What is the main difference between an FHA and a conventional loan?

An FHA loan is insured by the Federal Housing Administration and requires a minimum 3.5% down payment with a credit score of 580 or higher. A conventional loan is not government-insured, typically requires 3% to 5% down (20% to avoid PMI entirely), and usually needs a credit score of 620 or higher. FHA loans charge both an upfront mortgage insurance premium (MIP) and a monthly MIP, while conventional loans charge private mortgage insurance (PMI) only when you put down less than 20% — and PMI can be cancelled automatically once you reach 78% loan-to-value.

Can I cancel FHA mortgage insurance?

For FHA loans with case numbers assigned after June 3, 2013, the monthly MIP is required for the life of the loan if your down payment is less than 10%. With 10% or more down, MIP cancels after 11 years. This is a key disadvantage versus conventional loans, where PMI cancels automatically at 78% LTV regardless of down payment. The only way to remove MIP from an FHA loan with less than 10% down is to refinance into a conventional loan once you have enough equity.

Which loan is better with a low credit score?

FHA loans are generally better for borrowers with credit scores between 580 and 679. FHA pricing does not increase as sharply with lower scores, and 3.5% down is available at 580+. Conventional loans at those scores often require 5% to 10% down and carry higher rates or PMI surcharges. For scores above 680, conventional loans are usually cheaper because their PMI is less expensive than FHA's MIP and there is no upfront premium. Run both scenarios through the calculator with your actual quotes.

How much is the FHA upfront MIP?

The FHA upfront mortgage insurance premium is 1.75% of the base loan amount, and it is typically financed into the loan rather than paid in cash. On a $300,000 base loan, that adds $5,250 to the financed balance, which increases your monthly payment slightly and accrues interest over the life of the loan. The conventional loan equivalent has no upfront premium, though you may pay closing costs or lender credits that affect your rate.

Is FHA or conventional cheaper on a monthly basis?

It depends on your down payment and credit score. With 5% down, FHA's monthly MIP (0.55%) is often more expensive than conventional PMI, and FHA also carries the upfront MIP. With 3.5% down and a mid-600s credit score, FHA is usually cheaper because conventional PMI rises sharply at lower scores. The calculator shows the monthly P&I, insurance, and total monthly payment for each side by side so you can compare directly.

Can I use an FHA loan for an investment property?

No. FHA loans are only for primary residences, and the property must meet FHA appraisal guidelines including safety, security, and livability standards. Conventional loans can be used for primary residences, second homes, and investment properties. If you are buying an investment property or a home that needs significant repairs, a conventional loan (or a renovation loan like FHA 203k) is likely your better option.

FHA vs Conventional Loan Calculator

An FHA vs conventional loan comparison tool is a free online tool that compares FHA and conventional mortgages. It shows down payment, MIP vs PMI, monthly payment, and total cost side by side. Free, no sign-up required.

Loan Details

Home Price?The purchase price of the home you're considering buying.

FHA Down Payment?Enter your fha down payment.

Conventional Down Payment?Enter your conventional down payment.

FHA Interest Rate?Enter your fha interest rate.

Conventional Interest Rate?Enter your conventional interest rate.

Loan Term?The length of your mortgage in years. Common terms are 15 or 30 years.

End of inputs

FHA vs Conventional Loan

Metric	FHA Loan 3.5% down, financed upfront MIP, monthly MIP for life	Conventional Loan PMI required, cancels at 78% LTV
Monthly P&I	$2,115.98	$2,074.37
Monthly MIP	$154.80	$138.54
Total Monthly	$2,270.78	$2,212.91
Down Payment	$12,250.00	$17,500.00

$57.87/month difference. FHA finances $343,660.63 (incl. upfront MIP); conventional finances $332,500.00 at 6.38%.

Key Insights

FHA requires $12,250.00 down (3.5% minimum) versus $17,500.00 for conventional — a cash-at-closing gap of $5,250.00.

FHA's monthly MIP of $154.80 lasts for the life of the loan with less than 10% down, while conventional PMI of $138.54 cancels automatically at 78% LTV.

Total monthly payment difference is $57.87/month. Conventional wins on monthly cost.

Guide

How to Use This Calculator

1Enter the home price you are considering (the purchase price of the property, before closing costs).
2Set the FHA down payment percentage. FHA requires a minimum of 3.5% with a 580+ credit score; the slider enforces this floor.
3Set the conventional down payment percentage. Put down 20% or more to avoid PMI entirely, or use 3% to 5% to compare low-down-payment options.
4Enter the FHA interest rate and the conventional interest rate from your lender quotes. FHA rates are often slightly lower but carry mortgage insurance for the life of the loan.
5Choose the loan term (commonly 30 years; 15-year is also available). Both scenarios use the same term so the comparison is apples-to-apples.
6Review the side-by-side metrics: monthly P&I, monthly MIP or PMI, total monthly payment, and the down payment amount required. The winner banner shows which loan has the lower total monthly payment.
7Read the AI Insight panel for a personalized interpretation of the insurance cost, down payment burden, and break-even between the two options.

Formula

How It's Calculated

Both scenarios use the standard amortizing-loan monthly payment formula:

M = P × [r(1+r)^n] / [(1+r)^n − 1]

Where:
- M = monthly principal & interest (P&I)
- P = loan amount (principal financed)
- r = monthly interest rate (annual rate ÷ 12)
- n = total number of payments (years × 12)

FHA SCENARIO:
  downPayment   = homePrice × fhaDownPercent  (min 3.5%)
  baseLoan      = homePrice − downPayment
  upfrontMip    = baseLoan × 0.0175           (financed into the loan)
  totalLoan     = baseLoan + upfrontMip
  monthlyPI     = monthlyPayment(totalLoan, fhaRate, years × 12)
  monthlyMip    = baseLoan × 0.0055 / 12      (0.55% annual MIP)
  totalMonthly  = monthlyPI + monthlyMip

CONVENTIONAL SCENARIO:
  downPayment   = homePrice × convDownPercent
  loanAmount    = homePrice − downPayment
  monthlyPI     = monthlyPayment(loanAmount, convRate, years × 12)
  pmiRequired   = loanAmount / homePrice > 0.80   (LTV > 80%)
  monthlyPmi    = loanAmount × ~0.005 / 12  (when LTV > 80%, ~0.5% annual)
  totalMonthly  = monthlyPI + monthlyPmi

WINNER: the scenario with the lower totalMonthly payment.

Example — $350,000 home, 30-year term:
  FHA: 3.5% down, 6.25% rate → baseLoan $337,750, MIP $154.81/mo,
       total monthly ≈ $2,083.20 + $154.81 = $2,238.01
  Conv: 5% down, 6.375% rate → loan $332,500, PMI $138.54/mo,
        total monthly ≈ $2,073.06 + $138.54 = $2,211.60

Here conventional wins on monthly cost, but FHA requires $5,250 less cash
at closing. The upfront MIP also raises FHA's effective loan balance.

Glossary

Key Terms

FAQ

Frequently Asked Questions

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