PropertyYou pull your credit score for the first time and land at 680. Your lender says you qualify for an FHA loan, explains there's something called mortgage insurance, and you nod along trying to remember which one costs less. The internet says FHA is "made for first-time buyers." Your cousin used it. Your coworker said conventional has PMI and PMI is bad. Nobody explained that the most important single fact in this comparison is whether the insurance payment ever goes away — and that FHA's doesn't.
The reality: FHA is better below 640. Above 720, conventional wins on both monthly cost and total lifetime cost. Between 640 and 720, it depends on how long you plan to stay — and most lenders won't tell you to run this comparison.
What FHA mortgage insurance actually costs in 2026
FHA has two separate mortgage insurance charges. The first is the upfront MIP: 1.75% of your loan amount, paid at closing or rolled into your loan balance. On a $270,200 loan, that adds $4,729 to your balance immediately — your actual loan becomes $274,929 before you make a single payment.
The second is the annual MIP: 0.55% per year, billed monthly, as of March 2023 (HUD Mortgagee Letter 2023-05). HUD cut this from 0.85% in 2023, which made FHA meaningfully more competitive. On a $274,929 loan balance, 0.55% annually is $126 per month.
Now here is the part your lender is legally required to disclose but frequently buries: if you put less than 10% down on an FHA loan originated after June 3, 2013, the annual MIP lasts for the entire life of the loan. There is no equity threshold where it cancels. It does not go away when you hit 80% LTV. It does not go away when you've owned the home for 10 years. It runs for all 360 months of a 30-year term, or until you refinance or sell.
Over 30 years on a $274,929 balance, that $126/month adds up to $45,360 in MIP payments, plus $4,729 upfront: a total mortgage insurance cost of $50,089.
What this means for you: if you plan to stay in the home longer than 7–10 years and your credit score is 660 or above, you almost certainly want to run a conventional comparison before assuming FHA is the better choice.
How conventional PMI works — and why it goes away
Conventional loan PMI (private mortgage insurance) is priced by your credit score, your down payment percentage, and the specific insurer your lender uses. Unlike FHA's flat-rate MIP, conventional PMI rates vary significantly: a buyer at 640 might pay 1.5% annually, while a buyer at 760 might pay 0.2%.
The critical difference from FHA: conventional PMI cancels. Under the Homeowners Protection Act, your lender must automatically cancel PMI when your loan balance reaches 78% of the original purchase price. You can also request cancellation when you reach 80% LTV based on original price, without waiting for automatic cancellation. If your home appreciates, you can potentially request early PMI removal using a new appraisal to establish your current equity.
For a buyer who puts 3% down and whose home appreciates at a typical 3–4% per year, PMI removal often happens between year 5 and year 8. After that, conventional loans carry zero mortgage insurance cost. FHA loans keep billing $126/month through year 30.
What this means for you: "conventional has PMI" is not the full sentence. The full sentence is "conventional has PMI until you reach 20% equity, then it stops." That distinction is worth, in many cases, $20,000–$35,000 over the life of a loan compared to FHA.
The monthly cost comparison by credit score
Here is the full side-by-side on a $280,000 home purchase — a realistic price for a first-time buyer in Atlanta or similar mid-tier city — using current 6.52% rates (Freddie Mac PMMS, June 11 2026).
FHA scenario: 3.5% down ($9,800) → $270,200 loan → UFMIP adds $4,729 → balance = $274,929
P&I at 6.52%: $1,740/month · Annual MIP (0.55%): $126/month · Total: $1,866/month
Conventional 97 scenario: 3% down ($8,400) → $271,600 loan (no UFMIP)
P&I at 6.52%: $1,720/month · PMI varies by credit score (see table below)
| Credit score | Conv. PMI rate | Conv. PMI/mo | Conv. total/mo | FHA total/mo | Monthly winner |
|---|---|---|---|---|---|
| 580–619 | Not available* | — | — | $1,866 | FHA only option |
| 620–639 | ~2.0%/yr | $453 | $2,173 | $1,866 | FHA by $307 |
| 640–659 | ~1.5%/yr | $340 | $2,060 | $1,866 | FHA by $194 |
| 660–679 | ~1.0%/yr | $227 | $1,947 | $1,866 | FHA by $81 |
| 680–699 | ~0.9%/yr | $204 | $1,924 | $1,866 | FHA by $58 |
| 700–719 | ~0.65%/yr | $147 | $1,867 | $1,866 | Nearly identical |
| 720–739 | ~0.5%/yr | $113 | $1,833 | $1,866 | Conventional by $33 |
| 740–759 | ~0.3%/yr | $68 | $1,788 | $1,866 | Conventional by $78 |
| 760+ | ~0.2%/yr | $45 | $1,765 | $1,866 | Conventional by $101 |
*Some lenders offer conventional loans at 580+ with nontraditional credit, but most conventional programs start at 620 minimum. PMI rates are indicative industry ranges at 3% down; actual quotes vary by lender and MI provider. FHA MIP rate per HUD Mortgagee Letter 2023-05; conventional rates per Freddie Mac guidelines.
The monthly crossover is at roughly 720 credit score. Below that, FHA is cheaper per month. At 720 and above, conventional wins on the monthly payment.
What this means for you: if your credit score is 680, FHA saves you $58 a month. That is real money. But it does not tell the whole story — because that $58 advantage is built on the assumption that both loans carry their insurance for the same amount of time. They don't.
The lifetime cost: where conventional wins much earlier
Here is the calculation that almost never gets explained. At a 680 credit score with 3% down on a $280,000 home, assume the property appreciates at 3.5% per year — slightly below the long-run historical average. At that appreciation rate, the conventional loan's 80% LTV threshold is reached in approximately 5 years. At that point, PMI cancels.
Total conventional PMI paid over 5 years at 0.9%: $204/month × 60 months = $12,240
Total FHA MIP over 30 years at $126/month: $45,360 (plus $4,729 upfront UFMIP = $50,089 total)
The difference: $50,089 minus $12,240 = $37,849 more in mortgage insurance paid over the life of the loan with FHA at a 680 credit score.
The FHA monthly payment is $58 cheaper for years 1–5. Over those 60 months, FHA saves $3,480. But from month 61 onward, conventional carries zero PMI while FHA keeps running $126/month. The conventional loan breaks even on lifetime MIP cost at approximately month 89 (year 7). After that, every month you hold the FHA loan costs you an extra $126 that the conventional borrower stopped paying at year 5.
What this means for you: at a 680 credit score and a holding period beyond 7 years, conventional is the better lifetime choice even though FHA is the cheaper monthly payment. The decision depends entirely on how long you plan to stay.
The FHA upfront cost that changes the down payment math
One more number that catches buyers off-guard. FHA's 3.5% minimum down payment requires $9,800 on a $280,000 home. Conventional 97 requires $8,400 — $1,400 less. So FHA requires more cash down.
On top of that, FHA rolls $4,729 in upfront MIP into the loan, which means your starting balance is $274,929 rather than $270,200. This creates two hidden costs: you're paying interest on the $4,729 upfront MIP for 30 years, and if you sell the home early, that $4,729 never gave you equity — it just went to HUD.
Conventional 97 at 3% down: you put in $8,400, no upfront insurance, loan starts at $271,600. If you sell in 3 years and the home appreciated normally, you owe less to your lender and keep more equity.
What this means for you: if you are borderline between 3.5% FHA and 3% conventional, the conventional option actually requires less cash at closing — which surprises most buyers who assume FHA is always the lower-barrier option. The closing cost difference between the two loans runs in one direction on down payment and MIP, but that upfront calculation matters for short-term holders especially.
When FHA still wins regardless of credit score
There are situations where FHA is the right call even at 720+ credit. FHA is more permissive on debt-to-income ratio (up to 57% with compensating factors versus Fannie Mae's standard 45%). If your income includes irregular sources, multiple jobs, or 1099 income, FHA underwriters often have more flexibility than conventional underwriters. FHA also has fewer restrictions on gift funds for down payments.
If you've had a bankruptcy or foreclosure within the last 3–4 years, FHA's waiting periods are shorter than conventional requirements. And if the specific home you want has condition issues (chipped paint, non-functional systems, deferred maintenance), FHA loans can sometimes be structured with repair escrows where conventional lenders would decline the property outright.
These are situational advantages. They are not reasons to default to FHA without running the numbers. They are reasons to make sure you understand both options before committing.
The call
Here is the straightforward framework: below 640, choose FHA. Above 720, choose conventional — your PMI will be lower monthly, it will cancel in 5–8 years, and you'll spend tens of thousands less on mortgage insurance over time. Between 640 and 720, run the numbers with your specific credit score and intended hold period.
If you plan to stay in the home fewer than 5 years, FHA's monthly savings at 660–700 are real and PMI cancellation on the conventional side won't happen before you leave anyway. If you plan to stay 7+ years, the conventional PMI cancellation almost certainly makes conventional cheaper in total — even when FHA is $50–80 cheaper per month.
The math points toward this: a buyer at 680 credit score who plans to hold for 10 years should take the conventional loan, pay $58 more per month for roughly 5 years, and then pay $126 less per month for years 6–10 when PMI is gone. Net benefit over a 10-year hold: approximately $4,680 ahead on the conventional side, growing every year you hold past the PMI cancellation date. Get your credit score to 720 before you close if you can — every month you wait costs far less than a lifetime of uncancelable MIP.