FHA vs Conventional Loan

An FHA loan is a mortgage insured by the Federal Housing Administration but issued by an FHA-approved lender. The insurance lets lenders offer borrowers easier credit and down-payment terms than a conventional loan — minimum 580 FICO with 3.5% down, or 500 FICO with 10% down. In exchange you pay a one-time Upfront MIP (1.75% of the loan, usually financed) plus an annual MIP charged monthly that ranges from 0.15% to 0.55% of the loan depending on term and LTV.

FHA mortgage insurance is the premium you pay so the FHA will insure your loan. It comes in two parts. UFMIP (Upfront Mortgage Insurance Premium) is 1.75% of the base loan amount, paid at close — almost always financed into the loan itself. Annual MIP is charged monthly and equals 0.15%–0.55% of the outstanding loan balance annually, depending on the loan term and the loan-to-value ratio. Annual MIP runs for 11 years if your LTV at close is ≤ 90%, or for the entire loan term if LTV at close is > 90%.

FHA requires a minimum of 3.5% down when the borrower's credit score is 580 or higher, and 10% down when the score is between 500 and 579. Below 500 FICO, FHA will not insure the loan. The down payment can come from your own savings, a documented gift from a family member, an approved down-payment assistance (DPA) program, or proceeds from the sale of another asset.

Upfront MIP equals the base loan amount × 1.75%. Annual MIP equals the outstanding loan balance × the annual MIP rate, divided by 12 to get the monthly amount that's added to your mortgage payment. The annual rate depends on loan term and LTV: 0.55% for 30-year loans above 95% LTV (the typical 3.5%-down scenario), 0.50% for most other 30-year cases, and 0.15%–0.40% for 15-year loans. Use the Payment tab on this page to see your exact upfront and monthly MIP based on your inputs.

Not automatically on most modern FHA loans. If your loan closed after June 3, 2013 and your original LTV was > 90%, annual MIP runs for the entire loan term — there is no LTV trigger that drops it. If your original LTV was ≤ 90% (i.e., you put 10%+ down), annual MIP drops automatically after 11 years. To remove MIP earlier on a high-LTV loan, the standard play is to refinance into a conventional loan once your equity reaches 20% of the home's current value.

FHA's published minimum is 580 to qualify for the 3.5% down payment option, or 500 for 10% down. In practice, individual lenders impose 'overlays' — they require higher minimums than HUD does. Many large lenders won't approve FHA loans below 620 even though HUD would. If your score is in the 580–619 range, work with a lender that specializes in FHA and confirm their FICO floor before applying.

FHA caps the loan amount it will insure on a county-by-county basis. The 2025 one-unit floor (most U.S. counties) is $524,225, the ceiling (high-cost areas like LA, NYC, DC) is $1,209,750, and the special ceiling for Alaska, Hawaii, Guam, and the USVI is $1,814,625. Two-unit, three-unit, and four-unit properties have proportionally higher limits. Look up your county on the Loan Limits tab above — anything above the local FHA limit needs a conventional or jumbo loan.

It depends on your credit profile, down payment, and time horizon. FHA usually wins when your credit is between 500 and 680 or your down payment is less than 5%. Conventional usually wins when your credit is 720+ or your down payment is 20%+ (no PMI at all). Between those extremes, the answer depends on the actual pricing — that's why this calculator includes an FHA vs Conventional tab that computes both side-by-side and reports the lifetime-cost winner.

Yes, with two main paths. FHA Streamline Refinance lets you refinance an existing FHA loan into a new FHA loan with reduced paperwork — no income verification, no new appraisal in most cases, and a quick close. The main caveat is that you'll still pay FHA MIP. To drop MIP entirely, refinance into a conventional loan once your LTV reaches 80%. Some borrowers do this 3–5 years after purchase if their home has appreciated meaningfully or they've made extra principal payments.

FHA-eligible borrowers must (1) have a credit score of at least 500, (2) have a verifiable income with steady employment for the prior two years, (3) have a back-end DTI ≤ 43% (higher with strong compensating factors), (4) buy a primary residence — not an investment or vacation home — and occupy it within 60 days of close, (5) document the source of the down payment, (6) clear FHA's CAIVRS check for prior federal-debt delinquency, and (7) buy a property that passes FHA's minimum property standards (no peeling paint on pre-1978 homes, working systems, safe access, etc.).