An FHA loan is often sold as the affordable way into a first home, and for the first few years it usually is. But the mortgage insurance riding along with it can outlast the reason you took the loan in the first place. For a borrower with strong credit, conventional financing and its private mortgage insurance is usually the better long-run deal, because that insurance eventually comes off. FHA’s premium frequently doesn’t. Which one actually costs you less comes down to two things: your credit score and how long you plan to keep the loan.
Both charges do the same job. They protect the lender, not you, when you put down less than 20%. What separates them is the fine print on price and cancellation. And that fine print is where borrowers quietly lose real money.
How FHA and Conventional Mortgage Insurance Compare
The gap shows up across a handful of factors. Here they are side by side, before we get into what each one means for your monthly payment.
| Factor | FHA mortgage insurance (MIP) | Conventional PMI |
|---|---|---|
| Upfront charge | 1.75% of the loan amount, paid at closing or financed | None |
| Monthly premium | A flat rate, around 0.55% a year on most 30-year loans | Varies by credit score and down payment |
| Priced on your credit score? | No, a 580 pays the same as a 780 | Yes, higher scores pay far less |
| How it ends | 11 years if you put 10% or more down, otherwise it stays for the life of the loan | Cancels by request at 80% of the original value, automatically at 78% |
| Minimum down payment | 3.5% with a 580 score | As low as 3% |
| Getting out early | Refinance into a conventional loan | Reach 20% equity, or refinance |
A Strong Credit Score Makes Conventional PMI Cheap
On the conventional side, credit is the whole ballgame. Private mortgage insurance is risk-priced, so the same score and down payment that set your interest rate also set your premium. A 760 score with 10% down might see PMI near 0.3% of the loan a year. Drop to a 620 and that number can more than triple on the exact same house.
On a $300,000 loan, that spread is real money. The 760-score borrower might pay roughly $75 a month, while the 620-score borrower on the identical loan could pay $200 or more. That is why buyers with good credit almost always pay less for mortgage insurance on a conventional loan than they would on FHA. If you’re not sure where your credit lands yet, the minimum credit score to buy a house is the same lever that decides how expensive your PMI will be.
FHA’s Premium Ignores Your Credit Score
FHA works the opposite way, and for some borrowers that’s the good news. According to the Consumer Financial Protection Bureau, FHA mortgage insurance is required on every FHA loan and costs the same no matter your credit score. A 580 borrower and a 780 borrower pay the identical annual premium, currently around 0.55% on a typical 30-year loan, on top of a 1.75% upfront charge.
There’s also the upfront premium to account for. That 1.75% charge is $5,250 on a $300,000 loan, and it’s usually rolled into the balance, so you finance it and pay interest on it for years. Conventional loans carry no equivalent upfront insurance cost. It’s a real number that almost never shows up in a quick monthly-payment comparison.
So if your score sits on the lower end, FHA can genuinely beat conventional on the monthly premium. That flat pricing is the reason FHA still wins for a lot of first-time buyers. The catch is what happens next.
The Real Difference Is How Each One Ends
Conventional PMI has a built-in exit, and it’s written into federal law. The Consumer Financial Protection Bureau explains that your servicer must automatically terminate PMI on the date when your principal balance is scheduled to reach 78 percent of the original value of your home, and you can ask to cancel it earlier at 80 percent. Pay the loan down, or watch the home gain value, and the charge disappears.
That exit is worth serious money over the years, and it’s the heart of whether paying private mortgage insurance is worth it at all. On that same $300,000 loan, a conventional borrower who reaches 20% equity in about five years stops paying PMI for good. You carry the cost for a while, build equity, then keep the payment for yourself.
There’s a faster route, too. If your home gains value, many servicers will drop conventional PMI based on a new appraisal showing you’ve crossed into 20% to 25% equity, often after a couple of years. In a rising market that can shave the insurance off well ahead of schedule. FHA offers nothing like it.
Getting Out of FHA Insurance Usually Means Refinancing
FHA insurance doesn’t play by those rules. If you put down less than 10%, the annual premium stays for the entire life of the loan. Hitting 20% equity changes nothing. Hitting 50% equity changes nothing. The premium only drops off on its own after 11 years, and only if you started with at least 10% down.
Put real numbers on it. That flat 0.55% runs roughly $130 a month on a typical FHA loan, and for the minimum-down borrower it never goes away on its own. Over the back half of a 30-year loan, that’s tens of thousands of dollars. For most FHA borrowers who put down the minimum, the practical way out is refinancing out of FHA mortgage insurance into a conventional loan once they’ve built enough equity. That works beautifully when rates cooperate. It hurts when they don’t, because you’d be trading your current rate for whatever the market offers that day.
Choose FHA If, Choose Conventional If
Lean FHA if your credit is under about 640 and a conventional approval is either out of reach or priced painfully high. FHA’s flat premium and more forgiving underwriting can get you into the home now, with a clear plan to refinance later once your credit and equity improve.
Lean conventional if your score is 680 or higher and you expect to reach 20% equity within a handful of years. Your PMI will be cheap while it lasts, and it won’t last long. Before you bank on a future refinance to shed FHA insurance, it’s worth running the math with a tool that estimates what a refinance would actually save against its closing costs.
Split the difference if your credit is weak today but climbing. Take the FHA loan to buy now, then refinance into conventional once a stronger score and 20% equity make the numbers work. It’s a common, deliberate path, not a failure.
Where the Cheaper-Looking Option Falls Short
Conventional isn’t the automatic winner it looks like on paper. For a borrower with a 600 score, conventional PMI can be so expensive, or the approval so hard to get, that FHA’s flat premium plus a lower base rate wins outright, at least until a refinance is realistic. The cheaper insurance only helps if you qualify for the loan it rides on.
When our loan officers sit down with a borrower, the monthly premium is rarely the deciding factor on its own. What matters more is whether a conventional approval is realistic right now and how long that borrower actually plans to stay in the home. Fellowship walks through both loan structures side by side and models the refinance-later path before anyone commits, so the choice rests on your numbers instead of a rule of thumb. As a Christian-based lender, that guidance-first approach is the whole point.
Frequently Asked Questions
Does every FHA loan require mortgage insurance?
Yes. Every FHA loan carries both an upfront premium of 1.75% and an annual premium, no matter your down payment or credit score. There’s no version of an FHA loan without it, which is a core difference from conventional financing.
Can I cancel FHA MIP once I reach 20% equity?
Usually not. If you put down less than 10%, the annual premium stays for the life of the loan, and reaching 20% or even 40% equity won’t remove it. The standard way out is refinancing into a conventional loan once you have enough equity.
Is conventional PMI always cheaper than FHA insurance?
No. It depends on your credit. Strong credit makes conventional PMI cheaper, and it eventually cancels on its own. Weaker credit can flip the result, making FHA’s flat premium the lower monthly cost until you’re able to refinance.
Not Sure Which Path Fits Your Situation?
The right answer really does come down to your credit, your down payment, and how long you plan to stay put. Those are worth talking through with someone before you lock in a loan type you’ll carry for years. Connect with a Fellowship loan advisor and we’ll model both options against your actual numbers, then map the cleanest path out of mortgage insurance for you.
