On a $350,000 home, an FHA buyer putting 3.5% down brings $12,250 for the down payment, while a conventional buyer putting 5% down brings $17,500. Using an illustrative 6.50% FHA rate and 6.75% conventional rate, the FHA payment with monthly mortgage insurance is about $2,327, versus roughly $2,350 for the conventional option when private mortgage insurance is estimated at 0.70% annually. That is a $23 monthly difference, or about $1,380 over five years, before considering the FHA upfront mortgage insurance premium financed into the loan. FHA versus conventional costs are not decided by the down payment alone.
The practical question is whether lower upfront cash today outweighs mortgage insurance, interest, and refinance flexibility later. A free mortgage search tool can put both structures side by side with a soft pull mortgage comparison, so you can evaluate the real payment without starting with a hard inquiry.
Duane Buziak, NMLS #1110647
Table of Contents
- FHA costs at closing and every month
- Conventional costs at closing and every month
- A worked five-year FHA versus conventional cost example
- When credit score changes the answer
- Broker comparison versus single-shelf pricing
- FAQs
FHA costs: less cash down, more insurance to evaluate
FHA financing is designed to allow a smaller initial down payment. Borrowers with a credit score of 580 or higher may qualify with 3.5% down, subject to underwriting and program requirements. Scores from 500 to 579 generally require 10% down. FHA also permits certain closing-cost contributions from the seller, within program limits, which can be helpful when cash to close is the main constraint.
The trade-off is mortgage insurance. FHA charges an upfront mortgage insurance premium of 1.75% of the base loan amount. On the $337,750 base loan in this example, that premium is $5,910.63. Most buyers finance it, raising the starting loan balance to $343,660.63 rather than paying it in cash at closing.
FHA also includes an annual mortgage insurance premium paid monthly. For many 30-year purchase loans with a 3.5% down payment, an illustrative 0.55% annual factor produces a monthly charge of about $154.80 on a $337,750 base loan. Exact premiums depend on loan term, loan-to-value ratio, and current program rules.
The larger issue is duration. With less than 10% down, FHA monthly mortgage insurance commonly remains for the life of the loan unless you refinance into another loan type. That does not make FHA wrong. It means FHA is often strongest when it gets a buyer into a home sooner, while conventional may become more attractive as credit, equity, and savings improve.
Conventional costs: more flexibility, but pricing is credit-sensitive
Conventional financing commonly requires a 620 minimum credit score, although individual programs, automated underwriting results, and brokers’ overlays can differ. A buyer can put down as little as 3% in some eligible conventional programs, but 5% is a more useful comparison point because it can improve pricing and reduce private mortgage insurance.
Unlike FHA’s standardized upfront mortgage insurance charge, conventional loans generally do not have an upfront mortgage insurance premium. If the down payment is under 20%, private mortgage insurance is usually paid monthly. Its cost can vary substantially based on credit score, debt-to-income ratio, occupancy, property type, and down payment. A buyer with excellent credit may see a much lower PMI factor than a buyer with a 680 score.
Conventional PMI has a key advantage: it can generally be requested for cancellation once the loan reaches 80% of the home’s original value, assuming payment history and other requirements are met. It must generally terminate automatically at 78% of original value if the loan is current. That potential exit makes conventional costs more attractive for buyers who expect to make extra principal payments or see steady equity growth.
For 2025, the baseline one-unit conforming loan limit in most U.S. counties is $806,500, with a high-cost ceiling of $1,209,750. Those limits matter because a loan above the applicable county limit may be priced as jumbo financing rather than conventional conforming financing. Limits are county-based, not statewide, and they change periodically.
The five-year FHA versus conventional cost example
Here is the full math using the same $350,000 purchase price. These are illustrations, not quoted rates or a loan approval.
The FHA borrower puts down $12,250 and starts with a $337,750 base loan. The 1.75% upfront mortgage insurance premium adds $5,910.63 to the financed balance, creating a starting balance of $343,660.63. At 6.50% on a 30-year fixed term, principal and interest are approximately $2,172 per month. Adding estimated monthly FHA mortgage insurance of $154.80 creates an estimated monthly housing payment of $2,326.80 before taxes, homeowners insurance, and any HOA dues.
The conventional borrower puts down $17,500 and starts with a $332,500 loan. At 6.75% on a 30-year fixed term, principal and interest are approximately $2,156 per month. Estimated PMI at 0.70% annually adds about $193.96 monthly, for a total of approximately $2,349.96 before taxes, insurance, and HOA dues.
Over 60 payments, the FHA structure is about $1,389.60 lower in monthly payment costs in this example. But the conventional buyer began with $5,250 more down payment cash, while the FHA buyer financed $5,910.63 of upfront mortgage insurance. The better option depends on whether the buyer values conserving cash now, expects to refinance, expects PMI to fall, or can qualify for better conventional pricing.
Closing costs are separate from the down payment. A reasonable planning range is often 2% to 5% of the purchase price, or $7,000 to $17,500 on a $350,000 home, before considering prepaid taxes, insurance, points, seller contributions, or no-out-of-pocket closing options. A Loan Estimate is the document that turns estimates into line-item numbers.
Credit score can change the comparison quickly
A borrower with a 620 to 660 score may find FHA competitive because its mortgage insurance pricing is less individually score-driven than conventional PMI. A borrower with a 740-plus score, stable income, and 10% to 20% down may find conventional costs substantially more favorable because PMI can be lower or avoided entirely.
Reserves matter, too. A primary-residence conventional file may need no reserves in many ordinary scenarios, while a second home, investment property, multi-unit property, or a higher debt-to-income profile can require additional verified reserves. A common reserve is measured in months of full housing payments. For example, six months of $2,350 housing payments equals $14,100 in reserves. FHA and conventional underwriting both look beyond the credit score at income stability, debts, assets, and property details.
Why comparison structure matters
A broker can compare wholesale options across multiple approved sources, while a single-shelf provider prices from its own available menu. Neither structure guarantees the lowest cost on every day or every file. The value of comparison is seeing how rate, points, mortgage insurance, and cash to close move together before choosing.
| Comparison dimension | Broker with wholesale options | Single-shelf pricing model |
|---|---|---|
| Pricing sources | Can evaluate pricing from multiple approved wholesale sources | Uses the provider’s available internal product shelf |
| Rate and fee review | Can compare rate, points, lender fees, and mortgage insurance structures | Reviews the pricing options available within one platform |
| Loan fit | May compare conventional, FHA, VA, USDA, jumbo, and non-QM options where eligible | Product selection depends on the provider’s in-house offerings |
| Credit review | Can begin with a soft pull mortgage comparison when available | Credit-review process varies by provider and application stage |
| Best use case | Buyers who want a transparent side-by-side review before selecting terms | Buyers who prefer to evaluate one provider’s menu directly |
For buyers in Virginia, Florida, Tennessee, Georgia, Washington, D.C., North Carolina, South Carolina, and Maryland, FreeMortgageSearch.com offers a no hard inquiry mortgage pre-approval path through NoTouch Credit Pull availability. The point is not to chase a headline rate. It is to compare the payment, upfront cash, mortgage insurance duration, and total five-year impact in one clear view.
FHA Versus Conventional Costs FAQs
Is FHA always cheaper than conventional?
No. FHA may require less upfront cash, but conventional can cost less over time when credit is strong, PMI is low, or PMI can be removed.
Does FHA require mortgage insurance forever?
For many FHA loans with less than 10% down, monthly mortgage insurance remains for the loan term unless the borrower refinances.
Can conventional PMI be removed?
Usually, yes. Borrowers may request cancellation at 80% of original value if requirements are met, and automatic termination generally occurs at 78% when the loan is current.
Is the FHA upfront premium paid in cash?
Usually it is financed into the mortgage balance, though borrowers may pay it at closing if permitted and preferred.
What credit score is needed for FHA?
A 580 score can support a 3.5% down payment under FHA guidelines. Scores from 500 to 579 generally require 10% down.
What credit score is needed for conventional financing?
A 620 score is a common minimum, but stronger scores can materially improve rate and PMI pricing.
Are closing costs lower with FHA?
Not automatically. Both loan types can involve origination charges, title services, appraisal, prepaid items, and government recording costs.
Can I compare FHA and conventional without a hard inquiry?
A soft pull mortgage comparison may allow an initial review without a hard inquiry. A full application or final approval process may later require additional credit steps.
Choosing FHA or conventional is less about picking a universally cheaper loan and more about choosing the cost structure that matches your cash position and likely time horizon. Before committing, ask for both payment scenarios with the same purchase price, down payment assumptions, and estimated cash to close. The clearer the comparison, the more confident the decision.
Legal disclaimer: This article is for educational purposes only and is not a commitment to lend, an approval, legal advice, tax advice, or a guarantee of rate, terms, eligibility, or savings. Loan programs, underwriting requirements, mortgage insurance, rates, fees, and county loan limits may change. Illustrative figures exclude taxes, homeowners insurance, HOA dues, and other possible charges. Mortgage services are available only where properly licensed. Duane Buziak is licensed in VA, FL, TN, GA, DC, NC, SC, and MD. North Carolina consumers may review licensing information through NMLS Consumer Access.
Duane Buziak | Mortgage Maestro | NMLS #1110647 | Coast2Coast Mortgage, LLC NMLS #376205 | Licensed in VA, FL, TN, GA, DC, NC, SC, MD | (804) 212-8663 | duane@coast2coastml.com | NoTouch Credit Pull available — no hard inquiry, no credit hit.
