FHA vs Conventional Loan Calculator

The fundamental difference is government backing — and how that affects mortgage insurance.

FHA loans are insured by the Federal Housing Administration, which lets lenders approve borrowers with lower credit scores and smaller down payments. The government absorbs default risk, so lenders can be more flexible.

Conventional loans carry no government guarantee. Lenders take on the risk directly, which means they need stronger borrower profiles (higher credit scores, lower DTI) — but the cost structure rewards qualified borrowers.

The mortgage insurance difference is what matters most to your wallet:

• FHA MIP: 1.75% upfront + 0.55%/year for life (if less than 10% down) — never goes away
• Conventional PMI: No upfront cost + 0.20%–1.50%/year — cancels at 20% equity

For a borrower with good credit who plans to stay in the home more than 5–7 years, the permanent nature of FHA MIP usually makes conventional the better financial choice — even if the rate is slightly higher.

It depends on your credit score, down payment, and how long you keep the loan.

FHA tends to be cheaper when:

• Credit score is below 640 — conventional PMI is very expensive in this range
• Down payment is exactly 3.5% vs. the minimum conventional options
• You plan to sell or refinance within 3–5 years (before PMI savings compound)
• FHA rate is significantly lower than conventional for your profile

Conventional tends to be cheaper when:

• Credit score is 680+ — PMI rates become competitive with FHA MIP and eventually drop
• You plan to stay in the home 7+ years — you'll benefit when PMI cancels
• You can put 10%+ down — lower PMI rates and faster path to PMI removal
• You put 20% down — no mortgage insurance at all vs. FHA's lifetime MIP

The break-even analysis: This calculator shows the exact month when cumulative costs flip. Short-term buyers often prefer FHA; long-term buyers almost always benefit from conventional once PMI drops off.

Only if you put 10% or more down — and even then it lasts 11 years.

For most FHA borrowers (who put down the standard 3.5%), annual MIP lasts the entire loan term. On a $350,000 loan, that's roughly $160/month × 360 months = $57,750 in lifetime MIP — on top of the $6,125 upfront premium.

The escape route: Refinance to a conventional loan once you have 20% equity. Many FHA borrowers who bought with 3.5% down refinance to conventional after a few years of appreciation and payments, permanently eliminating MIP. Use the Refinance Calculator to see if and when this makes sense for your situation.

FHA has more flexible credit requirements; conventional rewards higher scores.

The inflection point: Around 680, conventional PMI becomes competitive with FHA MIP — and importantly, it will eventually cancel. At 720+, conventional is almost always the better financial choice for any holding period beyond 5 years.

The FHA upfront MIP is 1.75% of the base loan amount, charged at closing for all FHA loans.

How it works:

• Charged on every FHA purchase loan regardless of credit score or down payment
• Most borrowers roll it into the loan balance (financed), which slightly increases monthly payments
• If you pay it in cash at closing, your loan balance stays lower
• Non-refundable if you refinance within 3 years (partial refund applies in years 1–3)

Example on a $380,000 FHA loan:

• UFMIP: $380,000 × 1.75% = $6,650 upfront
• If financed, new loan balance = $386,650
• Monthly payment increases by roughly $40/month

Conventional loans have no equivalent. Conventional PMI is purely a monthly cost (unless you choose lender-paid PMI, which raises your rate instead). The FHA upfront premium is a real cost to factor into your comparison.

FHA makes sense in specific situations where conventional financing is unavailable or much more expensive:

1. Low credit score (below 640)

• Conventional PMI rates at 620–639 can be 1.20–1.50%+ — rivaling FHA's combined MIP cost
• Many conventional lenders won't approve scores below 620 at all

2. High debt-to-income ratio

• FHA allows DTI up to 57% with compensating factors; conventional caps at 43–50%
• If your student loans, car payment, and projected mortgage push your DTI above 45%, FHA may be your only option

3. Recent credit events

• FHA waiting periods: Bankruptcy (Chapter 7) — 2 years; Foreclosure — 3 years
• Conventional waiting periods: Bankruptcy (Chapter 7) — 4 years; Foreclosure — 7 years

4. Short planned holding period

• If you're buying a starter home and expect to sell in 3–5 years, the lifetime MIP cost is limited and the FHA rate advantage may outweigh it

5. FHA 203(k) Renovation Loan

• No conventional equivalent — allows financing of purchase + renovation costs in a single loan

Yes — and for many FHA borrowers, refinancing to conventional is the smartest move once they have enough equity.

When to consider refinancing FHA to conventional:

• You've built 20%+ equity (through payments + appreciation)
• Your credit score has improved to 680+ since you took the FHA loan
• Current conventional rates are competitive with your FHA rate
• You plan to stay in the home at least 2–3 more years (to recoup closing costs)

The math often works out well:

• Eliminate FHA annual MIP (0.55%/year = ~$160/month on a $350K balance)
• Possible rate reduction if your credit has improved
• Break-even on refinance closing costs ($3,000–6,000) = 19–37 months of MIP savings

Important: You need a new appraisal confirming 20%+ equity. If you bought with 3.5% down and home prices have risen 15–20%, you may already qualify. Use the Refinance Calculator to run the numbers.

The crossover point is typically around 680, but it depends on your down payment and how long you keep the loan.

At each credit score tier (10% down, 30-year fixed, approximate):

Remember: conventional PMI cancels at 80% LTV — after that, the monthly payment drops by hundreds of dollars. FHA MIP never cancels with a small down payment. The longer you stay, the more this difference matters.