FHA and conventional loans serve different files. FHA wins when your credit score is 580-680 or your down payment is under 5%. Conventional wins when your credit score is 720+ and you can put down 5-10%. Between 680-720, it depends on the exact numbers — and that is where this calculator earns its keep.
Worked example:$350,000 home, 3.5% down ($12,250), 680 credit. FHA at 6.875% = $2,226 P&I + $175 MIP + escrow. Conventional at 7.375% (LLPAs for 680 score + 96.5% LTV) = $2,333 P&I + $245 PMI + escrow. FHA wins by $177/mo for the first 11 years. Over 30 years of hypothetical ownership, FHA saves about $42,000 even accounting for FHA's non-removable MIP.
The real difference is in the insurance
Both loans require mortgage insurance when you put less than 20% down. The structures are different:
- FHA MIP = 1.75% upfront (financed into loan) + 0.55% annually. MIP is permanent on loans originated after 2013 unless you refinance to conventional. You cannot cancel it by reaching 78% LTV.
- Conventional PMI = 0.3%-1.5% annually depending on credit score and LTV. Drops off automatically at 78% LTV (federal HPA). You can request removal at 80% LTV with a new appraisal.
For a 700-FICO borrower, conventional PMI is typically 0.75% while FHA MIP is 0.55%. FHA also requires the 1.75% upfront MIP which adds to your loan balance forever (you pay interest on it for 30 years). The upfront MIP is about 0.12% amortized rate equivalent — meaningful but small.
Credit score sweet spots
Conventional uses tiered pricing (Loan-Level Price Adjustments). Each 20-point FICO bucket below 740 adds cost:
- 740+ : best rate, lowest PMI
- 720-739 : +0.25% rate or ~0.5 point fee
- 700-719 : +0.5% rate
- 680-699 : +0.75-1.0% rate
- 660-679 : +1.25-1.5% rate, PMI gets expensive
- 640-659 : conventional still technically available but FHA is almost always cheaper
- Below 640 : FHA only
FHA rates barely change from 580 to 760. The rate is mostly driven by the market plus investor overlays, not FICO. That is why FHA is dominant in the under-680 world.
Down payment rules
- FHA — 3.5% minimum with 580+ FICO; 10% minimum with 500-579 FICO. Gift funds from family allowed for 100% of down payment. DPA programs widely allowed.
- Conventional — 3% minimum on HomeReady or Home Possible programs (income-limit-gated), 5% otherwise. 20% avoids PMI. Gift funds allowed but with more documentation.
Loan limits and property rules
Conventional conforming limit for 2026 is $766,550 in most counties, up to $1,149,825 in high-cost counties. Above that, you need a jumbo loan. FHA limits are set by county: the floor is $498,257 and the ceiling (in places like San Francisco, NYC, DC) is $1,149,825.
Property standards differ too. FHA appraisers inspect for health-and-safety items — peeling paint, handrails, water heater straps in earthquake zones. Conventional appraisals are less strict. Sellers of fixer-uppers sometimes refuse FHA offers for this reason.
The 'refi out of FHA later' strategy
If your credit is borderline today but you expect to hit 740+ in 2-3 years, FHA-now-refi-later is a real strategy. Take FHA with 3.5% down at a better rate than conventional would offer today. Once your score clears 740 and your LTV is below 80% (from principal paydown plus appreciation), refinance to conventional to shed the permanent MIP. Model this with the refinance break-even calculator.