FHA vs. Conventional Loans: Which Costs Less for You?

FHA or conventional can cost less depending on the quotes you receive and how long you keep the loan. Compare the interest, insurance, upfront costs, and balance remaining at the same future date. A credit score alone cannot tell you which offer is cheaper.

What is different about the two loans?

FHA insures eligible mortgages made by approved lenders. Conventional mortgages are not FHA-insured; conforming loans must meet the applicable agency rules. Both require underwriting, and lender requirements can be stricter than a program minimum.

FHA maximum financing generally permits 3.5% down for a qualifying score of 580 or higher; scores from 500 to 579 generally require at least 10% down. Approval also depends on the rest of the application. Check the HUD FHA handbook and your lender's requirements.

Some conventional programs permit 3% down, with eligibility conditions that vary by program. Do not assume every 3% option has the same income restriction. Nor is 620 a universal conventional cutoff: Fannie Mae's credit-score rules distinguish manually underwritten fixed-rate loans from Desktop Underwriter casefiles, which do not have a minimum score requirement under that guide. Lender overlays still apply. Read our credit-score guide before treating a score as an approval decision.

Check the county loan limit for 2026

For one-unit properties, HUD's 2026 announcement sets the general FHA floor at $541,287 and high-cost ceiling at $1,249,125. Alaska, Hawaii, Guam, and the U.S. Virgin Islands have special exception limits. Use HUD's county lookup for your property and unit count.

FHFA's 2026 announcement sets the general one-unit conforming baseline at $832,750. Higher county limits and special statutory areas apply. Use the FHFA county tables before calling a loan jumbo. Limits apply to the mortgage amount under program rules, not simply the purchase price.

FHA insurance is not conventional PMI

FHA typically charges an upfront mortgage insurance premium and ongoing MIP. The premium schedule depends on loan amount, term, and original loan-to-value. Use the premium and payment in your quote; HUD's premium schedule explains the categories.

Under HUD's MIP duration rules, loans with case numbers assigned on or after June 3, 2013 generally have MIP for 11 years when original LTV is 90% or lower, or for the loan term when original LTV exceeds 90%. Paying down principal or appreciation does not itself cancel that MIP. Refinancing or paying off the loan ends that loan, but a refinance needs fresh eligibility and a comparison of new costs. Conventional refinancing does not universally require 20% equity.

For covered borrower-paid conventional PMI, CFPB's cancellation guidance distinguishes:

• Requested cancellation: at 80% of original value, on schedule or through extra payments. A written request, good payment history, current payments, no junior liens, and evidence that value has not declined are conditions.
• Automatic termination: generally when the scheduled balance reaches 78% of original value, provided payments are current.
• Midpoint termination: generally the month after the midpoint of the original amortization term, if current.

Original value usually means the lower of purchase price and appraisal; for a refinance it is the refinance appraisal. Appreciation-based removal follows separate investor or servicer rules and may need seasoning or an appraisal. Lender-paid insurance and FHA loans have different rules. Confirm your servicer's requirements.

A five-year quote comparison with explicit assumptions

This is an illustration, not current market pricing or a recommendation. Both quotes assume a $350,000 purchase, 5% down ($17,500), a $332,500 base loan, 30-year fixed term, 60 monthly payments, and $3,500 closing costs paid in cash. No points, credits, extra payments, refinance, appreciation, discounting, or tax deductions are modeled.

The FHA scenario uses 6.50% interest, a 1.75% upfront premium ($5,818.75) financed into the balance, and a flat illustrative insurance payment of $152.40 a month. The conventional scenario uses 6.75% and $100 monthly PMI, with no upfront premium. Insurance remains for all 60 months in both scenarios; actual FHA insurance can change as the balance declines, and your PMI schedule may differ.

Five-year comparison	FHA scenario	Conventional scenario
Starting financed balance	$338,318.75	$332,500.00
Monthly principal and interest	$2,138.40	$2,156.59
Principal, interest, and illustrative insurance	$2,290.80	$2,256.59
Interest over 60 months	$106,689.02	$109,032.05
Insurance over 60 months (rounded)	$9,144	$6,000
Upfront insurance premium	$5,818.75	$0
Closing costs paid in cash	$3,500	$3,500
Borrowing cost: interest + insurance + upfront premium + closing costs (rounded)	$125,152	$118,532
Balance after 60 payments	$316,703.49	$312,136.73

The figures exclude property taxes, homeowners insurance, and HOA dues. Add your actual amounts to assess affordability; they are not included in the displayed payment. Principal repayment builds equity and is not counted as borrowing cost. The financed premium is counted once, plus the interest paid on it. Include the remaining balance when comparing a sale or payoff.

In these assumptions conventional has lower borrowing costs. Different rates, PMI, fees, down payments, or holding periods can reverse the result. Neither loan has a universal cost advantage.

Bring these questions to your lender

Use the FHA versus conventional cost calculator to enter two quotes and compare interest, insurance, cash fees, and remaining balances over your timeline.

Read about closing costs, APR versus interest rate, and shopping a lower rate. The purchase hub connects these decisions.

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Ratespedia LLC, company NMLS #2796610. Educational content; not individual financial advice or approval. State availability, underwriting, rates, fees, and program rules must be confirmed for your transaction. Sources and comparison revised October 10, 2026; no independent professional review is claimed.