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FHA vs conventional — when each loan makes sense in 2026
If your FICO is 620+ and you have 5%+ down, conventional usually wins on total cost. If your FICO is 580-619 OR you have less than 5% down, FHA is often the only path. The two loan types differ in down payment, mortgage insurance, loan limits, and post-close flexibility — not interest rates (which are similar in 2026).
Published 2026-04-25 · Last reviewed 2026-04-27 · methodology
FHA loans — government-insured
Backed by the Federal Housing Administration. Designed to expand homeownership to lower-credit, lower-down-payment buyers.
Down payment: 3.5% with FICO 580+. 10% with FICO 500-579.
Mortgage insurance: Upfront MIP (1.75% of loan, financeable) + annual MIP (0.55% in 2026 for 30-year, 96.5% LTV). MIP runs for the LIFE of the loan if you put less than 10% down.
Loan limits 2026: $524,225 in standard areas; up to $1,209,750 in high-cost areas (Hawaii, parts of CA, NYC metro, DC metro).
Property requirements: stricter. Inspector flags health/safety issues; seller must fix before closing OR price-credit the buyer.
Conventional loans — private market
Not government-backed. Lender takes the risk. Bigger range of products and underwriting flexibility.
Down payment: 3% (Fannie Mae HomeReady, Freddie Mac Home Possible — for first-time buyers under area median income) up to 20% to skip PMI.
PMI: required when LTV > 80%. Cost: 0.3-1.2% annually depending on FICO + LTV. PMI auto-cancels when LTV reaches 78% (or borrower can request at 80%).
Loan limits 2026: $806,500 in standard areas (conforming limit); up to $1,209,750 in high-cost areas. Above that = jumbo loan with stricter underwriting.
Property requirements: appraiser still flags issues but generally more lenient than FHA.
The cost comparison — when conventional wins
Buyer with FICO 740, $400k home, 10% down: conventional PMI ~0.4% annually = $200/month, removes at 80% LTV (~5 years). FHA MIP = 0.55% + upfront = $260/month + $7,000 upfront, never removes.
Over 7 years (typical hold time): conventional pays ~$15k in PMI; FHA pays ~$26k in MIP + the $7k upfront. Conventional wins by $18k.
When FHA wins
FICO 580-619: FHA is often the only option. Conventional requires 620+.
Down payment 3-3.5% AND FICO 580-680: FHA's MIP is comparable to conventional PMI here.
Self-employed with non-traditional income: FHA underwriting is more flexible on documentation.
Buying with co-signers (parents helping kids): FHA allows non-occupant co-signers more easily.
What zipradar shows
Loan type is your lender's domain — we focus on what's at the address regardless. But FHA's stricter property requirements mean some homes (older homes, fixer-uppers, certain rural properties) struggle to pass FHA inspection.
Pair /topic/property-tax/[zip]/ + /learn/closing-costs-buyer-breakdown/ to estimate true monthly + closing cost.
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