Credit Tiers, MI Costs, Down Payment, Loan Limits
FHA Loan vs Conventional Loan: Full Comparison for 2026
FHA wins below 680 credit because conventional loan-level price adjustments make the rate expensive at lower scores. Conventional wins above 680 because PMI cancels while FHA MIP is permanent. The crossover point — where conventional becomes cheaper than FHA on total monthly cost — sits around 680-700 credit for most borrowers. Run both scenarios at your specific credit score before choosing, because the wrong program costs thousands over the loan term.
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FHA Advantages
- Lower credit floor: 580 with 3.5% down (500 with 10% down); conventional requires 620 minimum
- Better rate pricing below 680: No LLPAs means FHA rates are lower than conventional at the same credit tier
- Higher DTI approval: TOTAL Scorecard approves up to 56.99% DTI; conventional typically caps at 50%
- Action: FHA is the default choice for borrowers between 580-680 credit with limited down payment funds
Conventional Advantages
- PMI cancels: Automatically at 78% LTV or by request at 80%; FHA MIP is permanent on most post-2013 loans
- Higher loan limits: Conforming limit $832,750 vs FHA floor of $541,287 in most areas
- Better pricing above 720: LLPAs are minimal at high credit; combined with PMI cancellation, conventional is significantly cheaper long-term
- Action: Conventional is the better choice above 680-700 credit when total cost including MI is compared over 5-10 years
Mortgage Insurance
- FHA MIP: 1.75% upfront + ~0.55% annual; permanent on loans with less than 10% down originated after June 2013
- Conventional PMI: No upfront charge; $80-$200/month; cancels at 78-80% LTV — this is the key advantage
- 10-year cost difference: On a $350,000 loan, permanent FHA MIP costs ~$19,250 over 10 years; conventional PMI costs ~$12,000 and then drops to $0
- Action: Compare 5-year and 10-year total MI cost — not just the monthly payment — when choosing between programs
The Crossover Point
- Below 680 credit: FHA almost always wins on monthly cost because conventional LLPAs increase the rate significantly
- 680-700 credit: The crossover zone — FHA and conventional are close; run both and compare total cost over your expected holding period
- Above 720 credit: Conventional wins clearly — lower rate, lower PMI, and PMI cancellation makes total cost substantially less than FHA
- Action: Ask your lender to quote both programs at your exact credit score and compare side by side
Frequently Asked Questions
Is FHA or conventional better for first-time buyers?
Why is FHA cheaper below 680 credit?
Can I switch from FHA to conventional later?
The Bottom Line Up Front
FHA is cheaper below 680 credit because conventional loan-level price adjustments make the rate expensive at lower scores. Conventional is cheaper above 680 credit because PMI cancels while FHA MIP is permanent. The program choice at your specific credit score can save or cost tens of thousands over the loan term.
This comparison covers every dimension: credit requirements, down payment, mortgage insurance cost and duration, DTI flexibility, loan limits, and property requirements. The right answer is credit-tier-dependent and holding-period-dependent — a borrower at 640 credit planning to stay 5 years makes a different choice than a borrower at 720 credit planning to stay 15 years. Run both scenarios with your lender and compare the 5-year and 10-year total cost, not just the monthly payment. The monthly payment comparison on day one misses the MI cancellation advantage that makes conventional the clear winner at higher credit tiers over time. A borrower comparing only the first month will often choose FHA at 680 credit, while a borrower comparing the 10-year total cost chooses conventional because PMI cancels and FHA MIP does not.
How Do FHA and Conventional Compare Side by Side?
The comparison below covers the eight most important decision factors. FHA and conventional differ on every one, and the weight of each factor changes based on your credit score, down payment, and expected holding period.
The single most important difference is mortgage insurance. FHA charges upfront and annual MIP that is permanent on most post-2013 loans. Conventional charges PMI with no upfront component that cancels automatically at 78% LTV or by request at 80% LTV. Over a 10-15 year holding period, PMI cancellation saves conventional borrowers tens of thousands of dollars compared to permanent FHA MIP — but only if the borrower’s credit score is high enough to get competitive conventional pricing in the first place.
| Feature | FHA | Conventional |
|---|---|---|
| Min credit score | 580 (500 w/10% down) | 620 |
| Min down payment | 3.5% | 3% (first-time); 5% (standard) |
| Upfront MI | 1.75% UFMIP | None |
| Annual MI | ~0.55% (permanent*) | $80-$200/mo (cancels at 78-80% LTV) |
| Max DTI | 56.99% (TOTAL Scorecard) | 50% (DU/LP) |
| Loan limit (2026) | $541,287 floor / $1,249,125 ceiling | $832,750 conforming |
| AUS | TOTAL Scorecard | DU (Fannie) / LP (Freddie) |
| Property standards | HUD minimum property requirements (strict) | Conventional appraisal (less strict) |
| Rate pricing | Flat across credit tiers (no LLPAs) | LLPA-adjusted (higher cost at lower credit/higher LTV) |
*FHA MIP is permanent on loans originated after June 2013 with less than 10% down. With 10%+ down, MIP drops after 11 years.
Deal Math
On a $350,000 loan at 640 credit with 5% down: FHA rate is approximately 6.5% with $160/month MIP. Conventional rate is approximately 7.25% (after LLPAs) with $145/month PMI. FHA monthly P&I+MI: $2,372. Conventional monthly P&I+PMI: $2,533. FHA saves $161 per month at this credit tier. But at 720 credit: FHA rate 6.25% with $160/month permanent MIP. Conventional rate 6.25% with $90/month PMI that cancels at year 6. By year 7, the conventional borrower pays $90 less per month than FHA — and that savings compounds for every remaining year of the loan.
Where Is the FHA-to-Conventional Crossover Point?
The crossover point — where conventional becomes cheaper than FHA on total cost — depends on your credit score and how long you plan to keep the loan. Below 680, FHA wins on both monthly payment and rate. Above 720, conventional wins clearly. Between 680-700 is the zone where the comparison is closest and the answer depends on your specific numbers.
At 680 credit, conventional LLPAs are moderate — the rate is slightly higher than FHA but PMI is lower than MIP and cancels within 5-8 years depending on appreciation and extra payments. Once PMI cancels, every subsequent month is a savings over FHA. The longer you hold the loan past PMI cancellation, the more conventional wins. For a borrower at 690 credit planning to stay 10+ years, conventional typically wins by $15,000-$25,000 over the loan term after accounting for the early-year rate disadvantage and the post-cancellation savings.
- 580-619 credit: FHA is the only option — conventional requires 620 minimum, and FHA rates are competitive at this range
- 620-679 credit: FHA wins on monthly payment due to LLPAs making conventional expensive; run both scenarios but expect FHA to be cheaper
- 680-699 credit: crossover zone — FHA and conventional are close on monthly cost; compare 5-year and 10-year total cost including MI duration
- 700-739 credit: conventional starts winning — LLPAs are moderate, PMI is lower than MIP, and cancellation creates a clear long-term advantage
- 740+ credit: conventional wins clearly — minimal LLPAs, lowest PMI rates, and cancellation at 78-80% LTV makes total cost substantially less than FHA
What About Loan Limits?
Conventional conforming loan limits are significantly higher than FHA limits in most areas. For 2026, the conventional conforming limit is $832,750 while the FHA floor is $541,287. In high-cost counties, FHA limits increase up to $1,249,125 and conventional limits increase as well.
If you need to borrow between $541,287 and $832,750 in a standard-cost county, conventional is your only conforming option — FHA does not cover that range. In high-cost counties (parts of California, New York, Hawaii, and other expensive markets), both limits increase — FHA goes up to $1,249,125 and conventional increases correspondingly. Check your county’s specific limits on the HUD and FHFA websites, as the limits are set annually and vary by county. Borrowers who exceed both limits need a jumbo loan with different underwriting standards and typically higher credit requirements (680-720 minimum). The loan limit difference is a practical constraint that pushes some borrowers to conventional regardless of which program would otherwise be cheaper at their credit tier.
Which Program Should You Choose?
The decision tree is straightforward once you know your credit score and expected holding period. Use the flow below to identify your best path, then confirm with side-by-side quotes from your lender.
If your credit is between 580 and 619, FHA is your only option. Between 620 and 679, FHA is likely cheaper but get both quotes. Between 680 and 700, the comparison is close — get quotes for both programs and compare 5-year and 10-year total cost including MI. Above 700, conventional almost always wins, and above 740, conventional wins by a wide margin. The exception in every tier: if your DTI is above 50%, FHA’s TOTAL Scorecard may approve you while conventional DU/LP declines — in that case, FHA is your only path regardless of credit score. Similarly, if the property has condition issues that fail conventional appraisal standards, FHA’s more defined minimum property requirements may actually be easier to navigate because the required repairs are clearly specified rather than left to appraiser discretion.
File Guidance
Many FHA borrowers should plan to refinance into conventional once their credit improves above 680 and they have 20%+ equity. This eliminates permanent FHA MIP entirely and replaces it with zero mortgage insurance. The FHA-to-conventional refinance is one of the highest-return financial moves available to homeowners who originally bought with lower credit. Monitor your credit score and equity position annually and refinance when the numbers work.
The Bottom Line
Below 680 credit, FHA is almost always cheaper. Above 720, conventional is clearly the winner. Between 680-720 is the crossover zone where your specific numbers determine the answer. Always get quotes for both programs at your exact credit score and compare the 5-year and 10-year total cost — not just the monthly payment.
The mortgage insurance difference is the deciding factor for most borrowers. FHA’s permanent MIP adds a cost that never goes away. Conventional’s cancelable PMI creates a clear long-term advantage once you reach 78-80% LTV. For borrowers who start with FHA due to lower credit, planning a refinance to conventional once credit improves and equity builds is the strategy that captures the best of both programs — FHA’s accessibility to buy, and conventional’s lower long-term cost to keep.
Frequently Asked Questions
What are LLPAs and how do they affect conventional pricing?
Loan-level price adjustments (LLPAs) are risk-based pricing adjustments that Fannie Mae and Freddie Mac apply to conventional loans. They increase the rate based on credit score, LTV, property type, and loan purpose. A borrower at 640 credit with 95% LTV faces LLPAs of 2.75%-3.5%, which translates to roughly 0.75%-1% higher rate. At 760 credit with 75% LTV, LLPAs are near zero. FHA does not use LLPAs, which is why FHA rates are more competitive at lower credit tiers.
Does FHA or conventional close faster?
Both typically close in 30-45 days. FHA may take slightly longer if the appraisal triggers required repairs under HUD minimum property requirements — issues like peeling paint, missing handrails, or safety hazards must be fixed before closing. Conventional appraisals have less strict property condition requirements, which can avoid repair-related delays. The difference is usually 3-5 days at most.
Can I use FHA for an investment property?
No. FHA requires owner occupancy — the property must be your primary residence. You must move in within 60 days of closing and live there for at least one year. Conventional loans allow non-owner-occupied purchases (investment properties) with 15%-25% down payment and higher credit requirements. VA loans also requires owner occupancy.
Is FHA MIP really permanent?
On loans originated after June 3, 2013 with less than 10% down at origination, yes — MIP lasts for the entire loan term. If you put 10% or more down, MIP drops after 11 years. The only way to remove permanent MIP is to refinance into a conventional loan with at least 20% equity. This makes the FHA-to-conventional refinance strategy important for borrowers who plan to stay in the home long-term.
Can I get a conventional loan with 3% down?
Yes, through Fannie Mae HomeReady or Freddie Mac Home Possible programs. These require 620 minimum credit and have income limits (typically 80% of area median income). Standard conventional loans require 5% down without income restrictions. The 3% conventional programs are designed for first-time buyers and moderate-income borrowers who might otherwise use FHA.