01 / Your priorities
FHA or conventional? Start with payments and savings.
Qualifying for both loans does not tell you which one to choose. I want to know how much cash you are comfortable parting with, what payment fits your budget and whether you expect to keep this mortgage for two years or twenty. Those answers can change my recommendation even when the buyer qualifies for both programs.
“People can lie, numbers don’t.”Shahram Sondi
Every mortgage conversation comes back to payments and savings. But “savings” can mean money left in the bank, a smaller monthly payment or less spent over the life of the loan. Open the priority that sounds like you.
01Keep more cash in the bank
Start with the down payment, all closing costs and prepaids, then subtract usable seller and lender credits. Compare what you will still have for repairs, moving and emergencies.
A higher payment may be a reasonable tradeoff for keeping cash. It still has to fit both underwriting and your real budget.
See the cash options →02Lower the monthly payment
Compare principal and interest, mortgage insurance, property taxes, homeowners and any flood insurance, plus homeowners association dues and community development district assessments. A lower interest rate alone does not settle it.
Check how much extra cash the lower payment costs and how long it takes to recover that difference.
Check the payback time →03Reduce long-term borrowing costs
Compare interest, fees, insurance and remaining loan balance at the time you expect to sell or refinance. Also review the full-term cost if you keep the loan.
Down payment becomes equity; it is not a lender fee. Monthly principal payments also reduce what you owe.
Understand insurance over time →Choose a payment you can live with if refinancing does not happen. A future refinance is a possibility, not the plan that makes an unaffordable mortgage safe.
02 / Side by side
What is the difference between FHA and conventional loans?
FHA loans are insured by the Federal Housing Administration and made by private lenders. This guide compares them with conforming conventional loans, which follow Fannie Mae or Freddie Mac requirements and loan limits.
| What to compare | FHA | Conventional |
|---|---|---|
| Minimum down payment | As low as 3.5% for eligible borrowers. | As low as 3% with an eligible program; other scenarios require more. |
| Credit and debt | May offer more flexibility, subject to the complete file and lender requirements. | Pricing, PMI and eligibility depend on the complete file. A score alone is not a loan decision. |
| Mortgage insurance | An upfront premium plus an annual premium paid monthly, called MIP. | Private mortgage insurance, called PMI, is generally required with less than 20% down. |
| When insurance ends | Typically 11 years with at least 10% down, or the mortgage term with less down. | Monthly PMI can be cancelled. See the 80% request and scheduled 78% automatic thresholds below. |
| Occupancy | Generally a primary residence. | Primary residence, eligible second home or investment property; requirements differ. |
| Loan amount | County and unit-count limits apply to the base mortgage. | Conforming limits vary by county and units. Larger loans may need a jumbo program. |
Program and lender requirements determine eligibility. Budget for closing costs and any required reserves, meaning money the lender needs you to have left after closing. CFPB: FHA loans · Fannie Mae: 3%-down options
03 / Follow the numbers
FHA vs. conventional on a $400,000 home: payment and cash to close
This is the kind of comparison I want a buyer to see before choosing a loan. The lender illustration below uses the same home, credit score and date, with 3.5% down for FHA and 5% for conventional. It shows two different ways to finance the purchase, including the difference in cash you bring.
Historical example · September 30, 2026 · Not today's rates
Same $400,000 home. Same buyer: 680 credit score and a 49% debt-to-income ratio. Both loans are 30-year fixed. FHA's upfront mortgage insurance is financed.
$180 less per monthInitial payment difference in this example
$6,601 less at closingIncludes the smaller down payment
Compare Down Payment, Monthly Payment, and Cash to Close
| What you compare | FHA | Conventional |
|---|---|---|
| Down payment | $14,000 (3.5%) | $20,000 (5%) |
| Interest rate | 7.250% | 8.000% |
| APR | 8.055% | 8.704% |
| Monthly principal & interest | $2,679.28 | $2,788.31 |
| Monthly mortgage insurance | $176.14 MIP | $247.00 PMI |
| Monthly taxes & homeowners insurance | $473.33 | $473.33 |
| Initial total monthly payment | $3,328.75 | $3,508.64 |
| Cash to close, including down payment | $30,251.98 | $36,852.60 |
Why FHA Cost Less in This Example
The down payment was $6,000 smaller, and monthly mortgage insurance was $70.86 lower. Together with this example's loan pricing, that produced a $179.89 lower initial monthly payment and $6,600.62 less cash to close. The down-payment difference is already included in the cash difference.
What these numbers include
FHA: $386,000 base loan plus $6,755 financed upfront MIP, for a $392,755 loan. Conventional: $380,000 loan. Each has 360 monthly principal-and-interest payments at the amount shown; the final payment may vary slightly with rounding.
The FHA option had $74.62 lender credit (0.019%); the conventional option had $421.80 in points (0.111%). These were the supplied options closest to $0 in points or credit. Their upfront pricing differs. A lender credit is not cash back.
Total payment includes principal, interest, mortgage insurance, and the lender's taxes/homeowners-insurance estimate. HOA dues and any additional flood insurance are not included. Taxes, insurance and mortgage-insurance charges can change; the initial total is not fixed for 30 years. Cash to close includes down payment and the lender's estimated charges and credits; financed FHA upfront MIP is not added again as cash due.
Source: PennyMac Power+ scenarios supplied and reviewed by Shahram Sondi on September 30, 2026. Rate, APR, payment and cash figures are retained from those lender scenarios, not recalculated from today's sheets. Figures are estimates, not a Loan Estimate, approval, commitment to lend or rate lock. Rates may change or be unavailable at commitment or closing. Not all borrowers qualify. This dated example does not predict which program wins for your situation. Headline differences are rounded to whole dollars.
How I would use this comparison with you
If keeping more cash and lowering the initial payment are your priorities, FHA does both in this example. But $6,000 of the cash difference comes from putting less down. That money stays in your bank account instead of becoming equity in the home. It is not a saving on lender fees.
The FHA loan also starts $12,755 higher: the smaller down payment plus $6,755 of financed upfront mortgage insurance. If you might sell in two years, I want to compare the payments made, upfront costs and balance still owed at that point. If you plan to stay longer, we also need to account for when conventional PMI could end.
My next question would be: “Is keeping that cash worth the larger loan balance to you?” The answer depends on your savings, your comfortable payment and your plans for this home.
04 / Eligibility comes first
How do credit score, debt-to-income ratio and property type affect the choice?
FHA vs. conventional with a 640 or 660 credit score
With a 640 or 660 score and a small down payment, I would price FHA alongside any conventional option you qualify for. Conventional PMI can make a meaningful difference to the payment at a lower credit score. I want the actual insurance quote before deciding which loan costs less each month.
Ask your loan officer to show you three things: the rate and lender charges, the monthly mortgage insurance, and the complete payment for each eligible loan. Then compare cash to close and the balance you would owe when you expect to sell or refinance. FHA’s financed upfront insurance belongs in that comparison.
The example above uses a 680 score; its rates and insurance premiums are not quotes for a 640 or 660 borrower. Your down payment, income, debts, credit history and property determine the options I can actually compare. I explore conventional first, but I will not recommend it just because you qualify if FHA better serves your cash and payment goals.
Debt-to-income ratio can limit your closing-cost options
Your debt-to-income ratio, or DTI, compares qualifying monthly debt payments, including the proposed housing payment, with qualifying monthly income before taxes. Fannie Mae’s automated underwriting system allows up to 50% for eligible files; a lender’s manual review and other scenarios can have lower limits. FHA may offer more flexibility, subject to the full application and lender requirements.
This is why I check DTI before suggesting a lender credit. Taking a higher rate to cover closing costs raises the payment and may push you past the qualifying limit. Another buyer may need to pay discount points for a lower rate just to qualify. The cash strategy has to work with the payment. Fannie Mae: DTI requirements
Florida loan limits, condos and two-to-four-unit homes
The 2026 FHA one-unit floor is $541,287; the baseline conforming one-unit limit is $832,750. Some counties have higher limits, and multiunit limits differ. Check the property’s county and unit count rather than ruling FHA in or out from a statewide shortcut.
HUD: 2026 FHA limits · FHFA: 2026 conforming limits · Look up the property’s limit
For a Florida condo, check financing eligibility early. FHA project approval is one path; an eligible unit may qualify through Single-Unit Approval even when the project is not on the approved list. Conventional financing also has project requirements. Insurance, reserves and project issues can narrow either option. HUD: condo approval paths
Buying a duplex, triplex or four-unit home to live in? Compare both programs. Certain eligible conventional two-to-four-unit purchases allow 5% down, so do not assume conventional always requires a large down payment. Reserves, rental-income treatment and property requirements still matter. Fannie Mae: current eligibility matrix
After bankruptcy, foreclosure or a short sale, bring me the dates and documents before you rule yourself out. The type of event, bankruptcy chapter and discharge or dismissal date help determine which waiting period applies. That review is more useful than choosing a loan from a generic two-year or four-year rule.
05 / Cash you bring, cash you keep
FHA vs. conventional down payment and closing costs
Separate the down payment from the cost of getting the mortgage. Your down payment buys equity. Closing costs pay for financing and the transaction. Prepaids and escrow deposits fund items such as insurance, interest and taxes.
Ask for the total required cash, what you already paid as a deposit, any costs due before closing, and the cash you will have left afterward. Then compare the payment using the same home and realistic insurance and tax assumptions.
Three ways to handle closing costs
- Negotiate a seller credit. This is the first option I want you to explore before spending more of your savings. I often suggest discussing a 3% concession as a negotiating target. We still need the seller’s agreement and must check the purchase price, appraisal, program limit and actual eligible costs to see how much you can use.
- Pay the costs yourself. This may allow a lower rate than an option with a lender credit. Check that enough cash remains after closing.
- Use a lender credit or a combination. A lender credit commonly comes with a higher interest rate. Compare the additional monthly cost and your expected holding period. A “no closing cost” label does not make the costs disappear; down payment and uncovered prepaids may remain.
Seller concessions cannot replace your required down payment or reserves. Unused credit generally is not cash you can pocket. If eligible credit remains, ask whether it can fund worthwhile discount points or other permitted costs. Do not pay unnecessary fees just to use it. Fannie Mae: seller-contribution rules
06 / Look beyond the first payment
FHA MIP vs. conventional PMI: cost and cancellation
Conventional private mortgage insurance is called PMI. FHA mortgage insurance is called MIP. They protect the lender, and their cost and cancellation rules differ.
FHA’s upfront mortgage insurance changes the balance
For a standard FHA purchase, upfront MIP is 1.75% of the base mortgage amount, not the purchase price. If financed, it increases the amount owed and the interest paid. On an illustrative $400,000 purchase with 3.5% down, the base mortgage is $386,000; upfront MIP is $6,755; financing it produces a $392,755 starting mortgage balance.
If you may sell or refinance soon, I pay particular attention to that upfront cost. A lower monthly payment needs time to offset it. Compare the actual costs and remaining balances over your expected timeline. HUD: upfront and annual MIP
When does mortgage insurance go away?
Loan-to-value, or LTV, is the loan amount divided by the home’s value. For this FHA purchase comparison, use the base loan before financed upfront MIP and the lower of the purchase price or appraised value. With less than 10% down, a new standard FHA loan generally has annual MIP for the mortgage term. With at least 10% down, it generally lasts 11 years, unless you pay off or refinance the loan sooner. Later appreciation or principal payments do not switch that original category.
For covered conventional loans with borrower-paid monthly PMI, you can request cancellation at 80% of the home’s original value if the conditions are met. Automatic termination generally occurs at the scheduled 78% point, provided payments are current. Appreciation does not advance that automatic date.
| Down payment | Cash down | Conventional PMI ends automatically | FHA MIP lasts |
|---|---|---|---|
| 3% | $12,000 | Scheduled $312,000 balance | Not eligible at 3% down |
| 3.5% | $14,000 | Scheduled $312,000 balance | Mortgage term |
| 5% | $20,000 | Scheduled $312,000 balance | Mortgage term |
| 10% | $40,000 | Scheduled $312,000 balance | 11 years |
| 15% | $60,000 | Scheduled $312,000 balance | 11 years |
| 20% | $80,000 | Generally no PMI required | 11 years |
The conventional column shows the automatic 78% threshold; the 80% request threshold is $320,000. This illustration assumes a one-unit principal residence and borrower-paid monthly PMI, current payments and no modification. Down payment excludes closing costs. FHA durations describe current standard new-loan rules; older loans can differ.
How many years will that take? Ask for the PMI disclosure and the schedule showing each payment and remaining loan balance. A different rate, term or down payment changes the date. More down starts you closer to the threshold. Extra principal can help you request cancellation earlier; automatic termination follows the original schedule.
If your home’s value has risen, ask the mortgage servicer whether its rules allow earlier PMI cancellation. You may need to have held the loan for a minimum time, meet payment-history requirements and pay for a valuation. Refinancing is not always necessary. CFPB: PMI cancellation · Fannie Mae: current-value cancellation
07 / Shop the same scenario
How do you compare FHA and conventional Loan Estimates?
Shop on the same day, as close to the same time as practical. Keep the home, loan term, fixed or adjustable rate type, down-payment assumptions and lock period consistent. When the loan structures differ, identify each difference rather than disguising it.
| Where to look | What to compare |
|---|---|
| Page 1 | Loan amount, note rate, lock status and expiration, principal and interest, mortgage insurance and estimated total payment. |
| Page 2 · Section A | Origination charges: points, underwriting, administration, processing or broker fees. Different names do not make them free. |
| Page 2 · Section B | Services you cannot shop for. These charges can differ between lenders too. |
| Page 2 · Section J | Lender credits. Compare the credit together with the rate and charges. |
| Cash to close & page 3 | Required cash, APR and the five-year comparison. Account for financed FHA upfront MIP and the period you actually expect to keep the loan. |
I start with the interest rate and Section A origination charges, then subtract any lender credit in Section J. That tells me what the lender is charging for that rate. Next I compare other loan costs and mortgage insurance. Use the same assumptions for taxes, insurance, escrow deposits and prepaid-interest days so an estimate does not make one lender look artificially expensive.
APR is a standardized cost measure worth reviewing, but it does not replace comparing cash and payment over your own timeline. Third-party charges still matter, and some services can be shopped. CFPB: comparing offers · Loan Estimate explainer
A fee worksheet can help early, but it is not the official Loan Estimate or a rate lock. For covered loans, a lender generally must provide the Loan Estimate within three business days after receiving the six application items. Same-day responsiveness is a service preference, not that legal deadline. CFPB: receiving a Loan Estimate
08 / Pay more now, save later?
Should you pay points to lower your mortgage rate?
Ask four questions: How much extra cash does it take? How much lower is the payment? Who is paying the cost? How long will you keep this mortgage?
Illustration: $3,000 extra upfront divided by $100 monthly savings is 30 months. If you pay off the loan after 24 months, those payment savings have recovered $2,400, leaving $600 unrecovered through the monthly savings alone. This shortcut does not model every difference in interest, principal, taxes or the value of keeping cash.
I generally want points to pay for themselves within two or three years. If it takes four years and you expect to sell in two, I would rather see you keep that cash. Before deciding, I check what you will have left in savings and the extra cost after credits. An ordinary origination fee is not automatically a payment for a lower rate.
Unused eligible seller credit can change the decision: if it pays the points without increasing your own cash, the tradeoff differs from spending your savings. Have the loan officer recalculate it. CFPB: points and lender credits
Try the mortgage points calculator
Choose a loan program and compare its zero-discount-point option with its available lower-rate option. This tool compares pricing choices within one program; it is not a complete FHA-versus-conventional comparison. It does not model your negotiated seller concession. Review that credit separately with the loan officer.
No contact information required. No credit pull to use this calculator. Open the full calculator.
09 / Before you apply
How should you prepare your credit and down-payment money?
Pay attention to the statement closing date
“I pay the card off every month” does not necessarily mean the credit report shows a zero balance. A card issuer may report the statement balance before your later payment arrives. Reporting timing varies by issuer.
I suggest reviewing your cards about 45 days before applying. If you plan to reduce a balance, leave roughly five to seven days before the statement closes for the payment to post, and avoid immediately charging it back up. For example, if your statement closes on the 14th, aim to have the payment posted by the 7th. Always make at least the required payment by the due date. Confirm the issuer’s reporting practice and check the updated report.
Lower reported utilization can help, but 30% is not a magic optimal target and no step guarantees a particular score. Keep enough cash for the purchase. A lender may be able to document a required payoff at or before closing to address DTI; that is different from improving the credit score used for pricing. Experian: payment and reporting timing
Organize funds before the statement window
I like you to organize your homebuying money about 90 days before applying, ideally in an account you can easily document. That gives us time to gather records and avoids creating extra work with a brand-new account right before the application. It is a planning buffer, not a requirement to hold every dollar for 90 days. You still need to be able to explain where the money came from.
Lenders often request the two most recent consecutive bank statements or other permitted verification. A newly opened account or last-minute transfers can add paperwork. Keep both sides of any transfer, gift documentation and evidence of legitimate deposits. Cash deposits can be difficult to document; discuss them before relying on that money.
For Fannie Mae purchase loans, an individual deposit exceeding 50% of total monthly qualifying income is generally considered large. Identifiable payroll or a verified account transfer can be treated differently. Other programs have their own rules. Fannie Mae: deposit documentation
10 / Keep the file steady
What should you avoid before your mortgage closes?
- Keep every payment current. Avoid running up card balances or taking on new payments.
- Check before financing a car, furniture or anything else. New accounts and debts may require documents and a new qualification review.
- Talk before changing jobs or pay structure. Moving from salary to commission can change usable income. A job change is not automatically a denial; disclose it promptly.
- Keep the closing funds traceable. Ask before moving funds, and keep the complete record when a transfer is necessary.
- Report unexpected changes immediately. Lenders may recheck employment, credit, debts and assets. The method varies; there is no universal “soft pull only” rule.
Follow the plan until the transaction is closed and funded. A pre-approval or initial approval does not freeze the facts used to qualify you. Fannie Mae: changed debt or income
When should you lock your mortgage rate?
My advice is simple: if you are happy with the rate, payment and costs, lock it and take that uncertainty off your plate. If you want to wait, we should discuss the closing deadline, current market conditions and how much of an increase your budget could absorb. I can help you weigh that risk; I cannot guarantee where rates go next.
Get written lock confirmation and check the expiration, points or credits, extension costs and any float-down terms. Monitoring the market cannot guarantee a lock before a lender reprices. CFPB: how rate locks work
11 / Common questions
FHA vs. conventional loan FAQs
Is an FHA loan better than a conventional loan?
I start by exploring conventional, then compare FHA when credit, monthly debts or mortgage-insurance costs make it worth considering. Among the options you qualify for, compare total cash needed, the full monthly payment and the cost over the time you expect to keep the mortgage. A lower payment may not recover a higher upfront cost before you sell or refinance.
Can I get a conventional loan with 3% down?
Some eligible buyers can. The requirements depend on the specific program, borrower and property. Some 3%-down programs require a first-time buyer; others have different requirements, including income limits. FHA's commonly available minimum is 3.5% for eligible borrowers. Closing costs and any required reserves are separate.
Is FHA or conventional better with a 640 credit score?
With a 640 score and a small down payment, I would price FHA alongside any conventional option you qualify for. Conventional PMI can increase the monthly cost at a lower score, so ask for the actual insurance premium and full payment for both loans. Then compare cash to close and FHA's upfront insurance over your expected timeline. Income, debts, credit history, down payment and property still determine eligibility.
Does FHA mortgage insurance go away at 20% equity?
No, reaching 20% equity does not automatically cancel annual mortgage insurance on a new standard FHA loan. With less than 10% down, it normally lasts for the mortgage term. With at least 10% down, it normally lasts 11 years, unless the loan ends sooner. This assumes the appraisal supports the purchase price. Older FHA loans can have different rules.
Can a seller pay my down payment and closing costs?
Eligible seller concessions can cover approved closing costs and prepaids, within the program's limits and actual eligible costs. They do not replace the required down payment or reserves. Negotiate the concession with the purchase price and have the loan officer confirm how much can actually be used.
Can I refinance an FHA loan into a conventional loan later?
Potentially, if you and the property qualify at that time. A refinance has its own costs, eligibility requirements and available rates. Conventional mortgage insurance may still apply. Choose a payment you can sustain even if refinancing is delayed or unavailable.
Make the comparison personal
Put your cash, payment and timeline side by side.
Start with the price range, available cash, comfortable payment, income and debts, property type and how long you expect to stay. Mortgage Expert can help you compare the eligible options and explain the tradeoffs.
Have Mortgage Expert review my optionsEducational guidance, not a loan approval, commitment to lend or rate lock. Examples are illustrations, not loan offers. Final terms depend on verified borrower and property information, program requirements, lender underwriting and available pricing. Mortgage Expert, Inc. is a Florida mortgage broker, not affiliated with HUD, FHA or any government agency. NMLS 2412313 · Florida MBR5733 · Equal Housing Opportunity.