FHA vs Conventional: Side-by-Side Comparison (2026)
| Feature | FHA Loan | Conventional Loan |
|---|---|---|
| 2026 loan limit (one-unit) | $541,287 floor in low-cost areas, up to $1,249,125 in high-cost areas (HUD Mortgagee Letter 2025-23) | $832,750 baseline, up to $1,249,125 in high-cost areas (FHFA, announced Nov 25, 2025) |
| Minimum down payment | 3.5% with credit score 580+; 10% with credit score 500–579 (HUD Handbook 4000.1) | 3% through Fannie Mae HomeReady or Freddie Mac Home Possible (for eligible borrowers); 5% standard minimum |
| Minimum credit score | 580 for 3.5% down; 500 minimum with 10% down | Generally 620 minimum (620+ for HomeReady); best pricing usually requires 720+ |
| Mortgage insurance | MIP: 1.75% upfront + ~0.55%/yr annual on a 30-yr loan with 3.5% down. With <10% down, annual MIP lasts the life of the loan; with 10%+ down it ends after 11 years. | PMI: required with <20% down; cost varies by credit score and down payment. You can request cancellation at 80% LTV; servicer must auto-cancel at 78% LTV (CFPB / Homeowners Protection Act). |
| Income limits | None | None for standard loans; HomeReady/Home Possible require income ≤ 80% of area median income |
| Property use | Primary residence only | Primary, second home, or investment property (different rules and down payments apply) |
| Loan backing | Insured by the Federal Housing Administration (HUD) | Not government-insured; typically sold to Fannie Mae or Freddie Mac |
2026 Loan Limits Explained
For 2026, HUD set the FHA forward mortgage floor at $541,287 and ceiling at $1,249,125 for a one-unit property (Mortgagee Letter 2025-23, effective for FHA case numbers assigned on or after January 1, 2026). The floor applies in low-cost areas; high-cost counties get higher limits up to the ceiling. Your exact limit depends on your county — HUD's official FHA Mortgage Limits search tool has the per-county numbers.
Conventional (conforming) loan limits are set by FHFA: the 2026 baseline is $832,750 for a one-unit property, with a high-cost ceiling of $1,249,125. Since FHA's floor is 65% of the conforming baseline, both move together.
Down Payment & Credit Score Rules
- FHA: 3.5% down with a 580+ credit score, or 10% down with a score of 500–579 (HUD Handbook 4000.1). FHA allows gift funds and approved down payment assistance for the down payment.
- Conventional: standard loans typically require at least 5% down. Fannie Mae HomeReady and Freddie Mac Home Possible allow 3% down for eligible borrowers (income at or below 80% of area median income; HomeReady minimum score 620). Put 20% down and you avoid PMI entirely.
- Rate sensitivity: conventional loan pricing and PMI rates depend heavily on credit score — a 780 score gets far better pricing than a 640 score. FHA MIP rates are the same regardless of credit score, which is one reason FHA can be cheaper for lower-score borrowers.
Mortgage Insurance: MIP vs PMI (The Big Long-Term Difference)
FHA MIP
All FHA borrowers pay two premiums: an upfront MIP of 1.75% of the base loan amount (usually financed into the loan) and an annual MIP, typically 0.55% per year for most 30-year loans with more than 95% LTV, paid monthly (HUD Mortgagee Letter 2023-05).
The key catch: for case numbers assigned on or after June 3, 2013, if your down payment is less than 10% (the typical case at 3.5% down), annual MIP lasts for the life of the loan — there is no cancellation based on equity. With 10% or more down, MIP ends after 11 years. The main way out of MIP is refinancing into a conventional loan once you have enough equity.
Conventional PMI
PMI is required only while your loan-to-value is above 80%. Per CFPB guidance under the Homeowners Protection Act:
- You may request cancellation when your balance is scheduled to reach 80% of the original value — request in writing, be current on payments, have no junior liens, and the home's value must not have declined.
- Your servicer must automatically terminate PMI when the balance is scheduled to reach 78% of the original value (or at the loan's midpoint, whichever comes first), as long as you are current.
PMI cost varies with credit score, down payment, and loan term. Bankrate, citing the Urban Institute, reports average PMI costs of roughly 0.46%–1.5% of the loan amount per year — so on a $380,000 loan that's roughly $146–$475/month, illustrative. Actual pricing comes from your lender and mortgage insurer.
Illustrative insurance-cost example
Take a $400,000 home. With an FHA loan at 3.5% down ($386,000 base loan): upfront MIP ≈ 1.75% × $386,000 = $6,755 (usually rolled into the loan), and annual MIP ≈ 0.55% × $386,000 ÷ 12 ≈ $177/month, lasting for the life of the loan unless refinanced. A conventional borrower with the same down payment would pay PMI instead — often in the same ballpark monthly at first, but with a firm exit at 78–80% LTV. (Illustrative math from the official rates above; your actual quote comes from your lender.)
Which Should You Choose?
- Choose FHA if: your credit score is below ~680, you have limited savings for a down payment, you received gift funds or down payment assistance, or your DTI is high (HUD's standard benchmark is around 43%, though automated underwriting may allow higher with compensating factors).
- Choose conventional if: your credit is 680+ (especially 720+), you can put 10–20% down, or you want mortgage insurance that disappears at 80% LTV. With 20% down, conventional has no monthly insurance at all — FHA still charges MIP at any down payment.
- Borderline case? Run both scenarios with our mortgage calculator: compare the monthly payment including MIP/PMI, and ask lenders for written Loan Estimates on both loan types.
Frequently Asked Questions
What is the FHA loan limit for 2026?
For 2026, the FHA forward mortgage limit floor for a one-unit property is $541,287 in low-cost areas, with a ceiling of $1,249,125 in high-cost areas (HUD Mortgagee Letter 2025-23, effective for case numbers assigned on or after January 1, 2026).
How much is FHA mortgage insurance in 2026?
FHA charges an upfront MIP of 1.75% of the base loan amount plus an annual MIP, typically 0.55% per year for most 30-year loans with over 95% LTV (HUD Mortgagee Letter 2023-05).
How long do I pay FHA MIP?
With less than 10% down, annual MIP lasts for the life of the loan. With 10% or more down, MIP is canceled after 11 years. Refinancing into a conventional loan is the common way to remove MIP early.
When can PMI be removed from a conventional loan?
You can request cancellation when your balance is scheduled to reach 80% of the original value; your servicer must automatically terminate PMI at 78% per the Homeowners Protection Act (CFPB guidance).
Can I get a conventional loan with 3% down?
Yes — Fannie Mae HomeReady and Freddie Mac Home Possible allow 3% down for eligible borrowers (income ≤ 80% of area median income; minimum credit scores apply). Standard conventional loans typically require at least 5% down.
Sources
- 2026 FHA forward mortgage limits ($541,287 floor / $1,249,125 ceiling): HUD.gov, Mortgagee Letter 2025-23 — hud.gov
- 2026 conforming loan limit ($832,750 baseline): FHFA, announced November 25, 2025
- FHA down payment and credit score tiers (3.5% / 580+; 10% / 500–579): HUD Handbook 4000.1
- FHA MIP rates and duration (1.75% upfront; 0.55% annual; life-of-loan vs 11-year rule): HUD Mortgagee Letter 2023-05
- HomeReady 3% down (income ≤ 80% AMI, min score 620): Fannie Mae (via Bankrate)
- PMI cancellation (request at 80% LTV, automatic at 78% LTV): CFPB — consumerfinance.gov
- Average PMI cost range 0.46%–1.5%/yr: Urban Institute, cited by Bankrate