3% down, and the insurance does not stay forever.
If your credit is in reasonable shape, conventional financing is worth pricing against FHA before you assume FHA is the low down payment option.
The right answer depends on your credit and down payment. I run both.
The difference that compounds
Most buyers hear FHA and low down payment in the same sentence so often that they never price the alternative. That is a costly habit, because conventional financing has first-time buyer programs that go down to 3% down.
The structural difference is mortgage insurance. FHA's annual premium generally runs for the entire loan term when you put less than 10 percent down, which is the situation most FHA buyers are in. Conventional private mortgage insurance is different: it can be cancelled once you have built enough equity, and by law it terminates automatically at 78 percent of the original value, so your payment drops without you refinancing anything.
Over a long hold, that single difference can outweigh a lot of other factors. It is also why the honest answer to "which one" is that it depends on your credit score, your down payment, and how long you plan to stay.
Where conventional wins
Mortgage insurance ends
Conventional PMI can be cancelled once you have enough equity, and terminates automatically at 78 percent of original value. FHA's annual premium runs for the full loan term when you put less than 10 percent down, and 11 years when you put 10 percent or more down. Over a long hold that gap adds up.
Better pricing with strong credit
Conventional pricing is more sensitive to credit score than FHA. If your score is strong, that sensitivity works in your favor rather than against you.
3% down programs exist
Several first-time buyer conventional programs allow as little as 3% down, which is actually lower than FHA's 3.5%.
No upfront insurance premium
FHA charges an upfront mortgage insurance premium that is usually financed into the balance. Conventional loans do not, so you start with less debt.
Works for second homes and rentals
FHA is for primary residences. Conventional financing covers second homes and investment property, so it is the path if you are not going to live there.
Sellers often prefer it
Fairly or not, some sellers view conventional offers as smoother. In a competitive situation that perception occasionally matters.
When FHA is the better call
I would rather tell you this now than after you have applied for the wrong product.
Your credit is below the mid 600s
Conventional pricing and eligibility tighten quickly as scores drop. FHA is far more forgiving in that range, and is usually the better answer for credit-challenged buyers.
Your debt-to-income is stretched
FHA generally tolerates higher debt ratios. If your income is solid but you carry a car payment and student loans, FHA may approve where conventional will not.
You have a recent credit event
Conventional waiting periods are long and well documented: the Fannie Mae Selling Guide requires four years after a Chapter 7 bankruptcy discharge or dismissal, two years after a Chapter 13 discharge, and seven years after a foreclosure. FHA's waiting periods are generally shorter. Time since the event often decides which door is open, so tell me the date and I will confirm the current requirement for your loan type.
You plan to sell the loan's assumability
FHA loans can generally be assumed by a qualified buyer. In a higher-rate market that can become a genuine advantage when you go to sell.
How this goes
Pull the real credit picture
Conventional pricing hinges on score more than FHA does, so this is where the comparison starts rather than ends.
Price both side by side
Same purchase, same down payment, conventional versus FHA, including what mortgage insurance costs on each and when it goes away.
Choose on total cost, not payment
The lower monthly payment is not always the cheaper loan. I will show you both numbers and the point where they cross.
Common questions
How much do I actually need down? +
As little as 3% on some first-time buyer conventional programs, and 5% is common otherwise. Putting down 20% avoids mortgage insurance entirely, but waiting years to reach 20% often costs more in rent and appreciation than the insurance would have.
When does PMI come off? +
Under federal law, you have the right to request cancellation when your principal balance is scheduled to reach 80 percent of the home's original value, and your servicer must terminate it automatically at 78 percent. There is also a backstop: it must end the month after you reach the midpoint of your amortization schedule, which is 15 years into a 30-year loan. A request at 80 percent has conditions: it must be in writing, you must be current with a good payment history, there can be no junior liens, and you may need to show the value has not declined. Source: CFPB.
What credit score do I need? +
Conventional programs generally want higher scores than FHA, and pricing improves meaningfully as your score rises. There is no single cutoff, because eligibility and cost move together. If your score is borderline, that is exactly the case worth shopping.
Is conventional always cheaper than FHA? +
No. With strong credit it usually is, especially over a long hold once PMI drops. With weaker credit, FHA is frequently cheaper and sometimes the only approval available. That is the whole reason to run both.
Can I use gift funds? +
Yes, gift funds from an eligible donor are generally permitted on conventional loans, subject to documentation requirements. The rules on who may give and how it must be sourced are specific, so tell me early if a gift is part of your plan.
Who do I call with questions? +
Me, directly. Rich Preston at (448) 202-7711 or rich@prestonlending.com. Ask me anything before you apply. There is no cost and no obligation.
Let's price it both ways.
Conventional against FHA, with mortgage insurance included, so you can see the real total rather than just the payment.
Conventional loans are not insured or guaranteed by a government agency. Down payment requirements, credit score minimums, private mortgage insurance costs and cancellation thresholds, debt-to-income limits, and loan limits are set by investors and individual lenders and are subject to change. Private mortgage insurance cancellation is subject to loan terms, payment history, and applicable law, and may require a current property valuation. This page is for informational purposes and is not an offer or commitment to lend. All loans are subject to credit approval, income and asset verification, and property appraisal. Rich Preston, Branch Manager, NMLS 1735238. NEXA Lending, AZ Broker License 0944059, NMLS 1660690. Equal Housing Lender.