FHA vs Conventional Loan: Which Is Better in 2026?
Compare FHA and conventional mortgages side by side — down payment, credit score, PMI, and total cost. Find out which saves you more.
For most buyers, conventional loans cost less over time because PMI drops off at 80% LTV while FHA mortgage insurance stays for the life of the loan. However, FHA loans are easier to qualify for with lower credit scores and smaller down payments. The right choice depends on your credit profile, how long you will keep the loan, and how much you can put down.
Complete Side-by-Side Comparison
| Feature | FHA Loan | Conventional Loan |
|---|---|---|
| Minimum down payment | 3.5% (580+ credit) | 3% (first-time) or 5% |
| Minimum credit score | 580 (3.5% down) or 500 (10% down) | 620 |
| Upfront mortgage insurance | 1.75% of loan amount | None |
| Annual mortgage insurance | 0.55% (most borrowers) | 0.3%-1.5% (varies by credit/LTV) |
| MI removal | Only if 10%+ down (after 11 years) | At 80% LTV (request) or 78% (auto) |
| MI for life? | Yes, if less than 10% down | No — drops at 80% LTV |
| Loan limits (2026) | $498,257 (standard) / $1,149,825 (high-cost) | $766,550 (standard) / $1,149,825 (high-cost) |
| Property types | 1-4 unit, must be primary residence | 1-4 unit, primary/second home/investment |
| Seller concessions | Up to 6% of price | 3-9% depending on down payment |
| Max DTI | 50% (with compensating factors) | 43-45% |
FHA MIP Stays for Life — This Matters
The single most important difference: if you put less than 10% down on an FHA loan, the Mortgage Insurance Premium (MIP) stays for the entire life of the loan. You can never remove it unless you refinance into a conventional loan.
With a conventional loan, PMI automatically drops at 78% LTV, or you can request removal at 80% LTV. This means conventional borrowers stop paying mortgage insurance years before FHA borrowers.
Cost Comparison Over 5 and 10 Years
On a $350,000 home with 5% down ($332,500 loan), assuming 700 credit score:
| Cost | FHA (5 yrs) | Conventional (5 yrs) | FHA (10 yrs) | Conventional (10 yrs) |
|---|---|---|---|---|
| Upfront MI/fee | $5,819 | $0 | $5,819 | $0 |
| Monthly MI/PMI | $152/mo | $193/mo | $152/mo | $193/mo (drops ~year 8) |
| Total MI/PMI paid | $14,939 | $11,580 | $24,059 | $17,990 |
| Interest rate (est.) | 6.25% | 6.75% | 6.25% | 6.75% |
| Total interest paid | $97,800 | $104,600 | $186,100 | $199,900 |
| Total cost (MI + interest) | $112,739 | $116,180 | $210,159 | $217,890 |
At 5 years, the FHA loan is slightly cheaper because of the lower rate. At 10 years, it depends on when PMI drops for the conventional borrower. But over 20-30 years, the conventional loan wins decisively because PMI eventually disappears while FHA MIP continues.
When FHA Wins
FHA is the better choice if:
- Your credit score is 580-660: FHA rates are less sensitive to credit score. A 620-score borrower may get 6.25% FHA vs 7.25% conventional — that 1% rate difference saves more than the MIP costs.
- You have minimal savings: FHA requires just 3.5% down, and that can come entirely from gift funds from family. Closing costs can be covered by seller concessions up to 6%.
- You have higher DTI: FHA allows up to 50% DTI with compensating factors. If your debt load is high but manageable, FHA gives you more room.
- You plan to refinance within 3-5 years: If you will build equity and refinance to conventional before MIP becomes the more expensive long-term option, FHA works as a stepping stone.
When Conventional Wins
Conventional is the better choice if:
- Your credit score is 700+: Higher credit scores get lower PMI rates on conventional loans, often cheaper than FHA MIP.
- You can put 20% down: Zero mortgage insurance from day one. FHA still charges the 1.75% upfront MIP even with 20% down.
- You are buying a second home or investment property: FHA is primary residence only.
- You want to avoid lifetime insurance: If you are keeping the loan long-term, conventional PMI drops off and saves thousands compared to permanent FHA MIP.
- The home price exceeds FHA limits: In most areas, FHA limits are lower than conventional conforming limits.
2026 FHA Loan Limits
FHA loan limits vary by county:
| Area Type | 2026 FHA Limit | Example Areas |
|---|---|---|
| Standard (floor) | $498,257 | Most U.S. counties |
| High-cost areas | $766,550 - $1,149,825 | San Francisco, NYC, LA, DC metro |
If the home price requires a loan above your county's FHA limit, conventional is your only conforming option (or a jumbo loan).
Refinancing from FHA to Conventional
Many savvy buyers use FHA as a stepping stone:
- Buy with FHA at 3.5% down and a lower credit score
- Make payments for 2-3 years, improving credit and building equity
- Refinance to a conventional loan once you have 20% equity (from payments + appreciation)
- Eliminate all mortgage insurance permanently
This strategy works well in appreciating markets. If your home gains 10-15% in value over 2-3 years and you have been making payments, you may reach 80% LTV faster than expected.
The refinancing costs (typically $3,000-$6,000) are usually recouped within 12-18 months from MIP savings.
Practical Takeaway
If your credit score is above 700 and you can put at least 5% down, conventional is almost always cheaper long-term. If your score is below 680 or you need the lowest possible down payment, FHA gets you into a home sooner — just plan to refinance to conventional within a few years to eliminate the lifetime MIP. Run both scenarios through our mortgage calculator to see the exact monthly payment and total cost difference for your situation.
Try it yourself
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Open calculatorThis article is for educational purposes only and does not constitute financial advice. Consult a licensed financial advisor for decisions specific to your situation.