FHA vs. Conventional Loan
FHA is easier to qualify for and often has the lower payment with a small down payment; conventional pulls ahead as your down payment grows, and its mortgage insurance ends on its own. The tables below price both on this week's rates.
The difference between an FHA and a conventional loan comes down to who carries the risk. FHA loans are insured by the federal government, so lenders accept lower credit scores and smaller down payments — and you pay for that insurance up front and every month, usually for as long as you keep the loan. Conventional loans follow Fannie Mae and Freddie Mac rules: they price your credit score and down payment directly, and their mortgage insurance falls away once you reach 20% equity.
At this week's rates, FHA has the lower monthly payment at every credit score on a $350,000 home with 5% down — only $8 lower at 780+, where the two are essentially even (and conventional costs $1,980 less over ten years), but $389 lower at 620–639, because FHA's rate is lower and its premium doesn't rise as your score falls. With 20% down, conventional pulls ahead ($1,927 vs $1,991 a month at a 700 score), and only conventional lets mortgage insurance end without a refinance. Below 620, FHA is the only one of the two you can get (from 580 with 3.5% down, 500 with 10% down). The tables below re-price every week from Optimal Blue's rate averages.
Price your own numbers with the FHA loan calculator and the mortgage calculator with PMI.
FHA vs conventional at a glance
| FHA loan | Conventional loan | |
|---|---|---|
| Who backs it | Federal Housing Administration (HUD) | No government backing; Fannie Mae / Freddie Mac rules |
| Minimum credit score | 580 with 3.5% down · 500 with 10% down | About 620 (lender floor) |
| Minimum down payment | 3.5% | 3% |
| Upfront mortgage insurance | 1.75% of the loan, usually financed | None |
| Annual mortgage insurance | MIP 0.50%–0.55% a year; life of loan under 10% down, 11 years with 10%+ | PMI under 20% down, about 0.46%–1.5% a year by credit score; ends at 78% LTV |
| Rate pricing | Same price grid for every score (lenders may add their own) | Rises as your score falls (Fannie Mae / Freddie Mac price adjustments) |
| Debt-to-income | Usually up to 43%, approvals to about 57% | Up to 45%, about 50% with strong files |
| Wait after bankruptcy / foreclosure | 2 years / 3 years | 4 years / 7 years |
| Property | Primary residence; must pass HUD’s minimum property standards | Primary, second home or investment property |
| 1-unit loan limit | $541,287 in most counties, up to $1,249,125 | $832,750, up to $1,249,125 in high-cost areas |
FHA vs conventional interest rates
FHA loans usually carry a lower interest rate than conventional loans, because the government insurance protects the lender. Same-source averages (Optimal Blue's locked-rate indices, 30-year fixed) show FHA below conventional in 236 of the 262 weeks since Nov 5, 2021.
| FHA 30-yr | Conventional 30-yr | Gap | |
|---|---|---|---|
| This week (Nov 5, 2026) | 6.89% | 7.09% | FHA 0.20 pt lower |
| A year ago (Nov 7, 2025) | 6.08% | 6.20% | FHA 0.12 pt lower |
| Average gap, last 52 weeks | — | — | FHA 0.17 pt lower |
| Median rate borrowers got, 2025 (HMDA) | 6.25% | 6.50% | FHA 0.25 pt lower |
| Median APR above the market benchmark, 2025 | +0.42 pt | +0.02 pt | FHA higher (MIP counts in APR) |
The lower rate is not the whole price. FHA's mortgage insurance counts as a finance charge, so its APR ends up higher: in 2025 the median FHA loan's APR sat 0.42 points above the market benchmark (APOR) against 0.02 for conventional loans with 20%+ down. HMDA medians cover 516,729 FHA and 700,082 conventional 30-year purchase loans; see today's FHA rates and lender-by-lender pricing.
Monthly payment by credit score
This is the comparison that decides it for most buyers. FHA charges every borrower about the same rate and premium, while a conventional loan’s rate and PMI both climb as your credit score falls — so the gap between them widens as your score falls.
A $350,000 home with 5% down on both loans (a $332,500 base loan), 30-year fixed. Monthly payment is principal and interest plus mortgage insurance; taxes and homeowners insurance are the same either way and left out. The 10-year cost adds up interest, mortgage insurance and FHA's upfront premium over the first ten years — the money you don't get back as equity.
| Credit score | Conv. rate | Conventional / mo | FHA / mo | Lower payment | 10-year cost |
|---|---|---|---|---|---|
| 780+ | 7.06% | $2,372 | $2,364 | FHA by $8 | Conv. saves $1,980 |
| 760–779 | 7.12% | $2,386 | $2,364 | FHA by $22 | FHA saves $116 |
| 740–759 | 7.15% | $2,454 | $2,364 | FHA by $90 | FHA saves $8,480 |
| 720–739 | 7.21% | $2,468 | $2,364 | FHA by $104 | FHA saves $10,578 |
| 700–719 | 7.28% | $2,482 | $2,364 | FHA by $118 | FHA saves $12,678 |
| 680–699 | 7.34% | $2,574 | $2,364 | FHA by $210 | FHA saves $24,089 |
| 660–679 | 7.40% | $2,657 | $2,364 | FHA by $293 | FHA saves $34,504 |
| 640–659 | 7.46% | $2,672 | $2,364 | FHA by $307 | FHA saves $36,607 |
| 620–639 | 7.56% | $2,754 | $2,364 | FHA by $389 | FHA saves $47,080 |
| 580–619 | — | Not eligible (under 620) | $2,364 | FHA | FHA only |
FHA: 6.89% (Optimal Blue FHA average, Nov 5, 2026) on the base loan plus the 1.75% upfront premium financed ($338,319), annual MIP of 0.50% recalculated each year, for the life of the loan at 5% down. FHA has no agency price grid by score, so lenders' own pricing can make low-score FHA quotes higher than shown.
Conventional: Optimal Blue's 7.09% conforming 30-year average (Nov 5, 2026) taken as the 780+, 20%-down price, plus Fannie Mae's price adjustment for each score at a 95% loan-to-value, at about 0.25% of rate per point — the rates by credit score model. Both rates come from the same source, so the gap between them is like for like. PMI uses typical premiums by score from our PMI cost table and stops automatically at 78% of the original value. Estimates, not quotes.
One exception changes the conventional column a lot: first-time buyers with income at or below 100% of the area median (120% in high-cost areas), and HomeReady / Home Possible loans, pay no Fannie Mae price adjustment — so their rate is at or below the top row's at any score (PMI still rises as scores fall). Ask a lender whether you qualify before you rule conventional out.
MIP vs PMI: the long-term cost
The two kinds of mortgage insurance run on different clocks. Here is a 700 score, 5% down, $350,000 home over the full 30 years.
| Conventional | FHA | |
|---|---|---|
| Interest rate | 7.28% | 6.89% |
| Upfront mortgage insurance | $0 | $5,819 (1.75%, financed) |
| Monthly mortgage insurance, year 1 | $208 | $139 |
| Mortgage insurance stops | Year 13 (at 78% LTV) | Never (life of the loan) |
| Monthly payment, year 1 | $2,482 | $2,364 |
| Interest + insurance, first 5 years | $130,333 | $127,269 |
| Interest + insurance, first 10 years | $252,532 | $239,854 |
| Mortgage insurance, all 30 years | $30,133 | $39,593 |
| Interest + insurance, all 30 years | $516,432 | $502,600 |
PMI ends on schedule with no home-price growth; you can ask to cancel it at 80%, and appreciation gets you there sooner. FHA's premium only goes away if you refinance — at this rate the FHA balance reaches 80% of the original price in about year 12, the point where a conventional refinance can leave mortgage insurance behind (sooner if the home gains value).
This is why the most common FHA strategy is a two-step one: buy with FHA, then refinance into a conventional loan once your credit has improved and you have about 20% equity. Weigh the refinance’s closing costs against the premiums you’d stop paying — the refinance calculator shows the break-even.
Does a bigger down payment change the answer?
Put more down and conventional pulls ahead: PMI gets cheaper and ends sooner (and disappears at 20%), while FHA keeps an annual premium either way — 11 years at 10% down or more, for life below that. Same $350,000 home, 700 credit score.
| Down payment | Conventional / mo | FHA / mo | Conv. mortgage insurance | FHA MIP | 10-year cost |
|---|---|---|---|---|---|
| 3.5% ($12,250) | $2,507 | $2,416 | $211/mo, ends yr 13 | $155/mo, life of loan | FHA saves $9,152 |
| 5% ($17,500) | $2,482 | $2,364 | $208/mo, ends yr 13 | $139/mo, life of loan | FHA saves $12,678 |
| 10% ($35,000) | $2,358 | $2,240 | $197/mo, ends yr 10 | $131/mo, 11 years | FHA saves $12,809 |
| 20% ($70,000) | $1,927 | $1,991 | None | $117/mo, 11 years | Conv. saves $8,555 |
At 3.5% down a conventional loan is a 96.5% loan-to-value — allowed (the floor is 3%), but 97% programs generally need a first-time buyer or an income limit. Compare the down payment you can really make in the down payment calculator.
Closing costs: what borrowers really paid
What borrowers actually paid at closing, from 2025 federal mortgage records (HMDA, 30-year fixed purchase loans, medians):
| FHA | Conventional (20%+ down) | |
|---|---|---|
| Loans in the data | 516,729 | 700,082 |
| Median loan amount | $305,000 | $325,000 |
| Median loan-to-value | 96.5% | 75% |
| Borrower-paid loan costs | $11,291 | $5,476 |
| …of which origination charges | $2,393 | $1,935 |
| Share paying discount points | 59.3% | 53.2% |
FHA's loan costs include the 1.75% upfront premium (about $5,338 on the median loan) even when it is rolled into the balance — strip that out and the two are much closer. HMDA's conventional figures cover loans with 20% or more down, so PMI buyers aren't in them. Lender-by-lender figures are on the mortgage lenders page; state averages in closing costs by state.
Appraisal and property rules
An FHA appraisal does two jobs: it values the home and checks it against HUD’s minimum property standards for safety, security and soundness. Problems such as peeling paint on an older home, missing handrails, exposed wiring or a failing roof must be repaired before closing. A conventional appraisal focuses on value, so a home that needs work is easier to buy conventionally.
That inspection layer is the main reason some sellers and listing agents prefer conventional offers. A clean house rarely has trouble, but a fixer-upper might — in that case look at the FHA 203(k) renovation loan, which finances the repairs.
FHA also limits seller concessions to 6% of the price, which covers most closing costs; conventional loans allow 3% with less than 10% down, 6% with 10%–25% down and 9% above that. And FHA is for homes you’ll live in: second homes and rentals need a conventional loan.
Loan limits
For 2026 the conforming loan limit for a one-unit home is $832,750, while the FHA limit starts at $541,287 in most of the country — both rise to $1,249,125 in the most expensive counties. If your loan falls between the FHA and conforming limits, conventional is the way in; above the conforming limit you’re into jumbo territory.
When an FHA loan wins
- Your credit score is below 620, or in the range where the table above shows FHA cheaper
- You have a small down payment and little cash for closing
- Your debt-to-income ratio is above what conventional lenders accept
- You had a bankruptcy or foreclosure recently enough that conventional’s longer waiting period still applies
When a conventional loan wins
- You can put down 20%, or enough that the down-payment table shows conventional cheaper
- You expect to reach 20% equity within a few years and want PMI gone without refinancing
- You want to avoid FHA’s 1.75% upfront premium and lifetime MIP
- You’re buying a second home or investment property, or borrowing above the FHA limit
- The home needs repairs an FHA appraisal would flag
The bottom line
FHA is the easier loan to get, and with a small down payment it is often the cheaper one too; conventional pulls ahead as your down payment grows and lets you drop mortgage insurance without refinancing. Check where your score falls in the payment table, then run both offers through the FHA loan calculator and the PMI calculator with your own price and down payment. Comparing other programs too? See VA vs. conventional and the full types of mortgage loans comparison.
Frequently asked questions
Is FHA or conventional better?
It depends on your credit score, your down payment and how long you'll keep the loan.
At this week's rates, with 5% down on a $350,000 home, FHA has the lower monthly payment at every credit score — though at 780+ the two are within $8 a month and $389 less at 620–639.
With 20% or more down, conventional wins. Conventional also lets PMI end on its own at 78% loan-to-value, while FHA's premium lasts for the life of the loan unless you refinance. Below 620, FHA is usually the only option.
Are FHA rates lower than conventional rates?
Usually, yes. This week Optimal Blue's 30-year averages are 6.89% for FHA and 7.09% for conventional, and FHA averaged 0.17 points lower over the past year.
But FHA adds an upfront and an annual mortgage insurance premium, so its APR and total cost are often higher than the rate alone suggests.
Why doesn't everyone use an FHA loan?
Because the mortgage insurance is expensive and sticky. FHA charges 1.75% upfront plus an annual premium that lasts for the life of the loan with less than 10% down — you can only drop it by refinancing.
FHA loans also have lower loan limits ($541,287 in most counties), are for primary residences only, and the home must pass HUD's minimum property standards.
Why do some sellers and realtors not like FHA offers?
Mostly the appraisal. An FHA appraiser must check that the home meets HUD's safety and soundness standards, and defects such as peeling paint, broken steps or a bad roof have to be fixed before closing, which can delay or derail a sale.
FHA buyers also tend to bring less cash. In practice a well-prepared FHA offer on a home in good condition closes like any other.
Can you get rid of FHA mortgage insurance?
Only if you put at least 10% down — then the annual MIP ends after 11 years.
With less down it lasts for the life of the loan, and the way out is to refinance into a conventional loan once you have about 20% equity.
Conventional PMI, by contrast, can be cancelled on request at 80% loan-to-value and ends automatically at 78%.
Do you have to put 20% down on a conventional loan?
No. Conventional loans start at 3% down; under 20% you pay PMI until you reach 20%–22% equity.
With 20% down there's no mortgage insurance at all — on a $350,000 home with a 700 score that's about $1,927 a month for principal and interest, against $1,991 for FHA, which still charges MIP for 11 years.
Is FHA only for first-time home buyers?
No. Anyone who will live in the home as their primary residence can use an FHA loan, including repeat buyers, as long as they meet the credit, income and property requirements. You generally can't have two FHA loans at once, though.
Is an FHA payment higher than a conventional one?
Not necessarily. With a 700 score and 5% down on $350,000, it's about $2,364 a month for FHA against $2,482 for conventional at this week's rates, before taxes and insurance — FHA's lower rate can outweigh its mortgage insurance.
The gap changes with your score (see the table by credit score above) and with how much you put down.
Sources
- HUD — FHA mortgage insurance premiums (Handbook 4000.1, Appendix 1.0)
- Fannie Mae Loan-Level Price Adjustment (LLPA) Matrix
- CFPB — What is private mortgage insurance? (Homeowners Protection Act cancellation rules)
- Optimal Blue Mortgage Market Indices on FRED (FHA and conforming 30-year)
- FFIEC — HMDA data browser
How the figures on this site are calculated and tested: methodology · editorial policy.
This guide is general educational information, not financial advice. Confirm specifics with a licensed lender or advisor.