The comparison is usually framed as “FHA is for weaker credit.” That is true but incomplete, and the incomplete part costs people money.
Side by side
| FHA | Conventional | |
|---|---|---|
| Minimum down | 3.5% (580+ score) | 3% for qualifying first-time buyers, otherwise 5% |
| Minimum score | 580, sometimes 500 with 10% down | Generally 620 |
| DTI tolerance | Higher, often to 50%+ with factors | Typically 45–50% |
| Mortgage insurance | Upfront 1.75% plus annual MIP | Monthly PMI, no upfront |
| MI cancellable? | No on most loans under 10% down | Yes at 78–80% LTV |
| Property standards | Stricter appraisal requirements | More flexible |
| Loan limits | Lower, county-dependent | Higher conforming limits |
The permanence issue
This is what people miss. On most current FHA loans with less than 10% down, the annual mortgage insurance premium lasts the life of the loan. It does not cancel at 78% LTV. It does not cancel at 50% LTV.
Conventional PMI cancels automatically at 78% and can be requested at 80% — and appreciation can accelerate that considerably.
On a $300,000 FHA loan, MIP at 0.55% is $137.50 a month. Over a thirty-year hold that is roughly $49,500 with no exit other than refinancing.
A worked comparison
$350,000 purchase, 3.5% down FHA versus 5% down conventional, borrower with a 700 score:
FHA
- Loan: $337,750 plus $5,911 upfront MIP financed = $343,661
- Rate: typically slightly lower than conventional at this score
- MIP: ~$155/month, permanent
Conventional
- Loan: $332,500
- Rate: modestly higher
- PMI: ~$180/month, ending around year 9–11 with normal amortization, sooner with appreciation
FHA looks cheaper monthly at first. Conventional wins decisively over a long hold, because the PMI stops and the FHA MIP does not.
When FHA is genuinely the better choice
- Credit below 620 — conventional is often unavailable
- Credit 620–680 with higher DTI — FHA pricing at lower scores is frequently better, and the DTI tolerance matters
- Recent credit event — shorter waiting periods after bankruptcy or foreclosure
- You plan to refinance out once credit improves and equity builds
- Non-occupant co-borrower needed — FHA is more permissive
When conventional wins
- Credit 700+ — PMI pricing becomes very competitive and it cancels
- Long expected hold
- 10%+ down — the FHA advantage narrows sharply
- Property may not meet FHA appraisal standards
- Competitive offer situation — some sellers still perceive FHA as riskier, fairly or not
The right way to decide
Do not compare monthly payments in year one. Compare total cost over your expected hold, including when mortgage insurance ends under each. A broker can price both simultaneously — and should, without being asked.
Common questions
No. FHA is available to any qualifying buyer for a primary residence.
Yes, into a conventional loan once you have sufficient equity and credit. This is the standard route off permanent FHA mortgage insurance.
General information, not advice on your specific situation. Guidelines, limits and pricing change, and vary by lender, programme and state. Nothing here is a commitment to lend or an offer of credit. For tax or legal questions, consult a qualified professional.
Sree Basireddy · Mortgage Loan Officer, NMLS 2705737 · Loan Factory, Inc., NMLS 320841 · Equal Housing Opportunity