You scraped together $15,000, your credit score is 620, and the lender mentions both an FHA loan and a "low down payment conventional" in the same breath. Which one actually costs less? In 2026 the answer comes down to four numbers: your down payment, your credit score, the size of the loan, and how long you plan to stay in the house. Get those four right and the FHA-versus-conventional decision stops feeling like a coin flip.
This guide compares both programs head-to-head using current 2026 rules, mortgage insurance rates, and average mortgage rates from Freddie Mac. We finish with a worked $400,000 home example so you can see exactly how the cash and the monthly payment shake out.
The Quick Take: What Actually Differs in 2026
FHA loans are insured by the Federal Housing Administration and aimed at borrowers with weaker credit or thinner savings. Conventional loans (Fannie Mae and Freddie Mac) carry no government guarantee but reward stronger credit with cheaper insurance and faster equity. The headline differences for 2026:
- Down payment. FHA: 3.5% with a FICO of 580+. Conventional: as low as 3% on first-time buyer programs (HomeReady, Home Possible), 5% on standard offerings.
- Credit score floor. FHA officially allows scores of 500 (with 10% down) or 580 (with 3.5% down). Fannie Mae and Freddie Mac removed the minimum credit score threshold from their guidelines on November 16, 2025, but lenders still set their own overlays — typically 620+.
- Mortgage insurance. FHA charges 1.75% upfront (UFMIP) plus 0.55% annual (typical) for the life of the loan if you put down less than 10%. Conventional PMI is monthly only and cancels automatically at 78% LTV.
- Loan limits. FHA's 2026 floor is $541,287 in low-cost counties and $1,249,125 in high-cost areas. Conventional's 2026 conforming loan limit is $832,750 in most counties.
- Rate. FHA rates have been running roughly 0.10–0.25 percentage points below conventional on Freddie Mac's late-April 2026 averages.
Lower rate, smaller down payment, looser credit — and yet FHA is not always the cheaper loan. Mortgage insurance is the equalizer.
Down Payment and Credit Score: The Front-Door Test
Before comparing costs, see which loans you actually qualify for. The two big gates are the down payment you can afford and the credit score you bring.
FHA's qualifying box
If your FICO is 580 or higher, FHA lets you put down 3.5%. Below 580 (down to 500), you can still qualify but must put down 10% — which usually defeats the purpose of choosing FHA in the first place. FHA is also more forgiving on debt-to-income ratios, often allowing back-end DTI up to 50% with compensating factors. Run your DTI in our debt-to-income calculator if you are not sure where you stand.
Conventional's qualifying box
Fannie Mae and Freddie Mac no longer publish a minimum credit score in their selling guides as of late 2025, but lenders still apply overlays. In practice, expect:
- 620 minimum at most lenders for conventional purchases.
- 3% down on Fannie Mae's HomeReady or Freddie Mac's Home Possible if income is at or below 80% of area median income.
- 5% down on standard conventional with no income limits.
- 20% down to skip mortgage insurance entirely.
If your score is in the high 500s or low 600s, FHA is often the only realistic choice. If you're in the 700s, the picture flips.
Mortgage Insurance: PMI vs MIP, Cost and Duration
This is where most buyers stop reading FHA fine print and learn an expensive lesson later. PMI on a conventional loan and MIP on an FHA loan are not the same product.
Conventional PMI
Private mortgage insurance is required when you put less than 20% down on a conventional loan. The premium is monthly, ranges from roughly 0.3% to 1.5% of the loan balance per year depending on credit score and LTV, and is added to your mortgage payment. Crucially, PMI is not forever:
- Under the Homeowners Protection Act, lenders must automatically terminate PMI when your scheduled balance reaches 78% of the original property value.
- You can request cancellation once you hit 80% LTV based on the original purchase price.
- If your home appreciates and a new appraisal puts you below 80% LTV, many lenders will cancel PMI based on current value.
For a deeper walkthrough including a full PMI cancellation timeline, see our guide on how much PMI costs in 2026.
FHA MIP
FHA mortgage insurance has two parts:
- Upfront MIP (UFMIP): 1.75% of the loan amount, paid at closing or financed into the mortgage (most borrowers finance it).
- Annual MIP: ranges from 0.15% to 0.75% of the average outstanding balance, with most borrowers paying 0.55% in 2026, divided into 12 monthly payments.
The duration rules are stricter than PMI:
- Down payment less than 10% → MIP for the life of the loan.
- Down payment of 10% or more → MIP for at least 11 years.
That "life of the loan" line is the kicker. To stop paying FHA MIP after you've built equity, you generally have to refinance into a conventional loan — which means qualifying again and paying closing costs again.
2026 Loan Limits: How Much You Can Borrow
Both programs cap the amount they'll insure or guarantee. If your purchase price plus closing costs minus down payment exceeds the limit, you need a jumbo loan instead.
| 2026 Single-Family Loan Limits | Floor / Standard | High-Cost Ceiling |
|---|---|---|
| FHA | $541,287 | $1,249,125 |
| Conventional (Conforming) | $832,750 | $1,249,125 |
FHA's floor rose from $524,225 in 2025 to $541,287 for 2026, and the ceiling moved from $1,209,750 to $1,249,125, per HUD's Mortgagee Letter dated December 2025 and effective for case numbers on or after January 1, 2026. The conforming loan limit is set by FHFA at $832,750 for one-unit homes in most counties, with the high-cost ceiling matching FHA's $1,249,125. Multi-unit limits and Alaska, Hawaii, Guam, and U.S. Virgin Islands have higher caps.
Today's Rate Gap: FHA vs Conventional in 2026
Borrowers often hear "FHA rates are lower" and assume the loan is automatically cheaper. The rate spread is real, but small. As of the week ending May 1, 2026:
- 30-year fixed conventional: averaged 6.30% (Freddie Mac PMMS, week of April 30, 2026).
- 30-year fixed FHA: averaged roughly 6.07% to 6.16% in late April 2026.
- 15-year fixed conventional: averaged 5.64%.
That 0.15–0.20 point gap saves an FHA borrower roughly $40 per month on a $400,000 loan — meaningful, but easily eaten by FHA's larger insurance bill.
A Worked Example: Buying a $400,000 Home
Let's compare the two loans for the same buyer purchasing the same $400,000 house. Assume credit score 680 (qualifies for both), 30-year fixed term, and standard insurance pricing.
| Item | FHA Loan (3.5% down) | Conventional (5% down) |
|---|---|---|
| Down payment | $14,000 | $20,000 |
| Base loan amount | $386,000 | $380,000 |
| UFMIP financed | $6,755 (1.75% of $386K) | $0 |
| Total loan | $392,755 | $380,000 |
| Interest rate | 6.10% | 6.30% |
| Monthly P&I | $2,381 | $2,352 |
| Annual MIP / PMI | 0.55% → $177/mo | 0.50% → $158/mo |
| Monthly total (P&I + MI) | $2,558 | $2,510 |
| Estimated closing costs (~3%) | $12,000 | $12,000 |
| Cash needed at closing | $26,000 | $32,000 |
Three takeaways from this side-by-side:
- FHA wins on cash. You bring $6,000 less to closing. For a buyer who is otherwise tapped out after the down payment, that's the difference between buying and waiting.
- Conventional wins on monthly cash flow. The conventional loan is about $48 cheaper per month — $576 a year, $2,880 over five years.
- The mortgage insurance crossover happens later. On the conventional loan, with normal amortization, you cross 80% LTV around year 11. From that point on, the conventional borrower pays $158 per month less for insurance — forever. The FHA borrower keeps paying $177/month MIP unless they refinance.
If the buyer stays 5 years, the FHA loan ends up roughly $3,100 cheaper on cash flow once you net out the upfront savings. If the buyer stays 12+ years, the conventional loan is meaningfully cheaper because PMI has dropped off. Run your own numbers in our mortgage calculator to see how sensitive the result is to your specific rate quotes.
When FHA Wins
FHA is the better choice when at least one of the following is true:
- Your credit score is 580–679. You'll either be ineligible for conventional or quoted a much higher rate and PMI premium that erases conventional's advantages.
- Your DTI is high (45%+). FHA underwriting is more permissive on back-end DTI, especially with strong reserves or residual income.
- You expect to refinance or move within 5–7 years. The "MIP for life" rule does not punish you if you exit the loan before equity matters.
- You'd otherwise wait years to buy. The smaller cash-to-close requirement gets you into the market sooner. If home prices keep appreciating, the equity gain can outweigh the higher MIP cost.
When Conventional Wins
Conventional pulls ahead when:
- Your credit score is 720+. PMI premiums drop sharply at higher scores. At a 760 FICO and 5% down, PMI can come in below 0.30%, beating FHA's flat 0.55%.
- You can put down 20% or close to it. No PMI at all on conventional, while FHA still charges 0.50% annual MIP for 11 years even with 10%+ down.
- You plan to stay 10+ years. PMI cancellation under the Homeowners Protection Act compounds into thousands of dollars in long-term savings.
- The house has condition issues. FHA appraisals are stricter on safety and habitability. A fixer-upper that won't pass FHA inspection may close fine on conventional.
- You're buying near or above the conforming limit. If you're in a high-cost market and need to borrow more than $832,750, conventional jumbo financing may be cheaper than the FHA jumbo equivalent for strong-credit borrowers.
How to Decide: A Three-Question Filter
Run yourself through these questions in order:
- What's my credit score today? Below 620, FHA is almost always the answer. 620–699, get quotes for both. 700+, lean conventional.
- How long do I realistically expect to own this home? Under 7 years: FHA is fine, the lifetime MIP doesn't matter to you. 10+ years: conventional's PMI cancellation pays off.
- What's my cash position after the down payment? If putting 5% down would empty your savings, the 3.5% FHA option preserves an emergency fund. Buying broke is a faster route to financial trouble than paying a slightly higher MIP.
One more practical step: get loan estimates from at least three lenders for both programs. Real-world rate and PMI quotes vary by lender enough that the FHA-versus-conventional math can flip just by shopping. While you're at it, see if a small credit-score bump would qualify you for cheaper PMI tiers — our guide on improving your credit score before buying a house walks through the levers that move fastest. And check what you can afford in the first place with our home affordability calculator.
Frequently Asked Questions
Can I refinance from FHA to conventional later to get rid of MIP?
Yes, and this is a common strategy. Once your home has appreciated or you've paid the loan down to 80% LTV based on a new appraisal, you can refinance into a conventional loan and drop MIP entirely. The catch is that you pay closing costs again (typically 2–3% of the new loan), and you re-qualify under current rates and credit standards. If conventional rates are higher than your FHA rate, the refi may not pencil out.
Does FHA charge a higher interest rate than conventional?
Usually no — FHA rates have averaged 0.10–0.25 percentage points below conventional in 2026, according to Freddie Mac's PMMS data through late April 2026. The total cost is higher because of MIP, not the note rate.
Can I buy a fixer-upper with FHA?
Standard FHA loans require the home to meet HUD's minimum property standards (safety, security, structural soundness). For homes that need work, the FHA 203(k) renovation loan rolls purchase and rehab costs into one mortgage. Conventional has Fannie Mae's HomeStyle Renovation as the analog.
Is FHA only for first-time buyers?
No. FHA has no first-time buyer requirement. You can use FHA for any primary residence purchase, refinance, or 1–4 unit owner-occupied property. You generally can only have one FHA loan at a time.
What credit score do I really need for the best conventional pricing?
Pricing tiers improve at 680, 720, 740, and 760. The biggest jump for most borrowers is from 679 to 680. If you're sitting at 678, paying down a credit card to drop utilization can be worth more than any other lever before you lock a rate.
How much are closing costs on either loan?
Plan on 2–5% of the purchase price for closing costs on either program — origination fees, title work, appraisal, recording, and prepaid taxes and insurance. FHA allows the seller to credit up to 6% of the price toward your closing costs; conventional caps the seller credit at 3% with less than 10% down. For a complete worksheet, see our breakdown of how to calculate closing costs in 2026.
Can I use gift money for the down payment?
Both programs allow gift funds from family for the entire down payment on a primary residence, with a documented gift letter. FHA is slightly more flexible on the source documentation; conventional may require seasoning of the funds in your account.
This article is for general informational purposes only and is not financial, tax, or investment advice. Figures reflect 2026 program rules, FHA and FHFA loan limits effective January 1, 2026, and Freddie Mac PMMS averages from late April 2026, and may change. Consult a qualified mortgage professional and tax advisor before making decisions about a home purchase.
Ready to model your own scenario? Plug your purchase price, down payment, and rate into our mortgage calculator to see the full amortization schedule, then compare against your maximum budget in our home affordability calculator.
Sources:
- HUD's FHA 2026 Loan Limits Announcement (HUD No. 25-145) — 2026 FHA floor of $541,287 and ceiling of $1,249,125, effective Jan 1, 2026.
- FHFA 2026 Conforming Loan Limit Values — 2026 conforming loan limit of $832,750 for one-unit homes.
- Freddie Mac Primary Mortgage Market Survey — average 30-year conventional rate of 6.30% for week ending April 30, 2026.
- CFPB on PMI Cancellation Rules — Homeowners Protection Act termination thresholds (78% automatic, 80% on request).