🇺🇸 USA FHA vs Conventional
FHA vs Conventional Mortgage.
TL;DR: FHA wins on entry — lower FICO requirements (580 vs 620), lower down payment (3.5% vs 5%). Conventional wins on long-term cost — PMI auto-cancels at 78% LTV; FHA MIP stays for life of loan. The smart play: enter via FHA, refinance to Conventional once you hit 80% LTV.
$350,000 loan, 30-year term.
🏛️ FHA Loan
$2,315
/month (P&I + MIP)
Interest rate6.25%
Principal & Interest$2,155
Monthly MIP (forever)$160
Upfront MIP (1.75%)$6,125
Min down payment3.5%
Min FICO580
🏦 Conventional (with PMI)
$2,358
/month (P&I + PMI initially)
Interest rate6.5%
Principal & Interest$2,212
Monthly PMI$146
PMI cancels at78% LTV (~year 8)
Min down payment3-5%
Min FICO620
30-year total cost comparison: FHA total = $839,679 (because MIP runs for the full term). Conventional total ≈ $810,406 (PMI cancels around year 8). Conventional saves ~$30-50K over 30 years if you don\'t refinance the FHA. Smart play: start with FHA, refinance to Conventional at 80% LTV.
❓ FAQ
Common questions.
FHA vs Conventional — which is better for a first-time buyer?
FHA wins if your FICO is 580-680 and/or you have less than 10% down. Conventional wins if FICO is 720+ and you have 20%+ down (avoiding PMI). The middle case (FICO 680-720, 5-10% down): math is close — Conventional with PMI usually edges out FHA when PMI auto-cancels at 78% LTV.
What is the minimum down payment for FHA vs Conventional?
FHA: 3.5% down (FICO 580+) or 10% down (FICO 500-579). Conventional: 3% down (Fannie/Freddie HomeReady/Home Possible programs), 5% down (standard), 20% down (avoids PMI). FHA's 3.5% is among the lowest standard programs in the US.
What about FHA mortgage insurance vs Conventional PMI?
FHA: Upfront MIP of 1.75% (rolled into loan) + monthly MIP of 0.5-1.05% for the life of the loan (or 11 years if down payment ≥ 10%). Conventional PMI: 0.15-2.5% annually, AUTO-CANCELS at 78% LTV. The "life of loan" MIP on FHA is a major disadvantage for long-term holders — Conventional becomes cheaper over time as PMI drops off.
Can I refinance FHA to Conventional?
Yes. The standard play: take FHA at purchase (lower down + lenient credit), build 20%+ equity through appreciation and principal payment, then refinance to Conventional to drop the lifetime MIP. Many homebuyers execute this exact move 5-10 years post-purchase.