What's the Difference Between an FHA Loan and a Conventional Loan?
FHA loans allow as little as 3.5% down and easier credit, but charge an upfront mortgage insurance premium plus a monthly premium that, with less than 10% down, lasts for the life of the loan. Conventional loans can go as low as 3% down for some borrowers, charge no upfront premium, and require mortgage insurance only below 20% equity, ending automatically at 78%. Which costs less depends on your credit and down payment.
Last updated September 29, 2026How do down payments compare?
FHA's minimum is 3.5% with a credit score of 580 or higher, and 10% with a score from 500 to 579. Conventional loans can go as low as 3% down in some programs, and many borrowers put down 5% or more.
How does mortgage insurance differ?
FHA charges an upfront premium of 1.75% of the loan, which can usually be rolled into the loan, plus a monthly premium. With less than 10% down, the monthly premium lasts for the life of the loan; with 10% or more down, it ends after 11 years.
Conventional loans have no upfront premium. Private mortgage insurance applies only below 20% equity and is built to go away. Under federal law, you can ask to cancel it once your balance reaches 80% of the home's original value, and the servicer has to end it automatically at 78%, if you're current on payments.
Which costs less?
FHA rates are sometimes a bit lower than conventional rates, but FHA's mortgage insurance lasts longer, so the rate alone doesn't settle it. Compare total monthly cost, including mortgage insurance, over the time you expect to keep the loan.
It depends on your situation:
- Weaker credit or a small down payment: FHA is often easier to qualify for, even with its ongoing premium.
- Good credit and a path to 20% equity: conventional is often cheaper over time, since its mortgage insurance ends.
- Credit score of 580 or higher: FHA's 3.5% minimum applies.
- Credit score from 500 to 579: FHA requires 10% down.
What else should I know?
VA loans, for eligible veterans and service members, have no monthly mortgage insurance and charge a one-time funding fee instead. In Texas, VA cash-out refinances aren't allowed on a homestead, so cash-out there usually means a conventional loan.
| Minimum down payment | 3.5% with a 580 score; 10% from 500 to 579 |
|---|---|
| Upfront mortgage insurance | 1.75%, can be financed |
| Monthly mortgage insurance | Life of the loan with less than 10% down; 11 years with 10% or more |
| When it ends | See above |
Related questions
Sources
- https://www.fha.com/fha_loan_requirements
- https://www.hud.gov/program_offices/housing/sfh/hcc/schb
- https://www.fha.com/fha_credit_requirements
- https://www.hud.gov/sites/dfiles/OCHCO/documents/4000.1hsgh.pdf
- https://www.hud.gov/sites/documents/15-01ML.PDF
- https://www.rocketmortgage.com/learn/ufmip
- https://www.consumerfinance.gov/ask-cfpb/how-do-i-remove-private-mortgage-insurance-pmi-or-mortgage-insurance-premium-mip-en-1935/
- https://yourhome.fanniemae.com/buy/homebuyer-down-payment
- https://themortgagereports.com/16976/97-mortgage-low-downpayment-3-mortgage-rates
- https://www.consumerfinance.gov/ask-cfpb/what-is-private-mortgage-insurance-en-122/
- https://www.lower.com/mortgages/mortgage-insurance-requirements-by-loan-type
- https://ncua.gov/regulation-supervision/manuals-guides/federal-consumer-financial-protection-guide/compliance-management/lending-regulations/homeowners-protection-act-pmi-cancellation-act
- https://www.freedommortgage.com/learn/mortgages/pmi-vs-mip
- https://www.va.gov/housing-assistance/home-loans/funding-fee-and-closing-costs/
- https://www.va.gov/housing-assistance/home-loans/loan-types/purchase-loan/
- https://themortgagereports.com/41538/texas-cash-out-refinance-new-laws-you-need-to-know
- https://statutes.capitol.texas.gov/Docs/CN/htm/CN.16.htm
- https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2018/kp0183.pdf
Sourced from licensed loan officers and brokers in the FreeRateUpdate network.
Educational information only, not individualized financial or legal advice. Program details and rates change; verify current terms with a licensed loan officer before making a decision.