Neither loan is always cheaper. FHA can be the better-priced path when your down payment is small or conventional pricing is unfavorable, but its 1.75% upfront mortgage insurance premium and potentially long-lasting monthly mortgage insurance can outweigh that advantage. Conventional financing may cost less when your credit, down payment and lender pricing qualify you for favorable terms, and conventional PMI may be cancellable under applicable rules. The reliable answer comes from comparing same-day Loan Estimates for the same home, loan amount, term and closing assumptions.
What determines which loan costs less?
The cheapest option is borrower-specific. A credit score is important, but lenders also evaluate the rest of the application, including debt, income, assets, property, occupancy, loan size and down payment. Mortgage rates, lender fees, mortgage-insurance pricing and underwriting overlays can change the result even for two borrowers with the same score.
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Do not rely on a rule such as “FHA is cheaper below score X.” Official guidance does not establish a universal break-even score. Ask multiple lenders for comparable Loan Estimates issued close together in time, then compare the total cost over the period you expect to own or keep the loan.
FHA loan costs and eligibility
Down payment and credit-score tiers
FHA’s familiar minimum tiers are a 3.5% down payment with a decision score of at least 580, and 10% down for scores from 500 through 579. Those are program guidelines, not an approval guarantee. The lender still underwrites the complete application and may impose stricter requirements.
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FHA underwriting uses an automated system as well as lender review. HUD describes FHA TOTAL (Technology Open To Approved Lenders) Mortgage Scorecard as “a statistically derived algorithm developed by HUD to evaluate borrower credit history and application information.” The scorecard considers the application together; it does not by itself promise approval.
Upfront mortgage insurance premium
Most FHA forward purchase loans carry an upfront mortgage insurance premium (UFMIP) of 1.75%, according to HUD’s published structure. The premium can usually be paid at closing or financed into the loan, subject to the applicable loan limit and lender processing. Financing it increases the balance on which you pay interest.
For an arithmetic illustration only, a $400,000 purchase with 3.5% down has a $386,000 base loan before UFMIP. A 1.75% premium on that base amount is $6,755. This illustration excludes the annual premium, interest, taxes, homeowners insurance, closing costs and any lender-specific adjustment; it is not a market quote.
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Annual and monthly MIP
FHA also charges annual mortgage insurance, collected monthly. The exact annual rate depends on program rules and loan characteristics such as the original loan-to-value ratio, loan term and balance. Because no single current annual rate applies to every FHA loan, a lender’s Loan Estimate is the proper source for the monthly amount.
How long FHA MIP can last
For FHA case numbers assigned on or after June 3, 2013, HUD’s duration table generally shows 11 years of monthly MIP when the original loan-to-value ratio is 90% or less. Above 90% original LTV, monthly MIP generally continues for the loan term. Confirm the rule for the specific case number and current HUD policy; refinancing, repayment or other program changes can alter what happens later.
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This duration is a major cost difference. A low FHA payment today may include insurance for many more years than a conventional loan’s PMI, so compare the insurance end date and the remaining balance, not just the first monthly payment.
Conventional loan costs and eligibility
Down payment and underwriting
Conventional requirements depend on the product, lender and underwriting. Some programs permit a low down payment, while others or particular risk profiles require more. There is no single conventional minimum score or down-payment rule that applies to every lender.
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Scan for outdated or missing drivers - takes under a minuteDriver Scan →Clear out junk files and repair common Windows errorsFree Scan →Fix the driver behind crashes, sound loss and screen glitchesFind Drivers →With less than 20% down, a covered conventional loan typically requires private mortgage insurance (PMI). The lender’s pricing model, your credit profile, the loan-to-value ratio, occupancy and other factors determine the premium. CFPB guidance establishes that mortgage insurance may be required below 20% down; it does not supply one universal PMI rate.
PMI cancellation
Many covered conventional loans give borrowers cancellation rights under the Homeowners Protection Act and related servicing rules. Eligibility, payment history, property value documentation and other conditions can apply. Ask the servicer for the exact cancellation and termination dates for your loan.
Conventional PMI rules are separate from FHA MIP rules. Do not assume that an FHA borrower can use conventional cancellation provisions, or that a conventional servicer will remove PMI automatically without the applicable conditions being met.
How your credit score changes the comparison
Why a lower score does not automatically make FHA cheaper
FHA’s published score tiers can make eligibility possible with a smaller down payment than some conventional offers, but eligibility and price are different questions. A lender may add an overlay, price conventional PMI differently, or offer FHA terms that include more insurance. Another lender may reach a different result with the same borrower.
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Random freezes, missing sound and display glitches usually trace back to one bad driver. Find and replace yours safely.Free scan · under a minuteConsumer-app scores can differ from the score used in mortgage underwriting. Ask the lender which score model and version it is using, and whether the score is a mortgage-specific version. The score displayed by a free monitoring service is not necessarily the underwriting score.
Why there is no universal break-even score
A break-even calculation requires actual rates, points, lender fees, insurance premiums, loan amount, term, property location and expected holding period. Since those inputs vary, no universal score threshold determines when FHA wins. Compare written offers instead.
FHA and conventional comparison at a glance
| Feature | FHA | Conventional |
|---|---|---|
| Common minimum down-payment tiers | 3.5% with a decision score of at least 580; 10% for scores 500–579, subject to underwriting and lender overlays | Varies by product, lender and underwriting; no single rule applies to every loan |
| Mortgage insurance with a small down payment | Most forward purchase loans have 1.75% upfront MIP plus monthly MIP | PMI is typically required below 20% down for covered loans |
| Insurance duration | For qualifying case numbers assigned on or after June 3, 2013, HUD’s table generally shows 11 years at original LTV of 90% or less and the loan term above 90% LTV | PMI may be cancellable under applicable rules; confirm the conditions and dates with the servicer |
| Credit-based pricing | FHA scorecard evaluates credit history and application information together; lender pricing still varies | Pricing and PMI are borrower- and lender-specific |
| Loan-limit framework | County and metropolitan-area limits set by HUD | Conforming limits set by FHFA and adjusted by location; jumbo rules apply above them |
Down-payment scenarios: what changes at each level?
| Down payment | Potential FHA effect | Potential conventional effect | Cost question to ask |
|---|---|---|---|
| 3.5% | Matches FHA’s familiar tier when the decision score is at least 580; upfront and monthly MIP apply | Availability and pricing depend on the product and lender; PMI is typically required | Does the conventional offer’s rate, PMI and fees offset FHA’s UFMIP and monthly MIP? |
| 5% | FHA remains available if other underwriting conditions are met; MIP still applies | Some conventional products may accept this down payment, with PMI commonly required | How quickly can conventional PMI end, and what is the FHA insurance duration for this LTV? |
| 10% | Matches the familiar FHA tier for decision scores from 500–579; at this LTV, HUD’s table generally points to 11 years of MIP for qualifying case numbers | Product and lender rules determine eligibility; PMI commonly applies below 20% | Compare the FHA upfront premium and 11-year insurance period with conventional PMI and pricing. |
| 20% or more | FHA still has UFMIP and program-specific MIP rules unless another provision applies | PMI is generally not required on a covered conventional loan at 20% down, subject to the loan terms | Does avoiding conventional PMI justify the FHA insurance and financing costs? |
The table describes common program mechanics, not a promise that either loan will be approved or priced a certain way.
2026 loan limits can change the answer
Your desired loan must fit the applicable limit for the property’s county and size. FHA limits and conforming conventional limits are not interchangeable.
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| Program and property | 2026 figure | Qualification |
|---|---|---|
| FHA, one-unit, national low-cost floor | $541,287 | For FHA case numbers assigned from January 1, 2026; local county or metropolitan limits may be higher |
| FHA, one-unit, high-cost ceiling | $1,249,125 | 2026 maximum in high-cost areas; the applicable local limit controls |
| Conforming conventional, one-unit baseline | $832,750 | Applies in most of the country; high-cost-area limits vary |
HUD announced the FHA figures on December 11, 2025. FHFA announced the 2026 conforming baseline on November 25, 2025, citing a 3.26% average change in its nominal, seasonally adjusted, expanded-data house-price index between the third quarters of 2024 and 2025. Hawaii, Alaska, Guam and the U.S. Virgin Islands receive special statutory treatment. Confirm the limit for the exact property before comparing offers, and update these figures for a later loan year.
How to compare actual offers step by step
- Use identical assumptions. Give each lender the same purchase price, down payment, occupancy, property type, loan term, desired closing date and any points preference.
- Request Loan Estimates close together. Rates and lock assumptions move, so compare offers issued on the same day or as close together as practical.
- Verify the loan amount. Check the base principal, any financed FHA UFMIP, and whether seller credits or other adjustments are included.
- Compare the interest rate and points. A lower rate with more points can cost more if you sell or refinance soon.
- Separate lender charges from third-party costs. Review origination fees, underwriting charges, appraisal, title services and other closing costs rather than relying only on the cash-to-close figure.
- Identify mortgage insurance. Record FHA upfront MIP, monthly MIP, conventional PMI, the expected payment and the stated cancellation or duration assumptions.
- Separate escrow items. Compare principal and interest, mortgage insurance, property taxes and homeowners insurance. Taxes and insurance are not determined by choosing FHA or conventional.
- Calculate the planned holding-period cost. Add cash paid at closing and expected monthly payments through the month you expect to sell, refinance or pay off the loan.
- Check the remaining balance. Two loans with similar payments can leave different balances at your expected exit date; include that balance in a sale or refinance analysis.
- Ask for the insurance end date. For conventional PMI, ask the servicer what conditions apply. For FHA, confirm the case-number rules and whether monthly MIP is expected to last 11 years or the loan term.
A practical holding-period calculation
Use a simple worksheet for each offer:
- Cash paid at closing, including down payment and non-financed closing costs.
- Loan amount after any financed FHA UFMIP.
- Monthly principal and interest.
- Monthly FHA MIP or conventional PMI, with its expected end date.
- Property taxes and homeowners insurance, shown separately.
- Points and lender fees.
- Expected principal balance at the date you plan to sell, refinance or pay off.
For a planned three-year stay, a loan with a slightly lower payment but substantial points and upfront insurance may not be cheaper than a higher-payment alternative. For a long-term owner, the duration of mortgage insurance and the eventual balance can matter more than a small difference in the initial payment. Use the same period for both offers and do not treat a lower monthly payment as proof of lower total cost.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Which option tends to fit common borrower situations?
Limited cash for the down payment
FHA is worth quoting when 3.5% down is feasible but a conventional offer requires more cash or produces unattractive PMI pricing. Include the 1.75% UFMIP and monthly MIP in the comparison; a smaller initial cash requirement does not mean a lower lifetime cost.
Decision score between 500 and 579
FHA’s familiar 10% tier may provide an eligible path, subject to full underwriting and lender overlays. Obtain a conventional quote as well if a lender offers one, but do not assume it will be approved or cheaper.
Decision score of at least 580 with 3.5% available
Both paths may merit a quote, depending on the lender and property. Compare conventional PMI, FHA UFMIP, monthly insurance and the expected insurance end date rather than choosing from the down payment alone.
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Ten percent down and a long expected ownership period
At 10% down, qualifying FHA case numbers generally fall in HUD’s 11-year MIP duration category, while conventional PMI may end under applicable rules. The longer you expect to keep the loan, the more important those insurance timelines become.
Twenty percent or more down
A covered conventional loan may avoid PMI at 20% down, but FHA’s UFMIP and MIP rules still need to be priced. FHA is not automatically cheaper simply because the borrower can make a large down payment.
Loan amount near a local limit
Check the county-specific FHA limit and the applicable conforming limit before selecting a program. A loan that fits one limit may not fit the other, and exceeding a conforming limit can move a conventional loan into jumbo pricing and underwriting.
Common mistakes and how to avoid them
- Comparing advertisements instead of Loan Estimates: advertised rates may assume different points, credit, down payment or lock periods. Use written estimates with matching assumptions.
- Ignoring financed UFMIP: adding the 1.75% FHA premium to the balance increases interest and affects the payoff amount.
- Comparing only the first payment: include insurance duration, points, fees, taxes, homeowners insurance and the balance at your planned exit date.
- Assuming FHA MIP can be cancelled like conventional PMI: FHA and conventional insurance rules are different. Confirm the FHA case-number rule and ask the servicer about any available path.
- Using a consumer-app score as the underwriting score: ask which model and version the lender uses.
- Assuming minimum FHA rules bind every lender: overlays can require a higher score, more reserves or other conditions.
- Using outdated limits: 2026 figures are time-bound, and county limits control. Verify the limits for the loan year and property location.
- Assuming a future scoring policy is already active: HUD’s announced 2027 model expansion is not an October 2026 rule.
What changes on January 1, 2027?
HUD announced that FHA planned to permit VantageScore 4.0 and FICO Score 10T alongside Classic FICO beginning January 1, 2027. HUD’s October 8, 2026 update says the policy applies to FHA case numbers assigned on or after that date and that existing FHA policies remain in effect until amended.
As of October 2026, treat this as an announced upcoming implementation, not as a score-model rule already applied to every FHA application. Ask the lender which model applies to your case number and do not assume a score will transfer unchanged between models.
Questions to ask each lender
- Which credit-score model and version did you use, and is it the score that will be used for underwriting?
- What are the exact rate, points, lender fees and lock assumptions?
- What is the FHA base loan amount, and is UFMIP financed?
- What annual and monthly FHA MIP amount applies to this case?
- For conventional financing, what PMI amount applies and what cancellation conditions and dates are expected?
- What is the total cash to close and the projected monthly payment, separated into principal, interest, insurance and escrow?
- What is the projected balance after the number of years I expect to keep the loan?
- Which FHA and conforming loan limit applies to this property?
- Are there lender overlays beyond the published FHA minimum tiers?
Bottom line
Choose FHA when its eligibility and cash requirements solve a real problem and the complete Loan Estimate remains competitive after UFMIP and the expected duration of monthly MIP. Choose conventional when your credit and down payment produce favorable pricing, particularly if PMI can end under the applicable rules. Because rates, fees, insurance and underwriting vary, the defensible answer for your situation is the lower holding-period cost shown by comparable offers—not a generic credit-score threshold.
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