When you’re buying a home, one of the first choices you’ll face is FHA vs Conventional financing.
The two programs may look similar, but once you account for credit score tiers, insurance premiums, and loan-to-value (LTV), the monthly payments can differ by hundreds of dollars.
This guide breaks down the real differences — with side-by-side case studies — and shows how to use the
FHA Mortgage Calculator and Conventional Loan Calculator to compare your total monthly cost.
1. The Big Picture: FHA vs Conventional Loans
| Feature | FHA Loan | Conventional Loan |
|---|---|---|
| Minimum Down Payment | 3.5% | 3% (for qualified buyers) |
| Minimum Credit Score | 580 (3.5% down) | 620+ |
| Mortgage Insurance | MIP (upfront + annual) | PMI (monthly only) |
| Insurance Removal | 11 years or life of loan | Auto-cancels at 78% LTV |
| Loan Limits (2025) | $498,257 (base areas) | $766,550 (most areas) |
| Refinance Options | Streamline Refi | Rate-and-Term or Cash-Out |
Conventional loans reward strong credit and larger down payments with lower long-term costs.
2. FHA MIP vs Conventional PMI: Key Cost Difference
| Type | Upfront Fee | Ongoing Fee | Cancelable? |
|---|---|---|---|
| FHA MIP | 1.75% (UFMIP) | 0.15–0.75% annually | After 11 years or never |
| Conventional PMI | None | 0.3–1.0% annually | At 78% LTV automatically |
Example:
FHA borrower pays 1.75% upfront + 0.55% yearly
Conventional borrower with 740 credit pays ~0.4% yearly, no upfront cost
That difference grows over time — especially for long-term homeowners.
Try both in our FHA Mortgage Calculator and Conventional Loan Calculator to see the real monthly impact.
3. Credit Score Tiers: How They Shape Your Rate and PMI
FHA rates are flat — your credit score doesn’t affect pricing much.
Conventional rates, however, improve dramatically with better credit.
| Credit Score | FHA Typical Rate | Conventional Rate | PMI Rate |
|---|---|---|---|
| 760+ | 6.3% | 6.1% | 0.20% |
| 700–739 | 6.4% | 6.4% | 0.35% |
| 660–699 | 6.5% | 6.7% | 0.55% |
| 620–659 | 6.6% | 7.1% | 0.80% |
If your score is under 680, FHA often has the lower payment.
Above 700, Conventional loans usually pull ahead.
You can test rate differences using the Mortgage Rate Calculator
4. Case Study #1: 680 Credit, 3.5% Down
| Loan Type | FHA | Conventional |
|---|---|---|
| Home Price | $400,000 | $400,000 |
| Down Payment | 3.5% ($14,000) | 3% ($12,000) |
| Loan Amount | $386,000 | $388,000 |
| Rate | 6.5% | 7.0% |
| Insurance | 0.55% (MIP) | 0.65% (PMI) |
| Monthly Payment (P&I) | $2,441 | $2,579 |
| Monthly Insurance | $177 | $210 |
| Total Monthly | $2,618 | $2,789 |
5. Case Study #2: 740 Credit, 10% Down
| Loan Type | FHA | Conventional |
|---|---|---|
| Loan Amount | $360,000 | $360,000 |
| Rate | 6.3% | 6.0% |
| MIP / PMI | 0.50% | 0.30% |
| Monthly P&I | $2,232 | $2,158 |
| Insurance | $150 | $90 |
| Total Monthly | $2,382 | $2,248 |
Winner: Conventional — slightly lower rate, much smaller insurance, and cancellable PMI.
By year 7, the FHA borrower still pays MIP, while the Conventional borrower’s PMI has dropped off entirely.
6. Case Study #3: 15% Down, Mixed Credit (700)
| Loan Type | FHA | Conventional |
|---|---|---|
| Loan Amount | $340,000 | $340,000 |
| Rate | 6.4% | 6.2% |
| Insurance | 0.50% | 0.40% |
| Monthly P&I | $2,136 | $2,091 |
| MIP / PMI | $142 | $113 |
| Total Monthly | $2,278 | $2,204 |
7. Lifetime Cost Comparison (10-Year Horizon)
| Loan Type | Monthly Payment | Insurance Duration | 10-Year Total (est.) |
|---|---|---|---|
| FHA | $2,400 | 11 years | $288,000 |
| Conventional | $2,250 | 6 years | $270,000 |
| Difference | — | — | $18,000 savings (Conventional) |
Over 10 years, the cumulative MIP makes FHA more expensive unless the borrower refinances early.
🔁 Many FHA buyers refinance to a conventional loan after 3–5 years to drop MIP and save thousands.
8. Who Benefits Most from Each Loan Type
| Profile | Best Option | Why |
|---|---|---|
| First-time buyer, 640 credit | FHA | Easier approval, lower rate |
| 720+ credit, 10% down | Conventional | Lower PMI, cancellable insurance |
| Low income or gift funds | FHA | Flexible debt ratios and sources |
| Buying high-cost home | Conventional | Higher loan limits and better jumbo rates |
9. Using Calculators to Compare Side-by-Side
To find your exact break-even point:
Input your loan size, down payment, and rate — note the “Monthly MIP” amount
Then use Conventional Loan Calculator with the same inputs
Adjust credit score or down payment to see how the monthly total changes
Test your rate differences using the Mortgage Rate Calculator
10. Key Takeaways
FHA loans win short-term for lower-credit or small down payment buyers.
Conventional loans win long-term for high-credit borrowers who plan to stay in their homes.
FHA MIP adds 1.75% upfront and lasts up to 11 years or more.
Conventional PMI drops off automatically, saving thousands over time.
Always run both loans through calculators before deciding.
FAQ
Is FHA or Conventional cheaper per month?
FHA often wins short-term if your credit score is below 700 or your down payment is small.When does a Conventional loan beat FHA?
If your credit score is 720+ and you can put down 5–10%, Conventional loans offer lower long-term costs.Does FHA always have higher insurance?
Yes — FHA charges both upfront and annual MIP, while Conventional loans only charge monthly PMI that can be removed.Can I refinance from FHA to Conventional?
Yes, once your LTV drops below 80% and your credit improves — this can remove MIP and lower your payment.