FHA vs. Conventional: Which Costs Less?
Neither loan is always cheaper. In general, FHA tends to cost less when your credit score is lower or your down payment is small, while a conventional loan tends to cost less when your score is strong and you can put down 5% or more. The deciding factor is mortgage insurance, so compare it in dollars for your own numbers.
Key Takeaways
- FHA charges a 1.75% upfront premium plus an annual premium of roughly 0.50% to 0.75% of the loan; conventional PMI varies by score and down payment, typically roughly 0.3% to 1.5% per year.
- Credit score and down payment decide the winner. A 740 score with 5% down often favors conventional; a 640 score with 3.5% down often favors FHA.
- Conventional PMI can be removed as you build equity. FHA premiums last for the life of the loan under 10% down, or 11 years at 10% or more.
- Always compare the monthly payment and the total cost over the years you expect to keep the loan.
How do FHA and conventional loans compare side by side?
| Feature | FHA | Conventional |
|---|---|---|
| Minimum credit score | 580 for 3.5% down; 500 to 579 with 10% down | 620 for most loans |
| Minimum down payment | 3.5% (or 10%) | 3% on select first-time and income-based programs; 5% common |
| Mortgage insurance | 1.75% upfront plus annual MIP | PMI when under 20% down; no upfront premium on most loans |
| How long insurance lasts | Life of loan under 10% down; 11 years at 10%+ | Removable at 80% loan-to-original-value; ends automatically at 78% |
| Debt-to-income | 31% / 43% common guideline; higher with compensating factors | Commonly up to 45%; up to about 50% with strong approval |
| Seller concessions | Up to 6% | 3% under 10% down; 6% for 10% to 25% down |
| Occupancy | Primary residence only | Primary, second home or investment |
| Assumable | Yes, with lender approval | Generally not |
| Property standards | FHA minimum property standards | Standard appraisal guidelines |
How does mortgage insurance work on each?
FHA mortgage insurance (MIP) is mostly a flat structure. Scores matter little. Conventional PMI is risk-based: a high score and a larger down payment earn a much lower PMI rate. That is why the two loans reverse places as credit improves. For details see FHA mortgage insurance explained and conventional loans and mortgage insurance.
Which costs less in California? Three scenarios
These scenarios compare the mortgage insurance only. Interest rates can differ between FHA and conventional, and rates change daily, so ask for both quotes. PMI figures are assumptions within the typical range, not quotes.
Scenario 1: 640 credit score, $700,000 home, minimum down payment
Conventional with 3% down: down payment $21,000; loan $679,000. If PMI at a 640 score is priced at 1.0% to 1.5%, the cost is $6,790 to $10,185 a year, or roughly $566 to $849 a month.
Result: FHA often costs less in this case, even with the upfront premium, because PMI is high at this score. The gap depends on actual quotes. Illustration only.
Scenario 2: 740 credit score, $850,000 home, 5% down
FHA: upfront premium $14,131.25 ($807,500 x 0.0175), financed total $821,631.25. Annual MIP at 0.50% to 0.75% is about $4,037.50 to $6,056.25 a year, or roughly $336 to $505 a month.
Conventional: no upfront premium on most loans. If PMI at a 740 score is priced at 0.30% to 0.60%, the cost is $2,422.50 to $4,845 a year, or roughly $202 to $404 a month.
Result: Conventional often costs less here. You also avoid the upfront premium, and PMI can later be removed. Illustration only.
Scenario 3: 680 credit score, $1,000,000 home, 10% down
FHA: upfront premium $15,750 ($900,000 x 0.0175), financed total $915,750. Annual MIP at 0.50% to 0.75% is $4,500 to $6,750 a year, or roughly $375 to $563 a month, for 11 years because the down payment is 10%.
Conventional: if PMI at a 680 score is priced at 0.40% to 0.90%, the cost is $3,600 to $8,100 a year, or roughly $300 to $675 a month.
Result: Close. Quotes decide it. Conventional has the edge on the upfront premium and PMI removal; FHA can win if your PMI quote is at the higher end. Illustration only.
Check that your loan amount fits. FHA’s 2026 limits for a one-unit home range from $541,287 to $1,249,125 by county. See the 2026 California FHA loan limits and the loan limit lookup.
What other factors matter besides monthly cost?
- How long you will keep the loan. The upfront premium is a fixed cost, so a short stay favors the loan with lower upfront costs.
- Your plan to refinance. If you expect to refinance into a conventional loan within a few years, the life-of-loan rule matters less.
- Debt-to-income. If your debts are high, FHA may be the one that approves you.
- Seller concessions. If you need the seller to cover closing costs, FHA allows up to 6% even with a small down payment; conventional allows 3% under 10% down.
- Property condition. A home needing repairs may struggle with FHA appraisal standards.
- Future sale. An assumable FHA loan may be attractive to buyers when rates are high.
Which should I choose?
Ask for both quotes, with all costs shown. Then compare the monthly payment, the cash needed to close and the total cost over your expected holding period. For conventional details, read is a conventional loan right for you, conventional loan requirements and PMI and when you can remove it. For FHA, read the benefits of an FHA loan, the cons and the main FHA vs. conventional program page. Veterans should also compare VA vs. FHA vs. conventional. Back to the FHA loans chapter.
At Lendia, we run both side by side
At Lendia, we compare options from multiple lenders and show FHA and conventional with the same assumptions, so you can see the real difference. If one costs less, we say so. Contact us or get a rate quote now. Rates and terms depend on your situation; approval requires qualification.
Frequently Asked Questions
Is FHA cheaper than conventional?
Sometimes. FHA often costs less with lower credit scores and small down payments. Conventional often costs less with strong credit and 5% or more down.
Which credit score makes conventional the better deal?
There is no single cutoff. Many borrowers with scores in the 700s find conventional PMI cheaper than FHA MIP, but the answer also depends on down payment and rate quotes.
Is FHA mortgage insurance higher than PMI?
It depends on your score and down payment. FHA charges an upfront premium that most conventional loans do not, but PMI can be expensive at lower scores.
Can I switch from FHA to conventional later?
Yes, by refinancing once you qualify and have enough equity, commonly 20%. Consider the closing costs and break-even time.
Can I use FHA for a second home or investment property?
No. FHA is for primary residences. Conventional loans allow second homes and investment properties with larger down payments.
Which is easier to qualify for?
FHA is generally more flexible on credit and debt ratios. A conventional loan generally needs a 620 score or higher.
Talk to a Licensed Lendia California Loan Officer
At Lendia, we review your situation and show you the programs you qualify for.