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FHA vs Conventional Mortgages

Joshua Bucio
2 min read
FHA vs Conventional Mortgages

There are a few different mortgage programs to choose from and each have their own benefit, depending on your situation.  The two most popular mortgage programs among most buyers recently, are the FHA mortgage and the conventional mortgage.  You can also read about an article I wrote about popular mortgage programs for first time home buyers.

Visual Graph

This visual graph shows you a great comparison of the FHA vs conventional mortgage for a potential home buyer.  I have stated the details of each program below, so you can compare the differences.  Take a look at the short-term and long-term differences.

Fha vs Conventional 2

Mortgage FHA vs Conventional 1

Details of Each Mortgage

Here are the details that are being used for both FHA and Conventional in the graph above.


  • $200,000 purchase price.
  • 3.5% down payment.  (This is the minimum down payment for the FHA program.)
  • 3.75% fixed interest rate.
  • 30 year term.


  • $200,000 purchase price
  • 5% down payment.
  • 3.75% fixed interest rate.
  • 30 year term.

You can see the only difference I have from the details above is the down payment.  Typically, the larger the down payment, the less you have to borrower and the less interest you have to pay over the life of the mortgage.  Well, there are two items that make the FHA mortgage much different from the conventional mortgage.

Two Major Differences For FHA Mortgage

  • Upfront Mortgage Insurance Premium (MIP)

The upfront MIP is a cost that is required with a FHA mortgage.  This is a cost on top of your typical mortgage closing costs.  This upfront cost is typically rolled into the mortgage balance you are borrowing, so you are paying interest on this over the life of the mortgage.  Currently, the MIP charge for a 30 year term is 1.75% of your loan amount.

  • Monthly Mortgage Insurance (a.k.a PMI)

The mortgage insurance amount is a monthly payment, on top of your mortgage payment.  This monthly payment is required with FHA, regardless of how much of a down payment you have.  Currently, the monthly mortgage insurance payment for a 30 year term is 1.25% of your loan amount.  The FHA program requires you pay this for 5 years, before you can have it removed.

Conventional PMI vs FHA PMI

These premiums differ and typically the FHA PMI is more than the conventional PMI.  Also, with a conventional mortgage, you only have to pay the PMI until you reach 78% loan to value ratio.  (22% equity in the property)  The FHA PMI is required for 5 years of the mortgage, regardless of the equity position of the property.

Many home buyers that have a smaller down payment or lower credit score, will use a FHA mortgage.  Then, they make it a goal to refinance in the future, into a conventional mortgage, to elimiate the PMI they are required to pay with FHA.  When you refinance, you will need to have the property appraised and if you can show 20% equity in the property, you can avoid the PMI.  It’s not uncommon for a home buyer to pay PMI, since in many cases they are only paying it for a short period of time.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.