- On a $300,000 FHA loan with 3.5% down, mortgage insurance costs $5,250 upfront plus $137/month in annual MIP, adding up to roughly $54,450 in total MIP costs over 30 years if you never refinance.
- FHA MIP does not cancel automatically when you reach 80% LTV (unlike conventional PMI). On a 30-year loan with less than 10% down, you pay MIP for the full loan term unless you refinance.
- The FHA-to-conventional switch makes financial sense once your credit score hits 680+ and you have at least 5-10% equity: conventional PMI at that credit tier often costs less than FHA MIP and cancels around year 9.
Quick answer
An FHA loan is a smart starting point if you have limited savings for a down payment, a credit score below 680, or a higher debt-to-income ratio than conventional lenders will accept. The 3.5% down requirement and flexible credit guidelines make homeownership accessible to buyers who cannot qualify for conventional financing. The current average FHA 30-year rate is 6.72%; compare that against a 6.72% conventional rate on the mortgage rates page before assuming FHA is cheaper overall once MIP is factored in.
The cost of that flexibility is mortgage insurance. You pay it upfront and every month. On a 30-year FHA loan with less than 10% down, you pay it forever unless you refinance out of FHA. Run the FHA loan calculator to see your exact MIP cost, and understand that number before you choose FHA over conventional.
Quick picks
- Lender
- Rocket Mortgage
- Standout feature
- Strong guidance, Verified Approval
- Lender
- Better.com
- Standout feature
- Low fees, digital process
- Lender
- Rocket Mortgage
- Standout feature
- 3.5% down with 580+ credit
- Lender
- Chase
- Standout feature
- FHA purchase programs in most states
- Lender
- Carrington Mortgage
- Standout feature
- Accepts lower credit scores, manual underwriting
- Lender
- New American Funding
- Standout feature
- Flexible guidelines, bilingual support
- Lender
- Better.com
- Standout feature
- Fast digital close, no commissions
- Lender
- Chase
- Standout feature
- Nationwide branch network
- Lender
- Your current FHA lender
- Standout feature
- Streamline requires existing FHA loan
FHA loan basics
FHA loans are insured by the Federal Housing Administration, which allows approved lenders to offer more flexible terms than conventional loans because the government backstops the risk.
Credit score minimums:
- 580 and above: 3.5% minimum down payment
- 500-579: 10% minimum down payment
- Below 500: not eligible for FHA financing
Most lenders add their own "overlay" credit requirements above the FHA minimum. The majority of FHA lenders require 620+ in practice. Carrington Mortgage and New American Funding are notable for accepting borrowers closer to the 580 FHA floor.
Debt-to-income (DTI): FHA allows DTI up to 57% with compensating factors (strong credit, reserves). Conventional loans typically cap at 45-50%.
Loan limits: FHA loan limits vary by county and are adjusted annually. For 2026, standard limits are approximately $524,225 for single-family homes in most areas, with higher limits in high-cost counties. Check HUD.gov or your county's limit before assuming FHA works for your purchase price.
The real cost of FHA mortgage insurance
FHA requires two layers of mortgage insurance: upfront MIP and annual MIP. As of the January 2023 reduction, current rates are:
Upfront MIP: 1.75% of the base loan amount, paid at closing (or financed into the loan).
Annual MIP (most common scenario: 30-year loan, 3.5% down): 0.55% of the outstanding loan balance, paid monthly.
Verify current MIP rates at HUD.gov before relying on any published figures, including these.
Loan amount after 3.5% down: $289,500 (down payment: $10,500).
Upfront MIP: $289,500 x 1.75% = $5,066. Most borrowers finance this, making the effective loan: $294,566.
Annual MIP: $289,500 x 0.55% = $1,592/year = $133/month (declining slightly each year as the balance decreases).
Year 1 total MIP: $5,066 upfront + $1,592 annual = $6,658. Total MIP over 30 years (full term, no refinance): approximately $47,760 in annual MIP alone, plus the $5,066 upfront = roughly $52,826.
This is the cost you pay for using FHA instead of a 20%-down conventional loan with no PMI.
FHA vs conventional: when each wins
FHA is better when:
- Credit score is below 680
- Down payment is below 5%
- DTI is above 45%
- You have recent credit events (bankruptcy discharged 2+ years ago, foreclosure 3+ years ago)
Conventional is better when:
- Credit score is 680 or above with 5%+ down
- Down payment is 20%+ (no PMI at all)
- You want PMI to cancel automatically at 78% LTV
- The purchase price exceeds FHA loan limits
Conventional PMI for a 680 credit score buyer putting 5% down typically runs 0.5-0.8% of the loan annually. On a $300,000 loan at 0.65%: $1,950/year ($162/month).
FHA annual MIP at 0.55%: $1,593/year ($133/month) on the same loan.
FHA MIP is lower here. But conventional PMI cancels around year 9 when you hit 78% LTV (with on-time payments on a 30-year loan). FHA MIP on a 30-year loan with 3.5% down runs for the full 30 years.
Year 9+ comparison: conventional buyer pays $0 PMI. FHA buyer continues at ~$107/month (declining balance). Conventional wins from year 9 forward. If you stay in the home 30 years, conventional PMI at 680 credit saves you substantially more total dollars.
The answer flips if you refinance out of FHA before year 9, which many buyers do as they build equity and improve credit.
What monthly payment looks like
$300,000 purchase, 3.5% down ($10,500), 30-year fixed at 7.00%:
- Monthly amount
- $1,927
- Monthly amount
- included in P&I
- Monthly amount
- $133
- Monthly amount
- $300
- Monthly amount
- $125
- Monthly amount
- $2,485
Calculate your full monthly cost — principal, interest, taxes, insurance, and PMI.
Use our comparison page for live rates
Optional: extra principal paydown shortens the loan and saves interest
Typical 0.3%–1.5% of the loan per year; only applies under 20% down
Monthly principal & interest
$2,328
Total lifetime interest: $478,000. Small rate differences have large long-term impact.
What to do
Total lifetime interest: $478,000. Compare at least 3 lenders — a 0.25% rate difference saves thousands over 30 years.
Pre-tax estimates. For illustration only — not financial advice.
FHA streamline refinance
If you already have an FHA loan, the FHA Streamline Refinance program lets you refinance to a lower rate with reduced documentation. You do not need a new appraisal in most cases. You do need to have made at least 6 months of payments on the current FHA loan.
The streamline is not zero-cost: you pay a new upfront MIP (1.75%) on the new loan amount, and the new loan resets your MIP payment clock. Whether it makes sense depends on how much your rate drops and how long you plan to hold the new loan.
The best lender for FHA streamline is often your current FHA servicer, who already has your loan documentation. Compare against outside lenders as well.
Top FHA lenders
Rocket Mortgage
Why: Rocket Mortgage offers a guided digital FHA application with its Verified Approval process, which locks your credit, income, and assets into the approval before you make an offer. This is valuable in competitive markets where sellers want certainty. Rocket also has strong FHA customer service and a reputation for closing on time.
Terms: FHA purchase and refinance. 3.5% down with 580+ credit score (620+ in practice). Available in all 50 states.
Who should apply: First-time buyers who want a guided process, strong support, and the certainty of Verified Approval in competitive markets.
Who should skip: Rate-sensitive borrowers who are willing to do more research for a lower-fee alternative.
Better.com
Why: Better.com's no-commission model typically results in lower fees than traditional lenders. For straightforward FHA purchase loans with 620+ credit, Better often beats the market on APR.
Terms: FHA purchase and refinance. Fully digital. Available in most states. Typically closes in 15-20 days on qualifying loans.
Who should apply: Digital-comfortable buyers with clean W-2 income and credit scores 620+ who want to minimize fees.
Who should skip: Buyers with self-employment income, credit complexity, or who prefer dedicated human loan officer relationships.
Carrington Mortgage Services
Why: Carrington accepts FHA borrowers closer to the FHA's 580 credit minimum than most lenders, and offers manual underwriting for borrowers who do not fit automated approval systems.
Terms: FHA, VA, conventional. Manual underwriting available. Accepts credit scores from 580. Available in most states.
Who should apply: Borrowers with credit scores in the 580-619 range, thin credit files, or recent credit events who have been turned away by other lenders.
Who should skip: Borrowers with 680+ credit scores who can qualify at mainstream lenders with better rates.
New American Funding
Why: New American Funding is known for flexible FHA underwriting, bilingual (English/Spanish) support, and a strong presence serving first-time and underserved buyers.
Terms: FHA, VA, conventional, USDA. Available in most states. Manual underwriting available.
Who should apply: Borrowers who need flexible credit underwriting, Spanish-speaking support, or a more hands-on loan officer relationship.
Who should skip: Buyers who prefer a self-serve digital experience.
Chase
Why: Chase offers FHA purchase loans with nationwide branch support, which is valuable for first-time buyers who want in-person guidance. Existing Chase customers may benefit from relationship discounts.
Terms: FHA purchase and refinance. Branch access in most major markets. 620+ credit requirement.
Who should apply: Existing Chase customers and buyers who want in-person support at a branch during the mortgage process.
Who should skip: Buyers outside Chase's branch footprint who do not have an existing Chase banking relationship.
When this recommendation changes
The FHA recommendation changes most clearly when your credit score crosses 680 and you have a 5-10% down payment. At that profile, conventional financing at a 680+ credit tier often produces lower total cost, especially once you account for PMI cancellation at 78% LTV.
FHA also becomes less attractive as loan limits bind: in high-cost markets where purchase prices exceed the FHA limit for your county, you have no choice but to use conventional or jumbo financing.
If rates fall significantly from current levels, the FHA streamline becomes more compelling for existing FHA borrowers. Track your rate gap and run the break-even.
How we ranked
We evaluated FHA lenders on credit score flexibility, fee competitiveness, digital experience quality, underwriting capacity (manual vs automated), customer service, and geographic availability. MIP figures reflect current HUD guidelines; verify at HUD.gov before applying.
SwitchWize earns revenue through affiliate referrals when you click through to a lender. Lenders do not pay to appear in editorial rankings. Always request a Loan Estimate from each lender you are considering. Unsure whether FHA or conventional fits your numbers? Money Map walks through both against your actual credit and down payment.
Sources
FHA credit and down payment minimums, DTI limits, and loan limits come directly from HUD's FHA program guidelines (HUD.gov). MIP rates reflect HUD's current mortgage insurance premium schedule, and the total-cost framing draws on the CFPB's homebuying and mortgage insurance education (ConsumerFinance.gov). Lender-specific terms, fees, and credit overlays change often, so confirm current figures directly with HUD.gov and each lender before applying.
What to Do Now
Frequently Asked Questions
What credit score do I need for an FHA loan?
How much does FHA mortgage insurance actually cost?
Does FHA mortgage insurance ever cancel?
When should I choose conventional over FHA?
What are the FHA loan limits in 2026?
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