FHA vs Conventional Loan: The Real Difference (Not What Google Says)

Every article on this topic gives you the same generic table. Here's what 23 years of reviewing actual loan files taught me.

The Most Important Difference Nobody Mentions

FHA mortgage insurance (MIP) is permanent on loans with less than 10% down. Conventional PMI cancels automatically at 80% LTV. This changes the entire long-term math.

On a $350,000 loan at 3.5% down:

• FHA MIP: ~$185/month for the life of the loan (30 years = $66,600)
• Conventional PMI: ~$175/month until ~22% equity (typically 7-10 years = $15,000-$21,000)

FHA almost always costs more long-term if you plan to stay. The question is whether you qualify for conventional.

Choose FHA When

• Your credit score is below 680 (FHA rates are better at lower scores)
• Your DTI is above 45% (FHA allows higher DTI)
• You've had a bankruptcy or foreclosure within the last 4 years
• You have a thin credit file or limited credit history
• You need a non-occupying co-borrower

Choose Conventional When

• Your credit score is 680+ (rates are better than FHA)
• You can put 20% down (eliminates PMI entirely)
• You're buying a second home or investment property (FHA requires owner-occupancy)
• The property doesn't meet FHA condition requirements
• You plan to stay long-term (lower profile match — lifetime MIP)

The Break-Even Calculation

If you're on the fence, calculate when your conventional PMI would cancel (22% equity) and compare total insurance costs to that point. Most buyers hit this in 7-10 years depending on appreciation and paydown rate.

If you plan to sell or refinance before that point, the lower down payment of FHA may outweigh the higher ongoing cost. If you plan to stay 20+ years, lower profile match — FHA MIP at all costs.

Not financial advice. Educational content based on 23 years of mortgage industry experience.