Quick comparison
| Typical minimum down payment | 3.5% (580+ FICO) |
|---|---|
| Monthly mortgage insurance | Annual MIP (often ~0.55%) |
| Upfront insurance | UFMIP ~1.75% (often financed) |
| Best fit | Lower savings or credit flexibility |
| MIP removal | Usually refinance or 10%+ down rules |
How FHA mortgage insurance works
FHA loans require two kinds of mortgage insurance: an upfront premium (typically 1.75% of the base loan amount, often financed into the loan) and an annual premium (commonly around 0.55% for many purchase scenarios) paid monthly through escrow. Unlike conventional PMI, FHA annual MIP usually stays for the life of the loan when you put down less than 10%. That longevity is why many borrowers treat FHA as a bridge into homeownership and plan a later refinance into a conventional loan once equity and credit support better pricing.
Who FHA loans are best for
FHA loans are popular with first-time buyers and borrowers with limited savings or credit scores that would price poorly on conventional guidelines, because they allow a 3.5% down payment and more flexible qualification in many cases. They are not automatically cheaper every month — MIP can make the payment higher than a strong-credit conventional loan with modest PMI. Use this calculator to compare the lower cash-to-close of FHA against the long-term cost of mortgage insurance versus a conventional alternative at the same purchase price.
Worked cost mindset (not a quote)
On a $350,000 home with 3.5% down, you finance most of the price and add monthly MIP on top of principal, interest, taxes, and insurance. Raising the down payment to 10% can change MIP duration rules on some FHA loans, while jumping to 20% on a conventional loan can eliminate monthly mortgage insurance entirely. The right choice depends on cash available, credit, and how long you expect to keep the loan — not on a single headline rate.
FHA vs conventional: decide with a timeline
If you will likely stay five or more years and can reach 20% equity, model both an FHA payment today and a future conventional refinance. If you need the lowest possible cash to close and your conventional pricing is expensive, FHA may win short-term even with MIP. Always compare Loan Estimates with the same purchase price, prepaid items, and discount-point assumptions so you are not mixing apples and oranges.
Checklist before you apply
- Confirm the property meets FHA appraisal and safety standards.
- Budget for both upfront MIP and the monthly annual MIP.
- Compare a conventional 3–5% down quote with PMI vs. FHA total cost over 5–7 years.
- Ask when you could refinance to conventional once you have ~20% equity.
- Use gift funds documentation rules if family is helping with the down payment.
For the formulas behind every estimate, see how we calculate.