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Loan Types

FHA vs. Conventional Loan: Which One Costs Less for You?

FHA loans are easier to qualify for; conventional loans are often cheaper long term. Here's a side-by-side comparison with a worked $350,000 example.

By · Updated · 3 min read

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Quick answers

  • FHA is usually easier to qualify for: 3.5% down with a 580+ credit score.
  • Conventional can need as little as 3% down but usually wants a 620+ score, and gets cheaper as your credit improves.
  • FHA mortgage insurance has an upfront fee (1.75%) plus a yearly fee, and often lasts the life of the loan.
  • Conventional PMI can usually be removed once you reach 20% equity.

Picking between FHA and conventional is like choosing between a forgiving coach and a strict one that rewards you for good habits. FHA is more forgiving on credit and debt. Conventional rewards strong credit with cheaper insurance you can eventually drop. Here’s how they compare.

Side-by-side comparison

FHA loan Conventional loan
Minimum down payment 3.5% (580+ score); 10% (500–579) 3% on some programs; 5% common
Typical minimum credit score 500–580 (lenders often set higher) Usually 620
Upfront mortgage insurance 1.75% of the loan (can be financed) None
Annual mortgage insurance Most borrowers: 0.55% of the loan per year PMI, priced by credit and down payment
Can you drop it? After 11 years if you put 10%+ down; otherwise lasts the life of the loan Can request removal at 80% loan-to-value; ends automatically at 78% (on schedule)
2026 loan limits (one unit) $541,287 to $1,249,125 by county $832,750 in most counties; up to $1,249,125 in high-cost areas
Property standards FHA appraisal with health and safety checks Standard appraisal

We ran a $350,000 example

Example only: rates and insurance pricing change daily and depend on your profile. We used a 6.9% example FHA rate (FHA rates often price a bit below conventional) and 7.18% for conventional, Freddie Mac’s Nov. 5, 2026 average.

FHA, 3.5% down Conventional, 5% down
Down payment $12,250 $17,500
Base loan $337,750 $332,500
Upfront MIP (financed) +$5,911 —
Principal & interest $2,263 $2,252
Monthly mortgage insurance ~$155 (0.55%) Varies by credit; get a quote

With a high credit score, conventional PMI may cost less than FHA’s $155 and can be dropped later. With a lower score, conventional PMI can cost more than FHA’s, which is why FHA often wins for those buyers. You can model FHA costs in our FHA loan calculator.

Myth buster“FHA is only for first-time buyers.” No. Repeat buyers can use FHA too, as long as the home will be their primary residence.

When FHA usually makes more sense

  • Your credit score is below about 680.
  • Your debt-to-income ratio is on the high side.
  • You have a small down payment and limited savings.
  • You’ve had a credit setback a few years ago.

When conventional usually makes more sense

  • Your credit score is strong (often 700+).
  • You can put 5% to 20% down.
  • You want mortgage insurance that goes away once you build equity.
  • You’re buying a second home or investment property (FHA is for primary homes).
Fun factMany FHA borrowers later refinance into a conventional loan once they reach 20% equity, just to get rid of FHA mortgage insurance. Learn the options in how to get rid of mortgage insurance.

How to decide

  1. Get quotes for both loan types from the same lender on the same day.
  2. Compare the total monthly payment, including mortgage insurance.
  3. Compare how long that insurance lasts and what refinancing later might cost.
  4. Check the full closing costs with our closing cost calculator.

More detail: FHA loan requirements and conventional loan requirements.

FAQ

Is FHA or conventional cheaper?

For borrowers with strong credit and 5%+ down, conventional is often cheaper over time. For lower credit scores, FHA is often cheaper or the only option.

Can I switch from FHA to conventional later?

Yes, by refinancing. That usually makes sense once you have about 20% equity and your credit qualifies.

Does FHA have income limits?

No. FHA has loan limits by county, but no maximum income.

Which is easier to get approved for?

FHA generally has more flexible credit and debt rules.

Sources: HUD / FHA; FHFA conforming loan limits; CFPB; Fannie Mae Selling Guide; Keys & Coffee calculations. This article is general education, not financial advice. Keys & Coffee is not a lender.

Shivam Kaushik (IMSHIVA)

Written by

Shivam Kaushik· IMSHIVA

Founder & Director, QuibbleTech Solutions Pvt Ltd · Editor, Keys & Coffee

Shivam Kaushik is the founder of QuibbleTech Solutions Pvt Ltd and the editor of Keys & Coffee. He is not a licensed loan officer or financial adviser. Every guide here is written in plain English and checked against official sources such as the CFPB, HUD, Fannie Mae, Freddie Mac and the Federal Reserve. For advice on your own loan, talk to a licensed lender.

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Keys & Coffee is an independent education site. We are not a lender or mortgage broker, we do not take loan applications or payments, and nothing here is financial advice. This site is not affiliated with Axia Home Loans, Axia Financial, LLC, or Planet Home Lending. Rates and rules change often — always confirm details with a licensed loan officer and check any lender on the NMLS Consumer Access site.

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