FHA and conventional are the two most commonly compared loan programs, and most MLOs have a gut preference for one or the other. That gut preference costs borrowers money. The right answer depends on specific numbers in each file. Here is how to make the call correctly in 2026.
When FHA Wins
FHA becomes the better option when FICO is below 700. Conventional loan-level price adjustments increase sharply as FICO drops below 740. A borrower at 650 FICO with 5% down faces substantial LLPAs on a conventional loan that can add 100 to 150 basis points in effective rate. FHA has a flat upfront MIP structure that is usually more predictable. FHA also allows DTI up to 57% with strong AUS approval, while conventional guidelines are stricter at higher DTI.
When Conventional Wins
Conventional wins when FICO is above 740 and the borrower can put 20% down. There is no MI at all in that scenario. At 10% to 19% down, conventional PMI is cancellable when the loan reaches 80% LTV, either by amortization or appreciation with a new appraisal. FHA MIP on a 30-year loan with less than 10% down is permanent for the life of the loan -- it cannot be removed without refinancing. For a borrower who plans to stay in the home, that difference compounds significantly.
The FICO Crossover Range
- ✦720+ FICO with 10%+ down: conventional almost always wins on total cost
- ✦700-719 FICO: run both scenarios; LLPA impact depends on exact LTV
- ✦680-699 FICO: FHA is often competitive, especially at 90%+ LTV
- ✦660-679 FICO: FHA usually wins on rate; PMI cost may close the gap
- ✦Below 660: FHA is the primary option; most conventional lenders have overlays at this level
MIP vs. PMI: The Numbers
FHA charges an upfront MIP of 1.75% (typically financed) and an annual MIP of 55 basis points for loans over $150,000 at 90%+ LTV on 30-year terms. At $400,000 that is $2,200 per year or $183 per month in MIP, permanent until refinance. Conventional PMI at 700 FICO and 95% LTV runs roughly 0.85% to 1.0%, or $283 to $333 per month at $400,000 -- but cancels at 80% LTV. The breakeven depends on how quickly the loan pays down or values rise.
FHA-Specific Scenarios Where It Clearly Wins
- ✦Non-occupant co-borrower: FHA allows with more flexibility on income blending
- ✦Gift funds: 100% of down payment may be a gift on FHA
- ✦Higher DTI: FHA AUS regularly approves to 55-57%; conventional caps more strictly
- ✦Prior derogatory credit: FHA has shorter waiting periods after foreclosure and bankruptcy
- ✦Manufactured housing: FHA has broader program availability than conventional
Aria can run a side-by-side comparison of FHA and conventional for any borrower profile. Ask at vicariointel.com and describe the FICO, LTV, loan amount, and DTI.
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