FHA vs. Conventional Loans: Limits, MIP Duration & Which Fits

I did not become an FHA expert by closing FHA loans. I became one by having to make the calculator refuse to pretend MIP is just “PMI with a different acronym.” Eligibility and MIP rules are national. The maximum loan and your tax/insurance escrow are local. Heard County, Georgia sits comfortably under the 2026 FHA floor; a coastal California listing can slam into the high-cost ceiling. I verify the current map on HUD sources before I trust any number in this piece. The figures below are educational 2026 planning references, not an approval.

Side-by-side snapshot

2026 FHA county loan limits

• National floor (lowest-cost counties): about $541,287 for a 1-unit home in 2026.
• High-cost ceiling for many areas: about $1,249,125 for a 1-unit home.
• Special exception areas (Alaska, Hawaii, Guam, U.S. Virgin Islands) can publish higher limits.
• Multi-unit properties have separate higher schedules — check the county and unit count.

I look up the county before I would let anyone offer on a high list price. A coastal California or New York metro listing may clear high-cost FHA caps while a Midwest county sticks near the floor. Conventional conforming limits (FHFA) are a parallel track — often near about $832,750 baseline in 2026 for many counties. I pick the county in the FHA calculator because I got tired of national blogs that never mention the map.

FHA MIP duration: the 10% / 11-year rule most buyers miss

Most purchase borrowers finance about 1.75% upfront MIP into the loan and pay monthly annual MIP (often near 0.55% of the base loan for common scenarios — confirm current HUD figures). I used to stare at the monthly MIP line like that was the whole story. Duration is the story. Upfront MIP is a separate hit that often gets financed, so the balance is bigger even when monthly MIP later stops.

• With less than 10% down, annual MIP typically lasts for the life of the loan (or until you refinance or sell).
• With 10% or more down, annual MIP can usually be canceled after 11 years if other program conditions are met.
• Upfront MIP is separate and often financed into the loan — it raises the balance even when monthly MIP eventually stops.

Stretching to 10% down hurts cash at closing. In my $350,000 example it is also the difference between annual MIP that typically never falls off and an 11-year clock. That is why I refuse to call “FHA with 3.5% down” and “FHA with 10% down” the same product. Confirm current HUD duration rules — handbooks get updated. Then compare conventional PMI you can request to cancel around 20% equity — PMI removal.

National FHA eligibility basics

• Credit: many lenders work FHA from about 580+ with 3.5% down; scores from about 500–579 often need about 10% down — individual lenders may set higher overlays.
• Down payment: typically 3.5% or 10% as above; gift funds often allowed with documentation.
• DTI: underwriting can flex with compensating factors; still budget near sustainable housing ratios.
• Property: FHA appraisals emphasize minimum property requirements (safety and soundness), not cosmetic perfection.

Conventional loans — PMI can exit

Conventional loans follow Fannie Mae / Freddie Mac guidelines (or jumbo investor overlays). PMI rates depend on LTV and credit. The advantage I care about is exit: PMI is usually cancellable once you reach about 20% equity — unlike many FHA low-down scenarios. That is why I model a 5–7 year hold instead of month-one only.

Why lender overlays decide close calls

Two lenders can cite the same FHA or Fannie guidelines and still disagree on a condo, gift funds, or a credit event. HUD minimums are not every shop’s minimums. I tell people to shop a specialist when a big box declines a file that looks guideline-eligible — overlays vs guidelines. I cannot override an overlay from Franklin. I can tell you to ask which rule they used.

Worked mindset (not a quote)

On a $350,000 purchase with 3.5% down, FHA finances most of the price and adds monthly MIP on top of P&I, taxes, and insurance. I ran that screenshot in our own tool: base loan about $337,750 before financed upfront MIP, $2,838 PITI in that September 2026 capture. A conventional 5% down loan may price worse on day one if credit is thin, but PMI can later cancel. If I expected to refinance to conventional once equity and credit improved, I would still use FHA as a bridge — after checking the county limit. Taxes and insurance still decide the payment. I model full PITI in a state-aware mortgage calculator.

Seller concessions by program

FHA commonly allows seller concessions up to about 6% of the lesser of price or value toward allowable closing costs; conventional caps often land between about 3% and 9% based on down payment. I want those as credits on the settlement statement, not informal price cuts that confuse the appraisal. More: down payment, closing costs, and concessions.

How to decide

1. Model FHA with financed upfront MIP in the FHA calculator.
2. Model conventional at the same price in the mortgage calculator with realistic PMI.
3. Compare cash to close, month-1 payment, and whether insurance can fall off — including 3.5% vs 10% down FHA.
4. Collect Loan Estimates from lenders who actually close FHA regularly — overlays differ.
5. Compare financed vs paid-in-cash upfront MIP on cash-to-close.
6. Plan the exit: many borrowers refinance to conventional once equity supports dropping PMI — refinance guide.

I verify limits on HUD’s official lookup and I still tell you to confirm MIP factors with a licensed FHA lender. I design the calculator. I do not underwrite the file.

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