The FHA decision almost nobody prices properly
A smaller down payment is not a discount. Below ten percent down, FHA mortgage insurance never comes off, and that is the whole trade.
FHA is the route people take when the down payment is the obstacle. That part is real: 3.5% down at a credit score of 580 or above, and 10% down for scores between 500 and 579. Those are the published minimums, though individual lenders routinely set higher overlays of their own on top.
What gets skipped is the second half of the trade.
Two premiums, not one
An FHA loan carries an upfront mortgage insurance premium of 1.75% of the base loan amount, which is normally financed into the balance rather than paid at closing. It also carries an annual premium collected monthly.
The annual one is where the decision lives. On a 30 year FHA loan with less than 10% down, it stays for the life of the loan. Put 10% or more down and it falls away after 11 years. There is no equity threshold that ends it early. The only way off is refinancing into a different program, which means new closing costs and whatever rates look like on that day.
Conventional mortgage insurance behaves differently
Private mortgage insurance on a conventional loan is cancellable. Under the Homeowners Protection Act you can request cancellation once the balance reaches 80% of the original value of the property, and the servicer has to drop it automatically at 78%, provided payments are current.
That is a genuinely different shape of cost. One ends. One does not.
How to actually compare them
- Work out the monthly payment on each, including the mortgage insurance in both cases.
- Estimate when the conventional loan reaches 80% loan to value on scheduled payments alone.
- Add up the total paid on each over ten years, not over one month.
- Then decide.
Some conventional first time buyer programs go to 3% down, which is lower than FHA. If your credit supports one of those, it is worth pricing alongside.
None of this makes FHA a bad program. It exists because it gets people into houses who would otherwise not get in at all, and that is worth paying for. It makes it a program with a price, and the price is not visible in the monthly payment on day one.
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