FHA vs conventional loan

By David Chen · Published October 3, 2026

The case for an FHA loan is usually made in one number: 3.5% down. Conventional financing typically wants more, and the difference is real cash at closing. What that framing leaves out is the monthly arithmetic, and on a same-rate comparison the FHA loan turns out to be the more expensive one to carry — by a margin that is easy to measure.

Below, a $350,000 home financed two ways. Both loans are priced at the same 6.50% so that the comparison isolates the structure of each product rather than a rate quote, and both run 30 years.

Side by side

The first row and the last row are the point. FHA needs $5,250 less at closing and charges $72.95 more every month. Over thirty years the FHA route pays $14,235 more interest on a loan that started smaller in cash terms but ended up larger in debt.

Where the $72.95 comes from

The gap is not one thing. It splits cleanly into two, and seeing the split tells you which part is negotiable and which is not:

Almost all of it is the financed premium. The FHA loan is $11,160.63 larger than the conventional one — the difference between a $12,250 down payment and a $17,500 one, plus $5,910.63 of upfront insurance added to the balance — and every dollar of that is charged 6.50% for thirty years.

The monthly insurance itself is not the problem: $154.80 on the FHA side against $152.40 on the conventional side — a difference of $2.41 a month, taken from the unrounded figures so that the two parts add back to the $72.95 total. The two products are priced almost identically per month. What separates them is how long each one runs.

The insurance looks the same — the duration does not

On the conventional loan, the balance crosses 80% of the home value in month 124. At that point the $152.40 monthly charge stops, having cost $18,897.08 in total over those ten years and four months:

• Conventional PMI: tied to the loan-to-value ratio, so it ends when the balance falls far enough — by scheduled payments, by extra payments, or by an increase in the appraised value. On this loan that is month 124, and the mechanics have their own guide.
• FHA annual premium: generally lasts substantially longer. How long depends on the loan-to-value ratio at origination and on HUD's current rules, which have been changed more than once — so treat any fixed number you read as needing verification against the HUD handbook and your own loan documents.

To size the asymmetric part without pretending to know the rule: if the FHA annual premium ran for eleven years, it would total $20,433.88, which is $1,537 more than the conventional charge over its whole life — and it would still be running while the conventional borrower was paying nothing.

How long the smaller down payment lasts

The cash saved at closing is not free money; it is money you will pay back through the monthly difference. Divide one by the other and you get the period over which the upfront saving is consumed:

$5,250 ÷ $72.95 = 71.97 months — a little under six years. Before that point, the FHA route has genuinely left you better off in cash terms. After it, the saving has been repaid and each further month costs you $72.95. Over a full thirty-year term there are a further 288 such months.

The ten-year view puts both effects in one place:

Paying $8,753.88 more over ten years to save $5,250 at closing is a net cost of $3,503.88 — before counting the extra interest still owed on the larger balance.

The third option nobody compares

The cheapest column in the table above is not either of the ones people usually weigh against each other. At 20% down the payment is $1,769.79 with no mortgage insurance at all — $557.18 a month below the FHA route and $484.23 below the 5% conventional. The trade is $57,750 more cash up front, and whether that cash exists, and whether tying it up in a house is the best use for it, are questions about your own position rather than about the loan.

If the cash is close to available, it is worth pricing all three rather than assuming the choice is between the first two. If it is not, the home affordability calculator works the constraint from the income side instead, which is usually the binding one.

What FHA is actually for

None of the above makes FHA a bad product. It makes it a differently-priced product, and the price buys access rather than a discount:

• A lower credit-score floor. Conventional pricing and eligibility both depend on the score; the FHA programme accepts profiles that conventional underwriting does not, which is the entire reason it exists.
• A smaller minimum down payment, with the down payment itself allowed to come from a gift or a grant in cases where a conventional loan would require it to be your own funds.
• More tolerance in the debt-to-income calculation, which matters if you are near the ratio ceiling rather than near the cash limit.

For a borrower who can qualify conventionally, the arithmetic above is the one that applies. For a borrower who cannot, the comparison is not between two prices — it is between a loan and no loan, and in that case the higher monthly cost is the cost of the access.

One more honesty note: in practice FHA rates are often quoted slightly below conventional ones, which narrows the gap computed here. The reason this comparison holds the rate identical is that a rate quote is the product of a particular day, a particular lender and a particular credit profile, whereas the structural differences — the financed premium and the insurance duration — are the same for everyone.

To price your own case, the mortgage calculator handles the tax, insurance and premium lines together, closing costs explained covers what has to be paid in cash at the table, and how much house can I afford starts from the budget instead of the price.

The short version

FHA's 3.5% down payment saves $5,250 at closing on a $350,000 home and costs $72.95 more every month. Most of that is the financed upfront premium making the loan $11,160.63 larger; the monthly insurance charges themselves are nearly identical. The upfront saving is used up after 71.97 months, and the conventional side's insurance ends at month 124 while the FHA side's generally does not. If you can qualify for conventional financing, the smaller down payment is a more expensive loan, not a cheaper one.

Frequently asked questions

This guide is educational and is not financial advice. Figures were produced by our calculator and independently recomputed before publication; your lender's own documents govern your loan. Spot an error? Tell us — see also our disclaimer.