Loan Type Comparison

FHA vs Conventional Loan: Which Costs Less in 2026?

George Smith — Founder, Klickify Agency

You have $20,000 saved for a down payment. You want to buy a $400,000 home. That is 5% down. A mortgage broker offers you two options: an FHA loan or a conventional loan. You have no idea which is cheaper. The broker says, "FHA is easier to qualify for." But they do not explain the costs.

Here is the truth. FHA loans are designed for borrowers with lower credit scores (580+). Conventional loans are for borrowers with good credit (620+). But FHA loans come with two forms of mortgage insurance: an upfront premium (1.75% of the loan) and an annual premium (0.55% to 1.05% depending on down payment and term). Conventional loans have PMI, which can be cheaper for borrowers with good credit.

Most online comparisons are written by lenders who prefer FHA because they earn higher origination fees. Bankrate has a comparison table, but it is buried under ads. NerdWallet's comparison requires scrolling through pages of lead forms. LendingTree does not compare — they just want you to apply. Here is the real math for 2026.

Real Cost Comparison: FHA vs Conventional on a $400,000 Home

Let me use a concrete example. Home price: $400,000. Down payment: 5% ($20,000). Loan amount: $380,000. Borrower credit score: 700 (good).

Conventional loan at 6.8%: Monthly principal and interest: $2,478. PMI at 0.8% annually (for 5% down, 700 credit) = $253 per month. Total PITI (assuming taxes $400, insurance $100) = $2,478 + $253 + $400 + $100 = $3,231. PMI can be canceled when you reach 20% equity, around year 11. Total PMI paid over 11 years: about $33,400.

FHA loan at 6.5% (FHA rates are slightly lower than conventional because they are government-backed): Monthly P&I at 6.5% on $380,000 = $2,402. Upfront MIP (mortgage insurance premium) of 1.75% = $6,650. This is either paid at closing or rolled into the loan. If rolled in, loan becomes $386,650. Annual MIP (ongoing) at 0.55% (for 5% down, 30-year term) = 0.55% × $380,000 = $2,090 per year, or $174 per month. Total monthly PITI = $2,402 + $174 + $400 + $100 = $3,076. That is $155 per month cheaper than conventional.

But here is the catch. On an FHA loan with 5% down, the MIP lasts for the entire 30-year term if you put less than 10% down. You cannot cancel it unless you refinance to a conventional loan later. Over 30 years, total MIP paid = $174 × 360 = $62,640, plus the upfront $6,650, total $69,290. On the conventional loan, total PMI paid is $33,400 over 11 years, then nothing. So the conventional loan is actually cheaper in the long run if you hold the loan past year 11.

Which is better? If you plan to sell or refinance within 10 years, FHA's lower monthly payment might win. If you plan to stay for 30 years, conventional wins. Also, if your credit score is below 680, FHA's PMI rate might be lower than conventional's PMI, making FHA cheaper even long-term.

Step-by-Step: Compare FHA vs Conventional for Your Situation

1. Go to trulyfreemortgage.com and select FHA vs Conventional Calculator

The tool is under "Loan Type Comparison."

2. Enter the home price and down payment amount

Use the same numbers for both loan types. Example: $400,000 home with $20,000 down.

3. Enter your credit score

The calculator will use different PMI/MIP rates based on your score. Higher scores get cheaper conventional PMI.

4. Enter the loan term (30 years is standard)

Both loans will be compared over the same term.

5. The calculator will show interest rates

FHA rates are typically 0.25% to 0.5% lower than conventional. The tool uses market averages, but you can override them if you have actual quotes.

6. Click "Compare"

The calculator will show side-by-side: monthly payment (P&I), monthly MI/PMI, upfront costs (FHA upfront MIP), total MI/PMI paid over time, and break-even analysis.

7. Review the "total cost" at year 5, 10, 15, and 30

You will see that FHA is cheaper in early years, but conventional catches up after year 10-12.

8. Use the refinance toggle

If you plan to refinance out of FHA after a few years, the calculator can show you how that affects the comparison.

The Lead-Gen Problem With Free Mortgage Calculators

Bankrate's FHA vs conventional page is a lead generation machine. The page has multiple "compare rates now" buttons that all lead to the same form: your email, phone number, and credit score range. Bankrate sells that information to lenders who specialize in FHA and conventional loans. You will receive calls from both types of lenders, each trying to convince you their loan is better.

NerdWallet's comparison is actually decent content, but the calculator is not interactive. You have to scroll through tables and guess your own numbers. To get a personalized comparison, you need to enter your information into their "find a lender" tool.

LendingTree's approach is to skip the education entirely. They assume you have already decided to get a loan. Their FHA vs conventional "calculator" is just a lead form with two radio buttons.

Truly Free Mortgage Calculator gives you an interactive comparison. You can change the down payment, credit score, and rates. The math updates instantly. No forms, no emails, no lender calls. Just the numbers.

Compare FHA vs Conventional Free

No account. No email. Runs in your browser.

Frequently Asked Questions

Which loan is better for a first-time buyer with 3.5% down and a 640 credit score?

FHA. With a 640 score, conventional PMI would be very expensive (1.5%+ annually) or you might not qualify at all. FHA's MIP rate for 3.5% down is 0.85% annually, which is cheaper. Also, FHA allows down payment gifts from family; conventional requires the 3% to come from your own funds.

Can I remove FHA MIP without refinancing?

Only if you put at least 10% down. For loans with 10% down, MIP drops off after 11 years. For loans with less than 10% down, MIP is for life. You must refinance to a conventional loan to remove it. That refinance will require you to have 20% equity and good credit.

What are the upfront costs difference?

FHA has an upfront MIP of 1.75% of the loan. On $380,000, that is $6,650 added to your loan. Conventional has no upfront PMI, but you may need to pay origination fees (0.5-1%) and appraisal fees. The net difference is smaller than it seems.

Do FHA loans have lower interest rates than conventional?

Yes, typically 0.25-0.5% lower because FHA loans are backed by the government, making them less risky for lenders. However, the higher MIP costs often offset the rate advantage. You have to compare the total monthly payment, not just the rate.

Can I use FHA for a $500,000 home with 3.5% down?

FHA loan limits in 2026 are around $1.1 million in high-cost areas and $500,000 in low-cost areas. For a $500,000 home, you need 3.5% down ($17,500). That works. But your debt-to-income ratio must be below 43% for FHA (sometimes up to 50% with compensating factors).

Which loan is better for an investment property?

FHA requires you to live in the property as your primary residence for at least one year. For pure investment properties, you cannot use FHA. Conventional loans are available for investment properties with 15-25% down.

Run the FHA vs conventional comparison with your real numbers. Do not trust a lender's recommendation without doing the math yourself. My calculator gives you the math. No strings attached.

Figures on this page are for educational purposes only. Rates, MIP/PMI rates, and program rules are set by HUD, FHA, and private insurers and are subject to change. Consult a licensed lender for loan-specific figures. Truly Free Mortgage Calculator does not collect personal data and does not connect users with lenders.

Related Guides

FHA Mortgage Calculator

MIP costs, down payment by credit score, FHA vs conventional.

PMI Calculator Guide

When you need PMI and exactly when you can drop it.

Down Payment Calculator Guide

How much you really need down — and what PMI costs if you put less.

VA Loan Calculator

Zero down, no PMI — the best deal for those who qualify.

WRITTEN BY

George Smith

Founder, Klickify Agency

info@klickifyagency.com LinkedIn

George builds free web tools that respect user privacy. Founder of Klickify Agency.