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The right loan depends on your credit score, down payment, and how long you plan to stay in the home. FHA loans are government-backed and easier to qualify for, but come with mandatory mortgage insurance. Conventional loans are stricter on credit but offer more flexibility on insurance.
FHA loans require two types of mortgage insurance. The upfront MIP is 1.75% of the loan amount, rolled into the loan balance. The annual MIP (paid monthly) is typically 0.55% of the loan for 30-year loans — and it stays for the life of the loan if you put less than 10% down. If you put 10% or more down, MIP drops after 11 years.
Conventional loans require PMI only when your loan-to-value ratio (LTV) exceeds 80%. The PMI rate depends heavily on your credit score — borrowers with 720+ credit scores pay as little as 0.20% annually, while those with 620–639 scores can pay 1.50% or more. The major advantage: PMI automatically cancels when your equity reaches 20%, often saving tens of thousands compared to FHA's lifetime MIP.
FHA loans tend to be better when your credit score is below 680, or when you can only put 3.5% down. The lower rate and easier qualification can outweigh the permanent MIP — especially if you plan to refinance once your equity grows. FHA also allows higher debt-to-income ratios than most conventional lenders.
If your credit score is 700+ and you can put at least 10–20% down, conventional usually wins. PMI cancels once you hit 80% LTV, and with a strong credit score the PMI rate is much lower than FHA's 0.55% annual MIP. Conventional also has no upfront insurance premium, meaning lower closing costs.
Many borrowers take an FHA loan to get into a home, then refinance to a conventional loan once their equity exceeds 20% and their credit improves. This strategy works but involves closing costs (~2–3% of loan) on the refinance — factor that in when comparing true lifetime costs.