FHA vs. conventional loans: which costs less?
Compare FHA and conventional loans: down payments, mortgage insurance and when it ends, 2026 loan limits in Texas metros, and a worked payment example.
By Sowmya, Licensed Loan Officer, NMLS #2528067Published 8 min read
Many buyers compare two loan types: an FHA loan, insured by the Federal Housing Administration, and a conventional loan, which isn’t backed by a government agency and usually follows Fannie Mae or Freddie Mac rules. Both can work with a small down payment. The real differences are in mortgage insurance, loan limits and how long the extra cost sticks around. This guide compares them side by side, with the math on a $350,000 home.
FHA vs. conventional at a glance
| Feature | FHA loan | Conventional loan |
|---|---|---|
| Minimum down payment | 3.5% with a credit score of 580 or higher; 10% with 500 to 579 | 3% on some programs, such as 97% LTV loans for first-time buyers or HomeReady |
| Upfront mortgage insurance | 1.75% of the loan, which can be added to the balance | None on standard monthly PMI |
| Monthly mortgage insurance | 0.50% to 0.55% a year for most loans | PMI if you put down less than 20%; about $30 to $70 a month per $100,000 borrowed |
| When it ends | 11 years with 10% or more down; otherwise the life of the loan | Can request removal at 80% of the original value; ends automatically at 78% |
| 2026 one-unit limit | $541,287 to $1,249,125, by county | $832,750 in most areas, up to $1,249,125 in high-cost areas |
Sources: HUD, FHFA, Freddie Mac and Fannie Mae. Lenders can set stricter rules than the minimums above.
Down payment: how low can you go?
HUD sets the FHA minimum at 3.5% for borrowers with a credit score of 580 or higher, and 10% for scores from 500 to 579. The money can be your own savings, a gift, or a mix of both.
Conventional loans can go as low as 3% down. Fannie Mae’s standard 97% loan-to-value option requires at least one borrower to be a first-time homebuyer, and its HomeReady program also allows 3% down, with its own eligibility rules. Put down 20% or more on a conventional loan and there’s no mortgage insurance at all.
The lowest down payment isn’t always the lowest cost. Down payment, mortgage insurance and rate all move together, so it helps to see them in one example.
Mortgage insurance: the biggest difference
Both loan types charge mortgage insurance when you put down less than 20%, but they work very differently.
FHA mortgage insurance premium (MIP)
- Upfront premium: 1.75% of the base loan amount. On a $337,750 loan, that’s about $5,911. It can be added to the loan instead of paid in cash.
- Annual premium: for a loan over 15 years and up to $726,200, it’s 0.55% a year if you put down less than 5%, and 0.50% with 5% or more down. It’s split into your monthly payment.
- How long it lasts: 11 years if you put down at least 10%. With less than 10% down, it stays for the life of the loan. To stop paying it sooner, you’d typically need to refinance into a different loan.
Conventional private mortgage insurance (PMI)
- No upfront premium on the standard monthly option.
- Monthly cost: Freddie Mac estimates about $30 to $70 a month for every $100,000 borrowed. Your quote depends on your loan details.
- How it ends: under the Homeowners Protection Act, you can ask your servicer to cancel PMI once your balance drops below 80% of the home’s original value, if you meet the conditions. It ends automatically when your balance is scheduled to reach 78%, as long as you’re current. Extra principal payments can get you there sooner.
Our homeowner guide covers the steps to drop PMI once you qualify.
A worked example on a $350,000 home
Here is the same $350,000 home three ways. To isolate the effect of mortgage insurance, we assume the same 7.00% rate on every option. In real life, FHA and conventional rates are priced differently, so your quotes can tip the result either way. For context, Freddie Mac’s average 30-year fixed rate was 7.18% for the week of November 5, 2026.
| Option (illustrative) | Loan amount | Principal and interest | Mortgage insurance | Total |
|---|---|---|---|---|
| FHA, 3.5% down ($12,250) | $343,661 | $2,286 | About $155 | About $2,441 |
| FHA, 5% down ($17,500) | $338,319 | $2,251 | About $139 | About $2,389 |
| Conventional, 5% down ($17,500) | $332,500 | $2,212 | $100 to $233 | $2,312 to $2,445 |
Run your own numbers in the mortgage calculator, and check how either payment fits your budget with the DTI calculator.
Loan limits in Texas metros
Each year FHFA sets the conforming limit for conventional loans, and HUD sets FHA limits by county. In Texas’ big metros, the FHA limit is the tighter one. These are the 2026 limits for a one-unit home:
| Metro (county) | FHA limit | Conforming limit |
|---|---|---|
| Houston (Harris) | $541,287 | $832,750 |
| Dallas-Fort Worth (Dallas, Tarrant, Collin, Denton) | $563,500 | $832,750 |
| Austin (Travis, Williamson) | $571,550 | $832,750 |
| San Antonio (Bexar) | $557,750 | $832,750 |
If the loan you need is above your county’s FHA limit, a conventional loan may be the only one of the two that fits. Above $832,750 in these counties, you’d be looking at a jumbo loan. Limits for 2027 haven’t been announced yet; FHFA and HUD usually publish them late in the year.
When each one tends to fit
FHA may suit you if
- You have 3.5% to put down, or a gift to cover it, and want to keep more cash in the bank.
- Your conventional PMI quotes come in high, so FHA’s set premium compares well.
- Your loan amount fits within your county’s FHA limit.
Conventional may suit you if
- You can put down 20% and skip mortgage insurance entirely.
- You get a competitive PMI quote and want insurance that can come off on its own.
- You plan to keep the home and loan for many years, so a lifetime FHA premium would add up.
- You need to borrow more than your county’s FHA limit.
Whichever you choose, seller concessions can help with costs, and the limits differ by loan type. Our seller concessions guide has the details, and how much house can I afford walks through the budget side.
How to compare your real options
- Ask for both. Request Loan Estimates for FHA and conventional on the same day, with the same down payment, so the quotes line up.
- Compare the full payment, including mortgage insurance, not just the rate.
- Check how long the insurance lasts. Multiply the monthly premium by the months you expect to pay it.
- Look at cash to close, including the down payment and any upfront premium you pay in cash.
- Think about your timeline. If you expect to sell or refinance within a few years, the long-term difference matters less.
Want help sorting it out? Ask Lowi™ to compare both options with your numbers, set rate alerts for your target rate, or pre-qualify to buy when you’re ready. Kwalifai never sells your number to lenders.
Frequently asked questions.
Is an FHA loan cheaper than a conventional loan?
It depends. FHA’s 3.5% minimum doesn’t require you to be a first-time buyer, and its premium is set by HUD rather than quoted by an insurer. A conventional loan often costs less over time because PMI can be removed, while FHA insurance usually lasts the life of the loan with less than 10% down. Compare Loan Estimates for both.
Can I remove FHA mortgage insurance?
If you put down at least 10%, FHA annual mortgage insurance ends after 11 years. With less than 10% down, it lasts for the life of the loan, so the usual way to stop paying it is to refinance into a different loan.
What is the FHA loan limit in Texas for 2026?
For a one-unit home, it ranges from $541,287 in many counties, including Harris, up to $571,550 in Travis and Williamson counties. Dallas, Tarrant, Collin and Denton are $563,500, and Bexar is $557,750.
How much do I need to put down on a conventional loan?
As little as 3% on some programs, such as Fannie Mae’s 97% loan-to-value option for first-time buyers or HomeReady. With less than 20% down, you’ll pay PMI until you reach the cancellation point.
Can I use gift money for an FHA down payment?
Yes. HUD allows the FHA down payment to come from your own funds, a gift or a combination. Your lender will tell you what documentation it needs for the gift.
Can I switch from FHA to conventional later?
You can refinance from an FHA loan into a conventional loan if you qualify. Some borrowers consider this once they have enough equity to avoid PMI. Weigh the closing costs against the mortgage insurance you’d save.
About the author. Sowmya is a licensed loan officer (NMLS #2528067) in Texas who writes and reviews the guides in the Kwalifai Learning Hub. More about Sowmya
Sowmya is a licensed loan officer (NMLS #2528067) licensed in Texas. Kwalifai is a technology platform, not a lender. Mortgage services are provided by a licensed loan originator (NMLS #2528067) enrolled with Ensure Home Loans LLC (NMLS #1666674). This article is for general educational purposes only and is not an offer to lend or a commitment to make a loan. Loan programs, rates, terms and eligibility vary and are subject to change. Consult a tax professional for tax advice. Equal Housing Opportunity.