FHA vs Conventional Loan: Costs, MIP vs PMI and Which Wins in 2026

The FHA vs conventional loan choice usually comes down to your credit score and your down payment. FHA tends to win when your score is below about 680, your debts are high, or your savings are very small. Conventional tends to win when you have good credit and at least 5% down, because its mortgage insurance can be removed and FHA’s usually cannot.

An FHA loan is insured by the Federal Housing Administration. A conventional loan has no government insurance; most are “conforming” loans that follow Fannie Mae or Freddie Mac rules. Both are offered by the same private lenders, often side by side.

This guide compares the two on every major rule in force in October 2026, then walks through hypothetical cost examples. For full details on each program, see our FHA loans and conventional loan requirements guides.

FHA vs conventional at a glance

The biggest differences are credit flexibility and mortgage insurance. FHA accepts lower scores and prices its insurance the same for everyone. Conventional rewards good credit with cheaper insurance that ends once you build equity. Loan limits, residency rules and property standards also differ.

Sources: HUD Handbook 4000.1, HUD 2026 loan limits, FHFA 2026 conforming limits, and the Fannie Mae Selling Guide.

What credit score does each loan require?

FHA allows a credit score as low as 500 with 10% down, or 580 with 3.5% down. Fannie Mae requires 620 for manually underwritten fixed-rate loans and 640 for adjustable-rate loans. For loans run through its Desktop Underwriter (DU) system, Fannie Mae’s Selling Guide sets no minimum score.

That DU change does not mean low scores are easy to approve conventionally. DU weighs your whole file, and lenders still apply their own minimums. In practice, the bigger difference is price: conventional loans and PMI cost more as scores fall, while FHA’s MIP rate does not change with your score.

How do down payments compare?

FHA needs 3.5% down with a 580 score. Conventional loans can go as low as 3% down through Fannie Mae HomeReady and Freddie Mac Home Possible, which allow up to 97% loan-to-value. Both programs limit qualifying income to 80% of area median income, so higher earners may need 5% or more down.

HomeReady requires homeownership education when every occupying borrower is a first-time buyer. Freddie Mac’s Home Possible page directs lenders to its Seller/Servicer Guide for education rules. Your lender will tell you which course is accepted.

Both loan types accept gift funds and many down payment assistance programs. Our down payment assistance programs guide explains how these work with each loan.

MIP vs PMI: how mortgage insurance differs

FHA charges mortgage insurance premium (MIP) on every loan: 1.75% upfront plus an annual premium, usually 0.55% a year with less than 5% down. Conventional loans charge private mortgage insurance (PMI) only when you put less than 20% down, priced by credit score and down payment, with no upfront premium in the standard monthly form.

The PMI cancellation rules come from the Homeowners Protection Act, as explained by the CFPB. You can ask your servicer in writing to cancel PMI when your balance is scheduled to reach 80% of the original value, if you are current and the home has not lost value. PMI must end automatically at 78%, or at the loan’s midpoint, if you are current.

For a deeper look at both, see mortgage insurance explained.

Which loan is cheaper? Hypothetical cost examples

With good credit and 5% or more down, conventional is usually cheaper over time. With weaker credit, FHA often wins, at least for the first several years. The examples below use round, made-up numbers to show the mechanics. They are not quotes, and PMI rates in particular are assumptions.

All three examples assume a $300,000 home, a 30-year fixed loan, and the same 6.5% interest rate for both loans. In real life, FHA and conventional rates often differ, which can change the result.

What these hypothetical numbers show:

How do debt-to-income limits compare?

For manually underwritten loans, FHA’s baseline is 31% housing and 43% total, rising to 40/50 with compensating factors. Fannie Mae’s manual limit is 36%, or up to 45% with strong credit and reserves. Through DU, Fannie Mae allows up to 50%. FHA’s automated system can also approve higher ratios.

If your DTI is above about 45%, FHA may be easier, because its manual rules allow up to 50% with two compensating factors. Our mortgage requirements by loan type guide lists the limits for every major program.

Loan limits, property rules and residency

Loan limits, property standards and residency rules can decide the question before cost does. FHA limits are lower than conventional limits in most counties. FHA appraisals also check property condition more strictly. And since 2025, FHA is closed to non-permanent residents.

Loan limits. In most counties, the 2026 FHA one-unit limit is $541,287, while the conforming limit is $832,750. Both rise to $1,249,125 in the highest-cost counties. Above the conforming limit, you would need a jumbo loan.

Property condition. FHA appraisers must confirm the home meets HUD’s minimum property requirements, such as a sound roof and safe utilities. Conventional appraisals focus more on value, though lenders still require a habitable home.

Residency. HUD’s Mortgagee Letter 2025-09 removed non-permanent residents from FHA eligibility for case numbers assigned on or after May 25, 2025. Fannie Mae’s Selling Guide still allows lawful permanent and non-permanent residents on the same terms as citizens. See our guide to a mortgage for immigrants.

When does FHA win, and when does conventional win?

FHA usually wins for buyers with scores under about 680, high debt ratios, recent credit problems or very little cash. Conventional usually wins for buyers with good credit, at least 5% down, homes above the FHA limit, second homes, or non-permanent resident status.

FHA tends to be the better fit when:

• Your credit score is between 500 and roughly 680.
• Your DTI is high and you have compensating factors.
• You expect to refinance once your credit and equity improve.

Conventional tends to be the better fit when:

• Your score is in the 700s or higher.
• You can put 5% to 20% down, or more.
• You are buying above your county’s FHA limit or buying a second home.
• You are a lawfully present non-permanent resident.

Refinancing out of FHA later

Many buyers start with FHA and plan to move to a conventional loan later. Once your credit improves and your balance falls to about 80% of the home’s value, a conventional refinance can drop mortgage insurance entirely. With 20% equity, a conforming loan needs no PMI at all.

This plan carries risk. Interest rates may be higher when you want to refinance, and a refinance has its own closing costs, often several thousand dollars. Home values can also fall, which delays the equity you need. Treat a future refinance as a possibility, not a promise, and make sure the FHA payment works for you on its own.

How to decide in five steps

The surest way to choose is to get both options priced on the same day. Lenders can quote FHA and conventional side by side from one application. Then compare total costs over the years you expect to keep the loan, not just the monthly payment.

1. Check your credit score and reports at AnnualCreditReport.com.
2. Decide your down payment and note whether you qualify for 3% down programs.
3. Ask two or three lenders for both an FHA and a conventional Loan Estimate.
4. Compare mortgage insurance costs and how long each will last.
5. Pick the loan with the lower cost over your time horizon, factoring in any refinance plans.

Browse all government-backed options on our government loans hub.