FHA vs. conventional: which is cheaper for you?
8 min read · FHA
The short answer
FHA usually costs less for borrowers with lower credit scores because its mortgage insurance price does not change with credit. Conventional usually costs less for borrowers with strong credit, because private mortgage insurance is credit-priced and can be removed once you reach sufficient equity.
The insurance difference
FHA loans carry an upfront mortgage insurance premium plus an annual premium that, on most low-down-payment FHA loans today, stays for the life of the loan. Conventional loans use private mortgage insurance, which is priced by credit score and loan-to-value and can be cancelled as equity builds.
That single structural difference decides the cheaper option more often than the interest rate does.
Where FHA wins
Lower credit scores, higher debt-to-income ratios, recent credit events, and non-traditional income histories are all handled more flexibly by FHA guidelines. FHA also allows down payments as low as 3.5 percent and permits gift funds for the entire down payment.
Where conventional wins
With strong credit, private mortgage insurance is inexpensive and temporary. Conventional programs also allow 3 percent down for eligible first-time buyers, avoid the upfront insurance premium, and place no restrictions on the property types FHA limits.
How to decide
Compare the complete monthly payment and the cost over the years you expect to own the home, not just the rate. A broker can price the same file under both programs with multiple wholesale lenders and show the two payments next to each other.
Talk it through with a licensed advisor
Every file is different. We will run your numbers through multiple wholesale lenders and explain the trade-offs before you commit to anything.
This article is general education, not financial advice, and is not an offer or commitment to lend. Program terms are subject to credit approval and may change without notice.
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