FHA vs Conventional — true cost over your hold period
A real financing comparison — not a generic article. We model both loan types over the years you'll actually keep the home, including upfront FHA MIP, monthly MIP duration rules, and Conventional PMI removal at 78% LTV.
FHA vs Conventional isn't an opinion. It's an arithmetic.
The honest answer to "which loan should I take" depends on three numbers: how long you'll keep the loan, how much you can put down, and what rates you can each qualify for. Everything else — credit score thresholds, debt-to-income ceilings, property type rules — flows from there.
What FHA actually is
FHA loans are insured by the Federal Housing Administration. The federal insurance protects the lender, not you. In exchange for that insurance, lenders accept lower credit scores (580 minimum for 3.5% down, 500 for 10% down) and looser debt-to-income ratios than conventional underwriting. The cost is mortgage insurance — both upfront and monthly.
- Upfront MIP: 1.75% of the loan amount, almost always financed into the loan rather than paid in cash. On a $410K loan, that's $7,175 added to your principal.
- Monthly MIP: roughly 0.55% of the loan annually for most 30-year loans. Crucially, this lasts the life of the loan if your down payment is under 10%. If your down payment is 10% or more, MIP drops after 11 years.
- Down payment: 3.5% minimum with a 580 FICO. Allows gift funds, down payment assistance programs, and family contributions.
What Conventional actually is
Conventional loans are not government-insured. They follow Fannie Mae and Freddie Mac underwriting guidelines, which require stronger credit (typically 620+) and use private mortgage insurance (PMI) when the down payment is under 20%.
- No upfront MI. The cash to close is just down payment plus standard closing costs.
- Monthly PMI: roughly 0.5%–1.0% of the loan annually, depending on credit score and LTV. Strong credit lands closer to 0.5%; tight credit closer to 1.0%.
- PMI ends. By federal law, the lender automatically cancels PMI when the loan-to-value ratio reaches 78% based on the original amortization schedule. You can request removal at 80% LTV. Faster appreciation or extra principal payments shortens this timeline.
- Down payment: 3% minimum with strong credit, more typically 5%–20%.
Where each loan tends to win
- Credit score below 680 — FHA's pricing barely changes with FICO; Conventional pricing punishes lower scores hard.
- Tight cash to close — 3.5% down with gift funds is often the only path.
- Short hold expectation (under ~4 years) and the FHA rate is meaningfully lower than the Conventional rate.
- You plan to refinance into a Conventional loan once you reach 20% equity, eliminating MIP early.
- Higher debt-to-income ratios that wouldn't clear Conventional underwriting.
- Credit score 740+ — Conventional pricing rewards strong credit; FHA mostly doesn't.
- Down payment of 10% or more — PMI drops fast, MIP doesn't.
- Long hold expectation (8+ years) — PMI ends and FHA MIP keeps charging if your down was under 10%.
- You can put 20% down — no mortgage insurance at all on the Conventional path.
- Investment property or second home — FHA isn't available for non-primary-residence purchases.
The "FHA into Conventional" refinance play
A pattern many buyers use intentionally: take the FHA loan to get into the home with low down and lower credit, then refinance to Conventional once equity reaches 20%. This eliminates MIP entirely. The math works when (a) home values rise, (b) you stay long enough to recoup the refinance closing costs (typically 2%–3% of the loan), and (c) prevailing rates at refinance are reasonable. The hold-period view in the calculator above shows the no-refinance baseline. If you plan to refinance, the actual cost lands somewhere between the FHA and Conventional total at your refinance year.
True monthly cost — both paths
This calculator focuses on the financing portion. Property tax, insurance, HOA, and maintenance reserve are the same regardless of loan type — but they're real, and they're large. For a complete picture of either path, run the home through the True Monthly Cost calculator after deciding which loan structure to use.
What this calculator does not model
- Future refinances. The hold-period total assumes you keep the original loan. Refinancing from FHA to Conventional once you hit 20% equity changes the answer materially in FHA's favor.
- Home appreciation effects on PMI. The calculator removes Conventional PMI based on the scheduled amortization to 78% LTV. Faster appreciation shortens this; we use the conservative case.
- Lender credits and rate buy-downs. Real lender quotes often include credits, points, or seller concessions that shift the comparison. Use the calculator's rate inputs to model what you've actually been quoted.
- VA, USDA, and Jumbo loans. Each has its own structure. Comparison tools for those are on the roadmap.
Common questions about FHA vs Conventional.
What's the main difference between FHA and Conventional loans?
What is upfront FHA mortgage insurance?
How long does FHA monthly MIP last?
When does Conventional PMI go away?
Which loan type is cheaper overall?
Can I refinance from FHA to Conventional later?
Do FHA rates run lower than Conventional?
Related calculators.
Loan structure decided? Now stress-test the home itself.
The financing comparison isolates loan cost. To get the full monthly picture for a specific home — taxes, insurance, HOA, maintenance reserve — drop the address into the True Monthly Cost calculator.