What's the Difference Between an FHA Loan and a Conventional Loan?
FHA loans typically allow a lower down payment (as little as 3.5%) and easier credit qualifying but add a monthly mortgage insurance premium that in most cases lasts for the life of the loan, while conventional loans usually need a somewhat larger down payment (commonly 3% to 5% or more) but only require mortgage insurance below 20% equity, insurance that's designed to end automatically well before an FHA borrower's would. FHA also charges an upfront mortgage insurance fee that conventional loans don't have. Which one actually costs less commonly depends on your credit score and how much cash you have for a down payment.
Last updated July 22, 2026How do down payment requirements compare?
FHA's standard minimum down payment is 3.5%, available to borrowers with a credit score of 580 or higher. Below a 580 score, FHA typically requires a much larger down payment, commonly cited around 10%. Conventional loans generally ask for a bit more upfront, typically in the 3% to 5%-plus range, though some conventional programs allow as little as 3% down for qualifying borrowers.
How does mortgage insurance differ between FHA and conventional?
FHA charges an upfront mortgage insurance premium (UFMIP), commonly cited around 1.75% of the loan amount, which can usually be rolled into the loan instead of paid in cash. On top of that, FHA borrowers pay a monthly mortgage insurance premium (MIP) that, in most cases, continues for the life of the loan.
Conventional loans have no upfront mortgage insurance fee. Private mortgage insurance (PMI) only applies when the down payment is below 20%, and it is built to go away over time. Under federal law, PMI must be automatically terminated once the loan is scheduled to reach 78% of the home's original value, as long as payments are current. A borrower can also request cancellation earlier, once the balance reaches 80% of the original value, subject to payment history and lien conditions. So 80% is the point where you can ask to cancel, and 78% is the point where the lender must cancel it for you automatically.
Which loan tends to cost less depending on your situation?
FHA is sometimes priced with a slightly lower headline interest rate than conventional financing, while conventional is generally priced a bit higher on the rate itself. But rate alone doesn't tell the whole story once mortgage insurance is factored in, since FHA's insurance cost is more persistent than conventional PMI. Whether FHA or conventional works out cheaper for you overall really comes down to your credit profile and down payment amount.
It depends on your situation
- Weaker credit or minimal down payment saved up: FHA is often the easier path to qualify, even with the ongoing MIP cost, since its credit and down payment bar is lower.
- Decent to strong credit, and able to reach 20% equity or down payment: Conventional is often the cheaper option long term, since its mortgage insurance is temporary rather than permanent.
- Credit score 580 or higher: FHA's 3.5% minimum down payment applies.
- Credit score below 580: FHA generally requires a much larger down payment, commonly cited around 10%.
What other rules should I know about?
VA loans, available to eligible veterans and service members, carry no monthly mortgage insurance at all, using a one-time funding fee instead. If you're in Texas, note that state law restricts cash-out refinancing on FHA and VA loans, so cash-out refinances there are generally only available through conventional financing.
| Minimum down payment | 3.5% (credit score 580+) |
|---|---|
| Down payment if credit is below 580 | Commonly around 10% |
| Upfront mortgage insurance | Yes, commonly ~1.75% (can be financed) |
| Monthly mortgage insurance | Yes, typically for the life of the loan |
| Automatic mortgage insurance cancellation | Not standard; generally continues |
| Borrower-requested cancellation | Not standard |
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
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.