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How Much Does It Cost To Get Into a Home With FHA vs Conventional?

FHA vs conventional loan upfront and ongoing costs.

FHA and conventional loans require about the same out-of-pocket costs to close the transaction. Down payment, closing costs, and points are quite similar.

But there are differences. Let’s take a look.

FHA vs Conventional Overall Costs: Summary

Conventional: Slightly lower upfront costs when choosing the minimum down payment of 3%

FHA: Lower monthly cost than conventional with less than 5% down and a credit score below 740.

FHA vs Conventional: All-in Out-Of-Pocket Costs to Close

All of the following costs are estimates, and every person’s situation will be different. However, here are potential out-of-pocket costs when buying a home with each program assuming the minimum down payment available.

FHA vs conventional example upfront out-of-pocket costs.
Example only. Not a quote or commitment to lend. Contact a lender for your personalized quote.

Upfront Cost FHA Conventional
Down Payment $12,250 (3.5%) $10,500 (3%)
Appraisal $500 $500
Title Insurance/Escrow Services $2,000 $2,000
Lender points $1,700 (0.5%) $1,700 (0.5%)
Lender Processing/Underwriting $750 $750
County Recording $100 $100
Credit Report $75 $75
Flood Certification $30 $30
6 Months Taxes $1,750 $1,750
14 Months Homeowners Insurance $1,050 $1,050
Prepaid Interest to End of Month $600 $600
Total Estimated Due at Closing $20,805 $19,055

*All figures are estimates and will depend on your scenario. Contact a lender for an accurate quote.

Are closing costs different for FHA vs conventional?

In this example scenario, it costs $1,750 more to close an FHA loan than a conventional loan. The variance comes from the slightly higher down payment for FHA, but closing costs are not significantly different between FHA and conventional.

However, let’s look at monthly cost comparisons.

FHA vs Conventional: All-In Final Loan Amount

FHA requires upfront mortgage insurance, a cost you don’t need to pay with a conventional loan.

Here’s how that affects your final loan amount.

FHA vs Conventional loan final loan amounts.
All figures are for example purposes only. Your costs will differ.

Cost FHA Conventional
Home Price $350,000 $350,000
Down Payment $12,250 (3.5%) $10,500 (3%)
Base Loan Amount $337,500 $339,500
Upfront Mortgage Insurance $5,906 (1.75%) $0
Final Loan Amount $343,406 $339,500

*All figures are estimates and will depend on your scenario. Contact a lender for an accurate quote. Assumes FHA loan with 3.5% down and upfront mortgage insurance and conventional loan with 3% down.

FHA vs Conventional: All-In Final Monthly Payment

So far, FHA has been the more expensive option in terms of upfront costs and final loan amount. So, is this loan a bad deal? Hardly. FHA shines in terms of monthly payments.

Take a look at this scenario for a buyer with a 670 credit score. Not only is FHA’s mortgage rate lower, but monthly mortgage insurance is a fraction of conventional’s cost.

Cost FHA Conventional
Home Price $350,000 $350,000
Final Loan Amount $343,406 $339,500
Principal and interest $2,235 $2,332
Monthly mortgage insurance cost $157 $449
Taxes/Insurance/HOA $400 $400
Total Payment $2,792 $3,181

*All figures are estimates and will depend on your scenario. Not a quote or commitment to lend. Payment example based on $350k FHA loan at 6.6% rate and conventional loan at 7.016%. Standard FHA mortgage insurance of 0.55% per year. Conventional mortgage insurance estimate of 1.54% per year from MGIC based on 670 credit score with 3% down.

Thanks to less expensive mortgage insurance, FHA is often the cheaper option monthly. Conventional mortgage insurance can get quite spendy unless you have a credit score of at least 740 and put 5% down or more. You can use our conventional and FHA loan calculators to estimate your monthly payment for each loan type, including taxes and insurance.

Cancellable Conventional PMI

Even though FHA can be cheaper monthly, its mortgage insurance is not cancellable like conventional private mortgage insurance (PMI).

With conventional, you can remove PMI when you hit 22% equity in the home without refinancing. This could save you the hassle and expense of refinancing out of FHA when you gain enough equity in the home.

If you plan to hold the loan more than five to seven years, a conventional loan may be better than FHA in overall long-term cost.

However, if rates drop in the next few years, you may end up refinancing anyway. Most people hold a mortgage just eight years, so don’t go with conventional because you think you’ll have your mortgage forever.

Bottom Line: Which Loan Comes With Lower Costs?

If you’re just looking to get into a home for the least amount of money upfront, a conventional loan may be better, but only slightly. Just be aware of the potentially higher monthly payment.

FHA is probably your best bet for lower monthly costs if you have less than 5% down and a credit score below 740.

About The Author:

Tim Lucas began his mortgage career in 2001 at Washington Mutual, reviewing wholesale loan files submitted by mortgage brokers. In the mid-2000s, he transitioned to retail lending at M&T Bank as a Mortgage Loan Processor, working with a wide range of borrowers: first-time buyers, investors using now-notorious "option ARMs" and jumbo buyers financing $1–5 million homes.

Tim later launched his own loan processing company while originating loans for his own clients, mainly FHA and USDA loans for first-time buyers. When the 2008 housing crash hit, he pivoted to assisting a prominent Loan Officer at Seattle Mortgage and Golf Savings Bank. He eventually became a Mortgage Processing Supervisor at Mortgage Advisory Group. There, he earned a reputation as a solutions-oriented processor, known for solving complex loan scenarios and uncovering obscure guidelines to help clients get approved.

In 2013, after more than a decade in lending, Tim moved into mortgage education—creating trusted content for sites like MyMortgageInsider.com and TheMortgageReports.com. Today, he blends 10+ years of hands-on mortgage experience with another decade in consumer education at Three Creeks Media, where he leads MortgageResearch.com. Tim is also a licensed Loan Originator (NMLS #118763).

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