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FHA mortgage rates, in lender ads, are often lower than conventional loan rates. For example, FHA rates been running about 30 basis points lower than conventional rates this year.
On a $350,000 loan, 30 basis points is roughly $60 less per month in principal and interest, and this attracts buyer attention.
But the rate isn't the whole story. FHA loans carry additional fees that may change the bottom line for some borrowers.
Whether FHA actually saves you money depends on your credit score, your down payment, and how long you plan to stay in the home.
...in as little as 3 minutes — no credit impact
FHA vs. conventional rates right now
Here's where the two loan types stand as of May 2026, based on current industry rate averages:
| Loan type | Average rate |
|---|---|
| FHA 30-year fixed | ~6.30% |
| Conventional 30-year fixed | ~6.60% |
| Rate gap | ~0.30% (30 basis points) |
These are national averages in July of 2026. Your actual rate depends on your credit score, down payment, loan amount, lender, and market conditions at the time of your rate lock.
The reason FHA rates often run lower is structural: because the Federal Housing Administration insures these loans against default, lenders take on less risk and can price accordingly. When overall rates are elevated and risk appetite is tighter, as it has been in recent years, that government backstop tends to widen the FHA rate advantage modestly compared to historical norms.
That said, the 30 basis point gap is narrower than it has been at some points historically. Whether it's enough to make up for FHA's insurance cost structure depends entirely on your situation.
For a full side-by-side breakdown of how these loans compare on eligibility and structure, see our guide to FHA vs. conventional loans.
The real cost comparison — rate vs. MIP
The rate is only one piece of what you'll actually pay each month. FHA loans require two types of mortgage insurance:
Upfront MIP (UFMIP): 1.75% of the loan amount, paid at closing or rolled into the loan. On a $350,000 loan, that's $6,125. Most borrowers finance this into the loan rather than paying it in cash.
Annual MIP: Approximately 0.55% of the loan balance per year for most 30-year FHA borrowers, paid monthly. On a $350,000 loan, that's about $161 per month to start.
Here's how FHA and conventional compare on a $350,000 purchase with 5% down:
| FHA 30-year | Conventional 30-year | |
|---|---|---|
| Interest rate | ~6.30% | ~6.60% |
| Loan amount (incl. financed UFMIP) | ~$358,313 | $332,500 |
| Est. monthly P&I | ~$2,218 | ~$2,124 |
| Monthly MIP / PMI | ~$164 | ~$145 |
| Est. total monthly payment | ~$2,382 | ~$2,269 |
| MIP/PMI cancellation | Life of loan (if < 10% down) | At 20% equity |
Example is for illustrative purposes only. Rates, payments, MIP, and PMI costs will vary based on credit profile, loan terms, lender, and market conditions. Consult a lender for figures specific to your scenario.
In this scenario, despite FHA's lower interest rate, the conventional loan carries a lower total monthly payment, primarily because the financed upfront MIP increases the FHA loan balance, which offsets the rate advantage.
Better's mortgage calculator can model your specific numbers across both loan types.
When FHA's lifetime MIP changes the math
The amount of time you keep the loan also affects costs.
PMI on a conventional loan cancels automatically when you reach 22% equity — or you can request removal at 20%. For a buyer who builds equity steadily, this typically happens within seven to 10 years.
FHA MIP works differently. For most borrowers who put down less than 10%, annual MIP continues for the entire life of the loan. It doesn't cancel when you reach 20% equity. The most reliable way to eliminate it is to refinance into a conventional loan, which carries its own closing costs and requires qualifying at that time.
The practical implication? Since PMI on a conventional loan can be canceled, buyers who keep a loan all 30 years, or for most of a 30-term, may save more with conventional despite its higher rate.
The credit score tiers that actually decide this
Your credit score is the biggest factor in whether FHA or conventional is cheaper for your specific situation. Buyers with lower credit scores can usually save with FHA loans.
Here's how the math typically plays out by tier:
Below 580: Conventional financing is generally not available at this score. FHA with a 10% minimum down payment could still be path a to homeownership with some lenders.
580–619: FHA's lower rate and more flexible underwriting almost always win for borrowers in this range. Conventional pricing at these scores carries significant risk-based pricing adjustments that can meaningfully increase the effective rate.
620–680: This is the competitive zone. You could qualify for both loan types, but conventional's pricing adjustments at lower scores can push your rate well above the base rate. FHA's lower rate may result in a lower total payment — but lifetime MIP means the long-run comparison depends on how long you stay. Run both scenarios before deciding.
680–700: Conventional pricing improves meaningfully at this tier. FHA's lifetime MIP starts to become more of a liability relative to conventional's cancellable PMI. It's still worth running both, but conventional often wins on total 10-year cost.
700+: Conventional can beat FHA on total cost for many loan amounts and timelines. The rate gap narrows, pricing adjustments are minimal, and cancellable PMI means you eventually stop paying insurance, something FHA borrowers who put down less than 10% can never do without refinancing.
740+: Conventional is almost always the better deal. Pricing adjustments are at their lowest, your rate will be competitive, and cancellable PMI means your insurance cost has a clear end date.
For a detailed look at the pros and cons of an FHA loan across different borrower profiles, that guide covers the full picture.
Other factors that tip the balance
Down payment. FHA requires as little as 3.5% down at a 580+ credit score. On paper, conventional allows 3% down at a 620 credit score. But lower credit scores, combined with a minimal down payment, carry higher conventional pricing.
Loan limits. FHA loan limits vary by county and are generally lower than the conventional conforming limit of approximately $806,000 in 2026. In high-cost markets, buyers above the FHA county limit may need conventional financing regardless of their credit score.
Property type. FHA loans work only for primary residences. If you're buying a second home or investment property, you need conventional financing.
Debt-to-income ratio. FHA could allow DTIs above 50% with compensating factors. Conventional typically caps around 45 to 50%. For buyers with higher debt loads relative to income, FHA's looser DTI requirements can be the deciding factor.
PMI tax deductibility. Starting in 2026, PMI is now tax deductible again after being permanently reinstated under the One Big Beautiful Bill Act. This applies to both conventional PMI and FHA MIP for qualifying borrowers who itemize.
Should you get pre-approved for both?
Yes, getting pre-approved for both FHA and conventional makes sense, especially if your finances put you in the gray zone between the loan types.
The only way to know your actual rate differential is to see real quotes for both loan types based on your specific credit profile, income, and loan amount. Rate tables and averages tell you the market direction; a pre-approval tells you your number.
With Better, getting pre-approved takes as little as three minutes and doesn't affect your credit score because the process requires only a soft credit check.
...in as little as 3 minutes — no credit impact
Frequently asked questions
My credit score is 650. Should I get an FHA loan or a conventional loan?
A 650 score lands you in the competitive zone where both loan types are worth modeling. Conventional pricing at 650 carries risk-based adjustments that can push your effective rate above the base rate, while FHA's lower rate and more flexible underwriting may produce a lower monthly payment.
The catch is FHA's lifetime MIP. If you plan to stay in the home long enough to build 20% equity and refinance to conventional, you'll eventually eliminate that insurance cost, but the break-even math depends on your timeline. Run both.
I'm putting 5% down on a $350,000 home. Will FHA or conventional cost me less per month?
Based on current rates, the total monthly payment including mortgage insurance is actually similar, or slightly lower for conventional, despite FHA's lower interest rate, because FHA's financed upfront MIP increases the loan balance.
The table above shows this math. Your specific numbers depend on your credit score and lender. Figures show trends and are illustrative only. Your rate will depend on your personal finances.
What's the catch with FHA's lower rate. Why doesn't everyone just use FHA?
Two things. First, FHA's upfront MIP of 1.75% of the loan amount increases your loan balance and partially offsets the rate advantage. Second, and more significantly: for borrowers who put down less than 10%, FHA MIP continues for the life of the loan and never cancels. Conventional PMI cancels at 20% equity. Over a long holding period, that difference in insurance duration can make conventional cheaper in total even at a higher rate.
How long would I need to stay in the home for FHA to be cheaper than conventional?
It varies by credit score, loan amount, and down payment, but the general principle is: the shorter your planned holding period, the more likely FHA's lower rate wins; the longer you stay, the more likely conventional's cancellable PMI wins. A buyer planning to sell in five years may never trigger PMI cancellation on either loan, so FHA's rate advantage holds throughout. A buyer planning to stay 15 years and build equity steadily will likely save more with conventional once PMI cancels.
At what credit score does conventional beat FHA on total cost?
Generally around 700 for most loan amounts and scenarios, though the exact threshold depends on your down payment and loan amount. Above 700, conventional's pricing adjustments are modest, the rate gap with FHA narrows, and cancellable PMI means your insurance cost has an end date FHA MIP doesn't. Above 740, conventional is almost always the better total-cost option.
Can I switch from FHA to conventional later if I want to get rid of the mortgage insurance?
Yes. Once you've built 20% equity — through principal paydown, appreciation, or both — you can refinance from FHA to conventional and eliminate MIP entirely. You'll need to qualify for the new conventional loan terms at that time, including a credit score of at least 620. The refinancing from FHA to conventional FAQ covers the qualification requirements in detail.
I got pre-approved at 6.75% conventional. Is it worth checking FHA rates too?
Absolutely, especially at a 6.75% conventional rate, which is above current market averages. An FHA rate at today's gap would be approximately 6.45% or lower, depending on your credit score, the monthly payment difference could be meaningful. The key question is whether your credit score and DTI fall in a range where FHA's underwriting is more favorable. One application through Better shows you both.
FHA vs conventional: The bottom line
FHA's ~30 basis point rate advantage is real and, for the right buyer, meaningful. Buyers in the 580–619 range should almost always start with FHA. Buyers in the 620–680 range should get quotes for both and compare total monthly cost including insurance.
Buyers above 700 will generally find conventional's cancellable PMI more valuable than FHA's lower rate over any holding period long enough to build equity.
The single best move is to see both numbers for your specific profile before deciding.
...in as little as 3 minutes — no credit impact