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

An FHA loan is insured by the Federal Housing Administration and allows a 3.5% down payment with a 580 FICO, while a conventional loan is not government-insured and typically requires 3 to 20% down with a 620+ FICO. FHA loans require upfront and annual mortgage insurance premiums (MIP) for most borrowers; conventional loans require private mortgage insurance (PMI) only if the down payment is below 20%.

Which is better for first-time home buyers in 2026?

FHA is usually the better pick for first-time buyers with a 580 to 619 FICO and less than 5% saved for a down payment. Conventional is the better pick for buyers with a 620+ FICO and at least 5% saved, because the PMI cancels at 78% loan-to-value (LTV) and conventional rates are typically 0.25 to 0.50% lower than FHA rates in 2026.

How much is FHA mortgage insurance in 2026?

FHA charges an upfront MIP of 1.75% of the loan amount (usually rolled into the loan) plus an annual MIP of 0.55% to 0.80% of the outstanding balance for most loans in 2026. The annual MIP is paid monthly as part of your mortgage payment and lasts for 11 years if the down payment is 10% or more, or for the life of the loan if the down payment is below 10%.

Can you remove PMI on a conventional loan?

Yes, PMI on a conventional loan cancels automatically when the loan-to-value (LTV) reaches 78% based on the original amortization schedule, or at 80% if you request it. You can also request early removal once the home appraises at 80% LTV or below. Most borrowers reach 78% LTV in 7 to 10 years on a 30-year conventional loan with 5 to 10% down.

What credit score do you need for an FHA vs conventional loan?

FHA loans accept a 580 FICO with 3.5% down, or 500 to 579 FICO with 10% down. Conventional loans typically require a 620 FICO for most lenders, with 740+ getting the best rates. The credit-score gap is the main reason FHA exists — it makes homeownership possible for borrowers who do not yet qualify for conventional financing.

Can you refinance from FHA to conventional later?

Yes, and it is one of the most common moves for first-time FHA buyers. Once your home has appreciated and your LTV drops to 80% or below, you can refinance into a conventional loan to drop the mortgage insurance and lock in a lower rate. The right time is usually 3 to 5 years into the loan, and the savings on PMI alone often pay for the refinance in 2 to 3 years.

FHA vs Conventional Loan 2026: Which Saves More?

FHA and conventional loans both get you a mortgage, but they get you there differently and cost differently over 30 years. The right pick in 2026 depends on your credit score, your down payment, how long you plan to stay in the home, and whether you can stomach mortgage insurance. The breakdown below covers the rules, the rates, the insurance premiums, and the total 30-year cost for both loan types in 2026, so you can pick the one that actually saves you money.

The quick verdict

FHA is the right pick for first-time buyers with a 580 to 619 FICO and less than 5% saved for a down payment, because the 3.5% down minimum and the lower FICO floor make it possible to buy when conventional financing is not. Conventional is the right pick for buyers with a 620+ FICO and at least 5% saved, because conventional rates are typically 0.25 to 0.50% lower than FHA rates in 2026 and the PMI cancels at 78% loan-to-value, which saves real money over 30 years. If you have 20% down and a 740+ FICO, conventional with no PMI is the cheapest path.

How the two stack up

Feature	FHA loan	Conventional loan
Minimum down payment	3.5% (580+ FICO)	3% (some programs), 5% (most), 20% to avoid PMI
Minimum credit score	580 (500 with 10% down)	620 (most lenders), 740+ for best rates
Typical 2026 rate (30-yr fixed)	~6.65%	~6.40% (with strong credit)
Upfront mortgage insurance	1.75% UFMIP	None
Annual mortgage insurance	0.55% to 0.80% MIP, often for life of loan	PMI 0.3% to 1.5%, cancels at 78% LTV
Loan limits (2026, most counties)	$524,225 to $1,249,125	$806,500 to $1,209,750 (conforming)
Property type	Primary residence only	Primary, second home, investment
Best for	Lower FICO, smaller down payment, first-time buyer	Stronger credit, larger down payment, flexible property use

Down payment and credit score

FHA is the only path to a 3.5% down mortgage with a 580 FICO; conventional loans typically want a 620 FICO and at least 3 to 5% down. The credit-score gap is the entire reason FHA exists: it makes homeownership possible for borrowers who do not yet qualify for conventional financing. The trade-off is the mortgage insurance, which adds the real cost to an FHA loan and which conventional borrowers can avoid by putting 20% down.

Mortgage insurance: the real cost difference

FHA charges an upfront mortgage insurance premium (UFMIP) of 1.75% of the loan amount, usually rolled into the loan, plus an annual MIP of 0.55% to 0.80% of the outstanding balance. The annual MIP is paid monthly as part of your mortgage payment and lasts for 11 years if your down payment is 10% or more, or for the life of the loan if the down payment is below 10%. Conventional PMI is 0.3% to 1.5% depending on your credit score and down payment, and it cancels automatically when your LTV reaches 78% based on the original amortization schedule, or at 80% if you request it. Most borrowers reach 78% LTV in 7 to 10 years on a 30-year conventional loan with 5 to 10% down. The cancellation is the single biggest cost difference between the two loan types, and it is why conventional wins for borrowers who can stay in the home 7+ years.

Total 30-year cost example

The table below compares the total 30-year cost of an FHA loan vs a conventional loan on a $400,000 home with a 30-year fixed rate in 2026. The FHA buyer puts 3.5% down ($14,000) and carries MIP for the life of the loan; the conventional buyer puts 5% down ($20,000) and drops PMI at year 10 when LTV hits 78%.

Cost element	FHA loan (3.5% down, 6.65%)	Conventional loan (5% down, 6.40%)
Loan amount	$390,225	$380,000
Upfront MIP	$6,829 (rolled in)	$0
Monthly P&I	$2,506	$2,381
Monthly MIP/PMI (year 1)	$245	$200 (drops off at year 10)
Total monthly payment (year 1)	$2,751	$2,581
Total interest over 30 years	$512,170	$476,940
Total MIP/PMI over 30 years	$88,200 (life of loan)	$18,000 (cancels year 10)
Total 30-year cost	$600,370 + $14,000 down	$494,940 + $20,000 down

The FHA buyer in this example pays $105,000 more over 30 years than the conventional buyer, even though the conventional buyer put $6,000 more down. The gap is almost entirely the lifetime MIP that does not cancel on the FHA loan. If the FHA buyer can refinance into a conventional loan at year 5 (when the home has likely appreciated and the LTV has dropped), the gap closes to roughly $40,000 over the remaining 25 years.

How to pick the right one

Pick FHA if you have a 580 to 619 FICO, less than 5% saved for a down payment, and you need to buy now. The mortgage insurance is the cost, but the path to homeownership is the benefit. Pick conventional if you have a 620+ FICO, at least 5% saved, and you can stay in the home 7+ years — the lower rate and the PMI cancellation save real money. If you start with FHA, plan to refinance into a conventional loan at year 3 to 5 when your LTV drops to 80% and drop the mortgage insurance. The refinance costs $5,000 to $8,000 and the savings on PMI alone pay for it in 2 to 3 years.

When the numbers flip

The break-even point where conventional beats FHA even with PMI for 10 years is roughly a $300,000 loan amount with 5% down. Below $300,000, FHA can sometimes win because the smaller loan means smaller PMI dollars and the lower FICO requirement is what makes the purchase possible. Above $500,000, conventional wins by even more because the lifetime FHA MIP scales with the loan amount. Run your specific scenario with a loan officer who can show both options side by side, including the refinance break-even, before you commit. The 0.25 to 0.50% rate gap is real, but the down payment and FICO requirements are the constraints that actually decide which loan you qualify for.