FHA vs Conventional: Which Loan Is Actually Cheaper?
FHA vs conventional loan costs compared for 2026 — mortgage insurance, upfront fees, and which is actually cheaper for your credit score.
It's the most common question first-time buyers ask, and the honest answer is: it depends — mostly on your credit score and how long you'll keep the loan. FHA loans are famous for being easy to qualify for, and conventional loans are famous for being “better,” but neither is automatically cheaper. The difference comes down almost entirely to how each one handles mortgage insurance. This guide breaks down the real costs side by side so you can see which one wins for your situation.
The short answer
If your credit score is below about 680, an FHA loan is usually cheaper month to month, because FHA's mortgage insurance is a flat rate while conventional insurance gets more expensive as your score drops. If your score is 700 or higher, a conventional loan is usually cheaper — and far cheaper over time, because its mortgage insurance can be cancelled while FHA's often can't. The crossover point sits around 680. Everything below explains why.
The real difference is mortgage insurance
When you put down less than 20%, both loan types charge mortgage insurance to protect the lender — but they work very differently. Conventional loans charge private mortgage insurance (PMI). FHA loans charge a mortgage insurance premium (MIP). The base interest rate, the home price, the taxes — those are roughly the same either way. It's the insurance that decides which loan is cheaper, so that's where this comparison lives.
How the two compare
The two differences that matter most are price-by-credit-score and whether the insurance ever goes away.
Conventional PMI is priced by risk. The better your credit, the less you pay — roughly 0.4% to 1.9% of the loan per year, scaling heavily with your score. A borrower with a 760 score might pay a small fraction of what a 620 borrower pays for the identical loan. And crucially, PMI cancels: you can request removal once you reach about 20% equity, and by law it automatically drops off at 22% equity.
FHA MIP is flat. Most FHA borrowers pay 0.55% per year regardless of credit score. That's a big advantage if your credit is weak — FHA doesn't punish a low score the way PMI does. But there's a catch: on FHA loans with less than 10% down, the MIP lasts the entire life of the loan. It never cancels as you build equity. The only way to get rid of it is to refinance into a conventional loan.
Don't forget the upfront cost
There's one more difference people overlook. FHA charges an upfront mortgage insurance premium of 1.75% of the loan, due at closing (though it's usually rolled into the loan balance). On a $300,000 loan, that's about $5,250 added to what you owe. Conventional loans have no equivalent upfront insurance charge. So FHA starts you off slightly behind, before the monthly math even begins.
Which is cheaper by credit score
Because conventional PMI scales with credit and FHA MIP doesn't, your score decides the monthly winner. As an illustration, on a roughly $400,000 home with a low down payment, FHA's flat MIP lands around $177 a month. A conventional borrower with a 660 score might pay closer to $288 a month in PMI, and a 620 borrower more like $355 — so FHA clearly wins for them. But a 740-plus borrower could pay roughly half of FHA's MIP, and an 780-plus borrower closer to a third. (These are illustrative; actual PMI varies by lender and loan details — run your real numbers through our mortgage calculator.) The takeaway: below ~680, FHA usually wins the month; above it, conventional pulls ahead and keeps going.
Which is cheaper over time
Month-to-month is only half the story, and the other half is where conventional usually wins decisively. Because conventional PMI cancels once you reach 20% equity — often within 8 to 10 years — you stop paying it while you still own the home. FHA MIP, on most loans, never stops. Pay it for the full 30 years and the difference adds up: lifetime, choosing conventional over FHA can save somewhere in the range of $30,000 to $50,000 for a borrower who qualifies for both. If you plan to stay in the home long-term and you can qualify conventional, that cancellation feature is the single biggest cost lever in this whole comparison.
The strategy most buyers don't know
You don't always have to choose one forever. A very common path is to start with an FHA loan — because it's easier to qualify for with a lower score or smaller down payment — and then refinance into a conventional loan once you've built 20% equity and (ideally) improved your credit. That move eliminates the FHA MIP entirely. It only makes sense when the savings outweigh the refinance closing costs (typically a few thousand dollars), so it's worth a quick break-even check before pulling the trigger. But for many buyers, “FHA now, conventional later” gets the best of both.
So which should you choose?
Lean FHA if your credit is under about 680, your down payment is small, or you're carrying higher debt — it's more forgiving and cheaper monthly at those scores. Lean conventional if your score is 700 or higher and you can put down at least 5%, because your PMI will be low and, more importantly, it'll eventually disappear. And remember the third option: if you're a veteran or buying in a rural area, a VA or USDA loan may beat both. Our full FHA vs. Conventional vs. VA vs. USDA comparison lays out all four side by side.
Frequently asked questions
Is an FHA or conventional loan cheaper?
It depends on your credit score and how long you keep the loan. Below about a 680 score, FHA is usually cheaper monthly. At 700+, conventional is cheaper — and much cheaper over time because its mortgage insurance can be cancelled while FHA's usually can't.
Why is FHA mortgage insurance the same for everyone?
FHA charges a flat 0.55% annual premium regardless of credit score. Conventional PMI is priced by risk, so it costs more for lower scores and less for higher ones. That's why FHA is often cheaper for weaker credit and conventional is cheaper for strong credit.
Does FHA mortgage insurance ever go away?
On FHA loans with less than 10% down, the MIP lasts the life of the loan and never cancels with equity. The usual way to remove it is to refinance into a conventional loan once you have 20% equity. With 10% or more down, FHA MIP drops off after 11 years.
How much is the upfront cost difference?
FHA charges a 1.75% upfront mortgage insurance premium at closing (about $5,250 on a $300,000 loan), usually rolled into the loan. Conventional loans have no equivalent upfront insurance charge.
Can I switch from an FHA loan to a conventional loan later?
Yes, and many buyers do. Once you reach about 20% equity, refinancing from FHA to conventional removes the FHA mortgage insurance. It's worth it when the monthly savings outweigh the refinance closing costs.
What credit score do I need for each loan?
FHA allows scores as low as 580 (or 500 with 10% down). Conventional loans typically require around 620, and you'll want 700+ to get the low PMI rates that make conventional the cheaper option.
This guide is for general informational purposes only and is not financial or lending advice. Mortgage insurance rates, fees, and loan terms vary by lender and individual circumstances. Confirm current costs with a licensed lender before making decisions.
Related calculators