First-Time Buyers

FHA vs. Conventional Loan: Down Payment, Credit and Insurance

By Aritz Boveda · Updated October 21, 2026
Fact-checked against primary sources on October 21, 2026

An FHA loan lets you buy with 3.5% down if your credit score is 580 or higher, but you pay a 1.75% upfront mortgage insurance premium plus an annual premium that, with less than 10% down, lasts for the life of the loan. A conventional loan can start at 3% down for some borrowers, and its private mortgage insurance (PMI) can be cancelled once you reach 20% equity. FHA tends to suit buyers with lower scores or thin savings. Conventional usually costs less over time for buyers with stronger credit.

The main differences at a glance

Down payment and credit

FHA. HUD’s own consumer page says an FHA down payment can be as low as 3.5% of the purchase price. That requires a credit score of at least 580. Borrowers with scores from 500 to 579 can still qualify but must put down 10%. Below 500, you aren’t eligible. These are program minimums; lenders often add stricter requirements of their own, so a 580 score doesn’t guarantee approval everywhere.

Conventional. Fannie Mae’s HomeReady program allows down payments as low as 3%, with qualifying income generally capped at 80% of the area median income. For years, 620 was treated as the minimum credit score for conventional loans. Fannie Mae removed that hard floor for loans run through its Desktop Underwriter system for new casefiles created on or after November 16, 2025, replacing it with an overall risk assessment. Manually underwritten loans still carry a 620 minimum. In practice, many lenders and mortgage insurers still apply their own minimums, so ask any lender you’re considering what score it requires.

The credit score also changes the price of a conventional loan. Freddie Mac notes that PMI costs depend on your loan-to-value ratio and your credit score, so two buyers with the same down payment can pay very different premiums.

FHA mortgage insurance: upfront and annual

FHA loans carry two premiums.

Upfront MIP: 1.75% of the base loan amount. It’s charged at closing, and most borrowers add it to the loan instead of paying cash. On a $289,500 loan, that’s $5,066.25.

Annual MIP. HUD cut the annual premium in 2023 (Mortgagee Letter 2023-05) for loans endorsed on or after March 20, 2023. For a loan with a term over 15 years and a base amount at or below the national conforming limit set in that letter, the rates and durations are:

Larger loans and 15-year terms use different rows of the table. The annual premium is divided into monthly installments and added to your payment.

The life-of-loan rule is the big catch. With 3.5% down, the only way to stop paying FHA mortgage insurance is to pay off the loan, usually by selling or refinancing. Loans with case numbers assigned before June 3, 2013 follow older cancellation rules, so check with your servicer if your FHA loan is older.

Conventional PMI and how it ends

Conventional lenders generally require PMI when you put down less than 20%. There’s no upfront premium in the standard setup. Freddie Mac says to expect roughly $30 to $70 a month for every $100,000 borrowed, depending on your down payment and credit.

PMI is also easier to drop. Under the Homeowners Protection Act you can ask your servicer to cancel it once your balance reaches 80% of the home’s original value, and it ends automatically at 78% if you’re current. Extra principal payments get you there sooner. Our guide on how to remove PMI walks through the request step by step.

Worked comparison: a $300,000 home

To isolate the insurance differences, this example uses the same illustrative 6.5% rate on a 30-year fixed loan for both options. Real rates vary by lender, loan type and credit, and FHA and conventional rates are often not the same. The conventional PMI rate here is an illustrative 0.5% a year, inside Freddie Mac’s range.

The FHA loan needs $4,500 less cash for the down payment, but costs about $74 more a month in this example. Part of that is the financed upfront premium, which you pay interest on for the life of the loan.

The bigger difference shows up later. Without extra payments, the conventional balance is scheduled to reach 80% of the original value ($240,000) at payment 124, about 10 years and 4 months in. You could then request PMI cancellation, and the payment would fall to $1,801.39. By that point, you’d have paid about $14,725 in PMI. The FHA borrower in this example keeps paying annual MIP until the loan is paid off or refinanced.

The FHA monthly MIP figure is an estimate (0.55% of $289,500, divided by 12). In practice the premium is figured on the scheduled average balance for each year, so it drifts down slowly over time; your lender will give you the exact figures.

Credit changes the picture. At the top of Freddie Mac’s range, $70 per $100,000, PMI on a $285,000 loan would be $199.50 a month, making the conventional payment $2,000.89, slightly more than the FHA payment. That’s why buyers with lower scores sometimes find FHA cheaper in the early years even with its upfront premium.

Which way to lean

If you’re eligible for a VA or USDA loan, compare those too: both allow 0% down, with their own upfront fees. Ask two or more lenders for Loan Estimates on both loan types using the same down payment, then compare the monthly payment, the cash to close and how long the mortgage insurance lasts. FHA often makes sense if your score is below the range where PMI is affordable or if you need the more flexible credit rules. Conventional often wins if your credit is strong and you plan to stay long enough to drop PMI. Either way, confirm the current premiums and requirements with your lender before you commit, because HUD and the agencies update them from time to time.