FHA vs. Conventional Loan
FHA is usually easier to qualify for. Conventional is usually cheaper to keep. The crossover depends on how long you hold the loan.
Key takeaways
- FHA adds a 1.75% upfront mortgage insurance premium, normally financed into the loan.
- FHA annual MIP terminates after 11 years only if the original loan-to-value was 90% or less; above that it lasts the life of the loan.
- Conventional PMI can be cancelled at 80% loan-to-value and terminates automatically at 78%.
- FHA pricing is less sensitive to credit score, which is why it can still win for borrowers with thinner credit.
- Refinancing out of FHA is the standard exit from life-of-loan MIP, and it depends on future rates you cannot control.
Short answer: FHA tends to win at the point of qualification and in the first few years; conventional tends to win over a long hold because its mortgage insurance ends. The decision turns on your credit profile, your down payment, and how long you realistically keep the loan.
The structural difference: how the insurance ends
| FHA | Conventional | |
|---|---|---|
| Upfront premium | 1.75% of the base loan amount | None |
| Annual premium | Charged monthly, set by LTV and term | PMI, priced by LTV and credit score |
| Ends at 80% LTV? | No | Yes, on request |
| Automatic termination | 11 years if original LTV ≤ 90% | 78% LTV |
| Under 10% down | Life of loan | Still cancels at 78% |
Where FHA is genuinely better
- Credit scores where conventional PMI pricing becomes punitive
- Higher debt-to-income ratios that conventional underwriting will not accept
- Borrowers who expect to refinance within a few years anyway
- FHA loans are assumable, which can be valuable if you sell while rates are higher than yours
Where conventional pulls ahead
- Strong credit, where PMI is cheap and cancels within a decade
- 10% or more down, where the PMI period is short
- Long holding periods, where life-of-loan MIP compounds into real money
- Avoiding the 1.75% upfront premium added to the balance on day one
Compare over the holding period, not at closing
A closing-cost comparison flatters FHA because the upfront premium is financed rather than paid. Model the full period: the financed premium raises your balance and therefore your interest for every remaining month, and the annual premium either stops or does not. Over ten years these two effects usually dominate the headline rate difference.
The refinance escape hatch is not guaranteed
The usual plan for life-of-loan MIP is to refinance into a conventional loan once equity reaches 20%. That works only if rates and your credit at that moment permit it. Treat it as a possibility, not an assumption, and check whether the FHA loan still makes sense if you never refinance.
Frequently asked questions
- Can I get rid of FHA mortgage insurance without refinancing?
- Only if your original loan-to-value was 90% or less, in which case the annual premium ends after 11 years. Otherwise refinancing into a conventional loan is the standard route.
- Is the FHA upfront premium refundable?
- Partially, on a declining schedule, if you refinance into another FHA loan within three years. Refinancing to a conventional loan does not produce a refund.
- Does FHA always have a lower interest rate?
- Often the note rate is lower, but the annual premium usually more than offsets it. Compare total monthly cost including mortgage insurance, not the rate alone.
Sources
- U.S. Department of Housing and Urban Development: FHA Single Family Housing Policy Handbook 4000.1 — accessed 2026-07-28
- U.S. Department of Housing and Urban Development: Mortgage insurance premiums, FHA Single Family — accessed 2026-07-28
- Consumer Financial Protection Bureau: When can I remove private mortgage insurance (PMI) from my loan? — accessed 2026-07-28
Educational content only. This is not a loan offer, and your actual terms depend on your lender, credit profile and property.
We do not sell leads and we do not rank lenders. Always compare official Loan Estimates.
Keep reading
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