FHA vs conventional loan 2027: which is cheaper and who qualifies
In 2027, FHA loans carry a lower rate but a lifetime MIP that can make them more expensive than conventional over time. This analysis compares total cost, down payment requirements, credit score thresholds, and when each loan type wins.
FHA loans have a lower bar for entry — but their lifetime mortgage insurance premium means a buyer with decent credit and 5% down can save tens of thousands over 10 years by going conventional. Here is how the numbers actually compare in 2027.
Side-by-side: FHA vs conventional at a glance
| Factor | FHA | Conventional |
|---|---|---|
| Minimum credit score | 580 (3.5% down); 500 (10% down) | 620 (most programs) |
| Minimum down payment | 3.5% (score ≥ 580) | 3% (first-time buyer programs) |
| Upfront mortgage insurance | 1.75% of loan (added to balance) | None |
| Annual mortgage insurance | 0.55% (most 30-yr loans < 95% LTV) | 0.3–1.5% PMI (cancellable at 80% LTV) |
| MIP cancellation | Never (with < 10% down) | Yes — at 80% LTV by request |
| Max DTI | Up to 57% (with compensating factors) | ~45–50% |
| Best for | Scores 580–679; high DTI; lower down payment | Scores 680+; 5%+ down; long hold |
Total cost comparison: $400,000 home, 5% down, 30-year fixed
At 660 score: conventional starts higher but wins by year 10 once PMI cancels. At 760+, conventional wins from month one.
External references
- HUD — FHA program overview and history
- HUD Mortgagee Letter 2023-05 — current MIP rates
- Fannie Mae — LLPA pricing matrix
- CFPB — FHA loan overview
- HUD — FHA loan limits by county
- FHFA — 2027 conforming loan limits
Common questions
What is the main difference between FHA and conventional loans?
FHA loans are insured by the Federal Housing Administration and allow credit scores as low as 580 with 3.5% down. Conventional loans follow Fannie Mae and Freddie Mac guidelines — typically requiring a 620+ score and 3–20% down. FHA charges both an upfront MIP (1.75% of the loan) and an annual MIP (0.55% for most 30-year loans), while conventional loans drop PMI at 80% LTV. For buyers with strong credit and 5%+ down, conventional is usually cheaper over 10+ years.
When does an FHA loan beat a conventional loan in 2027?
FHA wins when your credit score is between 580–679 — lenders price conventional loans with heavy LLPAs (loan-level price adjustments) in this range, so the FHA rate advantage more than offsets the MIP cost over a short hold period. FHA also wins for buyers with higher debt-to-income ratios: FHA allows back-end DTI up to 57% in some cases vs ~50% for conventional. The CFPB FHA loan overview summarises eligibility and costs.
How long does FHA MIP last?
For loans with less than 10% down, FHA MIP lasts the full loan term — it cannot be cancelled when you reach 80% LTV, unlike conventional PMI. For loans with 10%+ down, MIP cancels after 11 years. This lifetime MIP is the most important cost factor in the FHA vs conventional comparison for long-term owners. HUD Mortgagee Letter 2023-05 details current MIP rates by LTV and term.
What credit score do I need for a conventional loan in 2027?
The minimum FICO score for a conventional loan backed by Fannie Mae or Freddie Mac is 620 for most programs. However, rates improve materially at 680, 700, 720, and 760 due to LLPAs. At 760+, conventional pricing is typically better than FHA at every LTV level. The Fannie Mae LLPA pricing matrix shows exact adjustments by score and LTV.
Can you refinance out of an FHA loan into a conventional loan?
Yes — once you have 20% equity (80% LTV based on current appraised value), you can refinance from FHA into a conventional loan and eliminate MIP entirely. This is a common strategy: use FHA to get into the home with a lower down payment, then refinance into conventional once equity builds. The break-even depends on closing costs (typically 2–3% of the new loan). Use the CFPB rate explorer to compare current FHA and conventional rates before deciding.
Are FHA loan limits higher or lower than conventional limits in 2027?
FHA loan limits are set by HUD and vary by county — the 2027 floor is $498,257 in low-cost areas and the ceiling is $1,209,750 in high-cost areas (1-unit properties). Conventional conforming limits match the FHFA baseline: $806,500 for most areas and up to $1,209,750 in high-cost counties. In most markets, FHA and conventional limits are the same. For loans above the conforming limit, jumbo financing applies. Current limits are published at HUD's FHA loan limits lookup and FHFA's conforming loan limits page.
Run FHA and conventional payment scenarios side by side on the mortgage calculator — or check how your score affects rate on the credit score impact guide.