580+ score; 10% down with scores 500–579. Mortgage Insurance Premium (MIP) includes an upfront fee (1.75% of the loan amount, often financed) plus annual MIP (typically 0.55–1.05% of the balance) for the life of most 30-year loans unless you put 10% down and meet certain term limits.
Conventional Loans — What They Actually Are
Conventional loans follow Fannie Mae and Freddie Mac guidelines without government insurance. Minimum down payments can be 3% on some first-time buyer programs; 620 is the typical credit floor. Private mortgage insurance (PMI) applies below 20% equity but cancels automatically at 78% loan-to-value on most loans — or earlier when you request removal at 20% equity. There is no upfront mortgage insurance premium.
Side-by-Side Comparison
| Feature | FHA | Conventional |
|---|---|---|
| Min down payment | 3.5% | 3% |
| Min credit score | 580 (3.5% down) | 620 |
| Mortgage insurance | Life of loan (most 30-yr) | Drops at 20% equity |
| Upfront MIP | 1.75% | None |
| 2026 loan limit (typical) | $498,257 | $766,550 |
| Property condition | Stricter appraisal | More flexible |
| Max DTI | Up to ~57% with compensating factors | Up to ~50% |
| Best for | Lower credit / savings | Higher credit / equity |
The Mortgage Insurance Math — Where FHA Gets Expensive
On a $300,000 FHA loan: upfront MIP of $5,250 (if financed) plus roughly $138/month in annual MIP at 0.55%. A comparable conventional loan with PMI might charge $125/month — but PMI falls off around year 9 when you hit 20% equity on a typical amortization schedule. Over 30 years, FHA insurance often exceeds conventional PMI by $25,000 or more. If you have 700+ credit and 5% down, conventional almost always wins on total cost.
Model payments with our Monthly Payment Calculator and compare total cash to close with the affordability calculator. Read what PMI is and how to avoid it for conventional cancellation rules.
When FHA Wins
- Credit score 580–679 where conventional pricing is punitive.
- Down payment under 5% with imperfect credit history.
- Higher debt-to-income ratio with strong compensating factors.
- Shorter waiting periods after bankruptcy or foreclosure versus many conventional overlays.
- Gift funds covering the entire down payment (FHA is flexible on donor documentation).
When Conventional Wins
- Credit score 700+ with access to better rate tiers.
- Down payment 5%+ so PMI is temporary, not lifetime MIP.
- Property condition issues that fail FHA appraisal standards.
- Loan amount above FHA limits in your county.
- Investment or second home (FHA is primary residence only).
- Condos not on the FHA-approved list.
The Credit Score Sweet Spot
| Score range | Typical best fit |
|---|---|
| Below 580 | FHA with 10% down or improve credit first |
| 580–619 | FHA is often the only mainstream option |
| 620–679 | Compare both — math often still favors FHA |
| 680–699 | Conventional starts to win on total cost |
| 700+ | Conventional almost always wins |
Try it yourself — adjust the numbers below
Home & Loan Details
≈ $10,500 down payment
Current avg 30-yr fixed: 7.1%
Affordability Check (optional)
Optional — used to calculate affordability check
Car loans, student loans, credit cards — for back-end DTI
Your Monthly Payment
$2,413.07/month
Based on $300,000 home at 6.75% for 30 years
Payment Breakdown
$289,500
$386,469
$808,729
July 2056
Affordability Check
Front-end DTI (housing / income)
34.1%
Back-end DTI (housing + debt / income)
34.1%
⚠️ This home may stretch your budget
Front-end: green under 28%, yellow 28–36%, red over 36%. Back-end: green under 36%, yellow 36–43%, red over 43%.
Your 3.5% down payment triggers PMI at 96.5% LTV — approximately $265/month ($3185/year).
PMI removes in approximately 134 months (11 years 2 months) when your loan balance reaches 80% of home value.
Scenario Comparison
What if rates drop to 6%?
Current
$2,413.07/mo
Scenario
$2,271.07/mo
Save $141.99/mo
What if I put 20% down?
Current
$2,413.07/mo
Scenario
$1,826.64/mo
Save $586.43/mo
What if I choose 15-year term?
Current
$2,413.07/mo
Scenario
$3,097.19/mo
Costs $684.12/mo
Monthly payment
$2,413.07/mo
Program details change — see our FHA loan requirements guide for current rules and overlays.
Key Takeaway
This is general educational information only — not financial or lending advice. Rates, fees, and program rules change; confirm current terms with a licensed loan officer before committing.