TL;DR
- FHA wins if your credit is under 700, your DTI is above 43%, or you have less than 5% down.
- Conventional wins if your credit is 700+ and you'll either put 20% down or reach 20% equity within ~5 years.
- Common play: Use FHA to get in with 3.5% down, then refinance to Conventional once you have 20% equity to kill the monthly MIP.
Side-by-side at a glance
| FHA | Conventional | |
|---|---|---|
| Min credit | 580 (500 with 10% down) | 620 (740+ for best pricing) |
| Min down | 3.5% | 3% (Conv 97) / 5% standard |
| Max DTI | Up to 56.9% | Up to 50% |
| Upfront MI | 1.75% of loan (financed) | None |
| Monthly MI | 0.55% MIP — life of loan* | PMI — drops off at 20% equity |
| Gift funds | 100% allowed | Allowed with restrictions |
| Property condition | Stricter FHA appraisal | Standard appraisal |
*FHA MIP drops off after 11 years only if you put 10% down. With 3.5% down (the default), monthly MIP stays for the full loan term unless you refinance.
Real-world payment: $400K house, 5% down
Assumptions: $400,000 purchase, 5% down ($20K), 6.75% rate, 1.1% property tax, 0.4% homeowners insurance, 700 FICO. Base loan $380,000.
| Line | FHA | Conventional 95% |
|---|---|---|
| Loan amount (w/ upfront MIP) | $386,650 | $380,000 |
| Principal & interest | $2,508 | $2,465 |
| Property tax | $367 | $367 |
| Homeowners insurance | $133 | $133 |
| Monthly MI | $177 (MIP) | $203 (PMI @ 700 FICO) |
| Total PITI | $3,185 | $3,168 |
At 700 FICO, the two payments are within $17/month of each other — Conventional slightly lower. But raise the FICO to 760 and Conventional's PMI drops to ~$120/month while FHA stays at $177. Now Conventional is $80/month cheaper on day one.
The break-even math nobody shows you
FHA's MIP is the killer over time — 0.55% annually on the balance, forever. On a $380K loan that's ~$2,100/year that never goes away until you refinance.
Conventional PMI, by contrast, is required to auto-terminate at 78% LTV (22% equity) and can be requested at 80% LTV. On the same $400K house with normal appreciation, that usually happens between year 4 and year 7.
10-year total cost of MI (est.)
FHA MIP: ~$19,800
Conventional PMI (drops at yr 5): ~$12,180
Conventional saves ~$7,600 over 10 years at 700 FICO — and more at higher scores.
When FHA is objectively the right call
- Credit score under 680 (Conventional PMI gets expensive fast below 700)
- DTI between 45% and 56.9% (Conventional will decline)
- Recent credit event: chapter 7 >2 yrs, foreclosure >3 yrs
- Non-occupant co-borrower needed to qualify
- Manual underwrite required (rare, but FHA has more flexibility)
When Conventional is the right call
- 700+ FICO — PMI pricing gets cheap fast
- 10%+ down (LPMI or single-premium PMI beat FHA outright)
- Higher-priced home above FHA county loan limits
- Investment property or 2nd home (FHA is primary-residence only)
- Property condition issues that would fail an FHA appraisal
The refi-out-of-FHA play
The most common thing I do for FHA buyers 3–5 years in: refinance to Conventional to drop the MIP. You need:
- 20% equity (from appreciation + paydown, or a new appraisal)
- 620+ FICO (740+ is best)
- Enough rate spread to justify closing costs (usually 0.5%+ improvement)
In Phoenix / Scottsdale, buyers who bought FHA in 2021–2023 hit that 20% equity mark well within 3 years. Killing MIP alone can save $150–$250/month.
Where to go from here
- Compare all three programs if you're eligible for VA.
- Understand your DTI — it decides which program you even qualify for.
- Take the Scorecard for a personalized side-by-side.