Finance

FHA vs Conventional Loan: Compared

Q: Can I switch from FHA to conventional later?

Yes. You can refinance from an FHA loan to a conventional loan once you have 20% equity and a credit score of 620+. This eliminates the permanent MIP, potentially saving hundreds per month.

Q: Do FHA loans have lower interest rates?

FHA rates are often competitive with conventional rates, but when you factor in the upfront and annual mortgage insurance premiums, the total cost is usually higher — especially for borrowers with good credit.

Q: What is the FHA loan limit in my area?

The standard FHA loan limit for 2025 is $524,225. High-cost areas can go up to $1,209,750. Check the HUD website for your county's specific limit.

Q: Is PMI the same as MIP?

They serve the same purpose (protecting the lender) but differ in structure. FHA MIP has an upfront cost plus annual premiums that may last the life of the loan. Conventional PMI has no upfront cost and automatically cancels at 20% equity.

Q: Can I use an FHA loan for an investment property?

No. FHA loans are for primary residences only. You must live in the home as your main residence. Conventional loans can be used for investment properties with a higher down payment (typically 15%–25%).

7 min read March 2026 Finance, Real Estate, Mortgage

Key Takeaways

FHA loans require just 3.5% down and accept credit scores as low as 580, but charge permanent mortgage insurance (MIP). Conventional loans need higher credit scores and typically 5%+ down, but PMI drops off at 20% equity — saving thousands long-term.

Side-by-Side Comparison

Feature	FHA Loan	Conventional Loan
Minimum down payment	3.5%	3%–5%
Minimum credit score	580 (3.5% down), 500 (10% down)	620 minimum, 680+ for best rates
Mortgage insurance	Required (life of loan for <10% down)	PMI drops at 20% equity
Upfront insurance cost	1.75% of loan ($7,000 on $400K)	None
Annual insurance cost	0.55% of loan balance	0.2%–1.5% (varies by credit/LTV)
Interest rates	Competitive but slightly higher	Lower for good credit (720+)
Property requirements	Must meet FHA standards (strict)	More flexible
Loan limits (2025)	$524,225 (standard areas)	$806,500 (standard areas)

When to Choose FHA vs Conventional

Choose FHA when…

Your credit score is below 680
You have a limited down payment (3.5%)
You have a higher debt-to-income ratio (up to 50%)
You're a first-time homebuyer needing flexible terms

Choose Conventional when…

Your credit score is 700+
You can put 10%–20% down
You want PMI to drop off automatically at 20% equity
The home price exceeds FHA limits in your area
You want to avoid the 1.75% upfront MIP cost

Try the calculators

Run your own numbers in each calculator — switch tabs to compare the options.

Open full calculator → Embed on your site →

Read the full guide 7 min read

Reviewed methodology

How this page is reviewed

Risk tier	YMYL
Author	Calculover Editorial Team Finance and legal education
Editorial owner	Calculover Loans & Housing Desk Loan and housing methodology owner
Reviewer	Calculover Editorial Review Source and limitation review
Last reviewed	2026-05-10
Last verified	2026-05-10
Data effective date	2026-05-10

Methodology

FHA Loan vs Conventional Loan: Which Is Right for You? uses the amortization, escrow, rate, fee, and housing-cost formulas documented on the page, then layers loan-program or property-cost assumptions when the user provides them.

Assumptions

FHA Loan vs Conventional Loan: Which Is Right for You? relies on the values the user enters and does not independently verify income, balances, legal status, policy terms, or market quotes.
Loan rates, fees, taxes, insurance, PMI or MIP, HOA dues, and closing costs are planning inputs unless a lender quote is supplied.
The calculator assumes scheduled payments are made on time and that extra payments are applied according to the selected scenario.

Limitations

FHA Loan vs Conventional Loan: Which Is Right for You? does not approve a loan, lock a rate, quote closing costs, determine program eligibility, or replace a Loan Estimate from a lender.
Property taxes, insurance, HOA dues, PMI or MIP, lender overlays, credit score, and local fees can materially change the payment or cash-to-close.

Sources

Buying a House, Consumer Financial Protection Bureau
Single Family Mortgage Insurance Premiums, U.S. Department of Housing and Urban Development

Professional guidance: FHA Loan vs Conventional Loan: Which Is Right for You? is for housing-finance education only and is not mortgage, legal, tax, or underwriting advice. Confirm rates, fees, eligibility, and cash-to-close with a lender or housing professional.

What Is an FHA Loan?

FHA (Federal Housing Administration) loans are government-backed mortgages designed for first-time homebuyers and borrowers with lower credit scores. The FHA doesn't lend directly — it insures the loan, reducing risk for lenders and allowing more flexible qualification requirements.

FHA loans require an upfront mortgage insurance premium (UFMIP) of 1.75% of the loan amount, plus annual MIP of 0.55% for loans with less than 10% down. This insurance lasts for the life of the loan unless you put 10%+ down (then it drops after 11 years).

What Is a Conventional Loan?

Conventional loans are not government-backed. They follow guidelines set by Fannie Mae and Freddie Mac. They typically require a credit score of 620+ (680+ for best rates) and a down payment of at least 3%–5%. PMI is required if you put less than 20% down, but it can be cancelled once you reach 20% equity.

Conventional loans generally offer lower interest rates for borrowers with good credit and no upfront mortgage insurance premium.

Real-World Example

$350,000 Home — 5% Down

FHA: Loan $337,750 + $5,911 UFMIP rolled in = $343,661. Monthly: $2,174 (P&I) + $155 (annual MIP) = $2,329. MIP lasts the life of the loan.

Conventional: Loan $332,500. Monthly: $2,101 (P&I) + $165 (PMI). PMI drops at 20% equity (~year 8). After PMI drops: $2,101/month.

Over 30 years, the conventional loan saves approximately $38,000 due to PMI cancellation and no upfront premium.

Try the Calculators

Mortgage Calculator Down Payment Calculator

Ready for the Next Step?

Partner recommendation — Calculover may earn a commission. Learn more.

Get Pre-Qualified for a Mortgage → Find out if you qualify for FHA or conventional. Compare rates and down payment options from top lenders. Lending

Frequently Asked Questions

Can I switch from FHA to conventional later?