FHA vs. Conventional Loans in 2026: Down Payments, Mortgage Insurance, and Which Costs Less

The 2026 FHA loan limit just rose to $541,287 in most of the country, and conventional conforming loans now top out at $832,750. Beyond those limits, the core FHA-versus-conventional decision hasn’t changed: it comes down to your down payment, your credit score, and how mortgage insurance is structured on each.

Here’s an updated, side-by-side look at both, so you can figure out which one actually costs less for your situation.

What Is an FHA Loan?

An FHA loan is a mortgage insured by the Federal Housing Administration, a part of HUD. The government doesn’t lend the money directly — it insures the lender against default, which is why FHA loans come with lower down payment and credit score requirements than most conventional options.

That lower risk to the lender is exactly why FHA loans can offer more flexible qualifying terms to borrowers who don’t have a large down payment saved or a long, clean credit history.

What Is a Conventional Loan?

A conventional loan isn’t backed by any government agency. It relies purely on your credit, income, and down payment to satisfy the lender (or Fannie Mae/Freddie Mac, if the loan is sold to them after closing).

Conventional loans that fall within the conforming loan limit can be sold to Fannie Mae or Freddie Mac. Loans above that limit are called jumbo loans and come with their own, usually stricter, underwriting rules.

2026 Loan Limits

Alaska, Hawaii, Guam, and the U.S. Virgin Islands get an even higher special-area ceiling of $1,873,675. Both FHA and conventional high-cost ceilings are capped at the same number nationally — $1,249,125 — since FHA’s ceiling is set at 150% of the standard conforming limit.

Down Payment Comparison

FHA: 3.5% minimum, provided your credit score is 580 or higher. If your score falls between 500 and 579, FHA still allows financing, but requires 10% down instead.

Conventional: as low as 3% through Fannie Mae’s HomeReady or Freddie Mac’s Home Possible programs, aimed at first-time and moderate-income buyers. Outside those programs, 5% is the more typical conventional minimum. Put down 20% and you avoid mortgage insurance altogether.

FHA also allows your entire down payment to be gifted from a family member, employer, or approved nonprofit — conventional loans allow gifts too, but with more restrictions depending on the program.

Credit Score Requirements

FHA: 580+ for the 3.5% down payment option; 500-579 requires 10% down. FHA underwriters are also more forgiving of past credit problems — a bankruptcy discharged as recently as 2 years ago can still qualify for maximum financing with a reasonable explanation.

Conventional: 620 is the typical minimum. But the rate you’re actually offered improves substantially as your score climbs — borrowers around 700-720 get meaningfully better pricing, and 740+ generally captures the best rates and lowest PMI costs available.

This is the single biggest factor that pushes people toward FHA: if your score is in the 580-660 range, FHA often gets you approved at better terms than a conventional loan would.

Mortgage Insurance: MIP vs. PMI

This is where the two loan types diverge the most, and where I think people most often get surprised after closing.

FHA MIP has two parts: an upfront premium of 1.75% of your loan amount (which most borrowers roll into the loan rather than pay in cash), plus an annual premium, generally around 0.55% for most borrowers, though it ranges from 0.15% to 0.75% depending on your loan amount and loan-to-value ratio.

Here’s the part that catches people off guard: if you put down less than 10%, FHA’s annual MIP lasts for the entire life of the loan. The only way to get rid of it is to refinance into a conventional loan once you have enough equity. If you put down 10% or more, MIP drops off automatically after 11 years.

Conventional PMI runs roughly 0.2% to 1.5% annually, priced based on your credit score and loan-to-value ratio — better credit means cheaper PMI. Unlike FHA MIP, conventional PMI comes off automatically once your loan balance hits 78% of the home’s original value, and you can request removal yourself once you reach 80%. By law, it must be removed by the midpoint of your loan term regardless (month 180 on a 30-year loan) as long as you’re current on payments.

Two Examples

Mark, credit score 610: Mark has saved 5% for a down payment but his credit score sits at 610 — above FHA’s 580 cutoff, but below the 620 conventional minimum most lenders use. FHA is really his only path right now. He’ll pay the 1.75% upfront MIP and an ongoing annual premium that will likely follow him for the life of the loan unless he refinances later once his score and equity improve.

Sarah, credit score 760: Sarah has excellent credit and has saved 20% for a down payment on a $450,000 home. She qualifies easily for a conventional loan, avoids mortgage insurance entirely by hitting the 20% threshold, and gets one of the best rates her lender offers because of her credit score. For her, conventional is the clear, lower-cost choice.

Subscribe or follow us and I’ll update this page as new loan limits and MIP/PMI rules are announced.

Common Issues to Watch Out For

Assuming conventional always means 20% down. I hear this a lot, and it’s outdated. HomeReady and Home Possible have offered 3% down conventional financing for years now — it’s just less heavily advertised than the FHA 3.5% option.

Not realizing FHA MIP can outlast the loan itself. Borrowers sometimes budget for FHA MIP assuming it disappears after a few years, the way PMI often does. If you put less than 10% down, it doesn’t — plan around a refinance if you want it gone.

Forgetting the upfront MIP is separate from the annual premium. The 1.75% upfront charge and the ongoing annual percentage are two different costs that both apply to the same FHA loan.

Comparing quotes without factoring in insurance costs. A slightly higher conventional PMI rate can sometimes cost more than FHA’s MIP, or vice versa, depending on your specific credit score and down payment. Always compare full monthly payments, not just the interest rate.

Not shopping the PMI rate. Conventional PMI pricing varies by lender and PMI provider — it’s worth asking your loan officer whether they’ve checked multiple mortgage insurers, since the difference can be meaningful over several years.

Looking Ahead: 2027 Loan Limits

FHFA typically announces the next year’s conforming loan limit in late November, based on its House Price Index showing how average home prices changed over the preceding year. FHA’s loan limits follow shortly after, usually in early December, since they’re calculated directly off the new conforming number.

Given how loan limits have moved the last few years, I’d expect another increase for 2027, likely in the same rough range as this year’s roughly 3% bump — though that’s a projection, not a guarantee, and it depends entirely on how home prices trend through the rest of 2026.

I’ll update this page once FHFA and HUD make their 2027 announcements. For more on qualifying for either loan type, see how your FICO credit score actually works and how to raise it — the difference between a 610 and a 660 score can change which loan type makes sense for you. And if you’re watching for policy changes that could affect financing more broadly, the 2026 housing affordability bill currently sitting on the president’s desk includes provisions that would tie FHA loan limits to automatic annual adjustments going forward.

Official current figures: HUD’s 2026 FHA loan limit announcement and FHFA’s 2026 conforming loan limit announcement.