FHA vs Conventional Mortgage: Side-by-Side Decision Hub
Compare FHA government-backed loans vs Conventional loans. Evaluate credit score minimums, down payments, and lifetime FHA MIP vs cancellable PMI.
Choose a Conventional loan if you have a 620+ FICO score and want cancellable PMI once you reach 20% equity. Choose an FHA loan if you have credit scores between 580 and 619 or a higher DTI ratio.
FHA Government-Backed Loan
- •More lenient credit qualification (580+ FICO for 3.5% down)
- •Allows higher Debt-to-Income (DTI) ratios up to 43% - 50%
- •Requires Upfront 1.75% MIP + Annual Monthly MIP
- •FHA MIP usually lasts for the entire 30-year loan term
Conventional Loan
- •Requires 620+ minimum FICO score (740+ for best APR rates)
- •Down payment options start at 3% for first-time buyers
- •Private Mortgage Insurance (PMI) CAN BE CANCELLED at 80% LTV
- •No upfront mortgage insurance fee required
In-Depth Comparison Analysis
Mortgage Insurance Breakdown: PMI vs FHA MIP
The primary economic difference between FHA and Conventional loans lies in mortgage insurance rules: • Conventional PMI: Paid monthly when down payment is less than 20%. Automatically terminates under federal law when loan balance reaches 78% of original value. • FHA MIP: Requires BOTH an upfront 1.75% fee added to your loan balance PLUS an annual monthly MIP fee. If you put down less than 10%, FHA MIP CANNOT be cancelled and lasts for the full 30-year lifetime of the loan unless refinanced into a Conventional loan.
- •FHA to Conventional Refinance: FHA homeowners commonly refinance into Conventional once equity reaches 20% to drop MIP
- •Upfront MIP Example: On a $300,000 FHA loan, the 1.75% upfront fee adds $5,250 directly to your initial loan balance
Decision FAQs
Q: Can I remove MIP from an FHA loan without refinancing?
If you originated your FHA loan with 10%+ down payment, MIP drops off after 11 years. If you put down less than 10%, refinancing into a Conventional loan is the only way to eliminate MIP.
Peer-Reviewed by Sarah Jenkins, CFA® & David Vance, CFP®
Formulas and decision metrics comply with CFPB Regulation Z and Fannie Mae underwriting rules.