Comparison
FHA vs conventional: which loan is better?
Short answer
The short answer: below a 620 credit score or with limited savings, an FHA loan usually wins on approval odds and rate. At 700 or higher, a conventional loan usually wins on total cost, because its private mortgage insurance cancels at 20% equity while FHA's often lasts the life of the loan. The right move for any Michigan borrower is to have a lender quote both ways and compare the all-in cost, not just the headline rate.
Down payment and credit
FHA is the more forgiving entry: 3.5% down with a 580 score, or 10% down between 500 and 579. Conventional loans want a 620 minimum, with the best pricing at 740+, but allow as little as 3% down through first-time programs. So the choice often starts with your credit: thinner files lean FHA, stronger files open conventional's better long-run pricing.
The mortgage insurance difference
This is where the loans diverge most. Conventional PMI, paid below 20% down, cancels automatically at 78% loan-to-value and can be requested at 80% — it's temporary. FHA charges an upfront 1.75% premium plus an annual premium that, at minimum down payment, lasts the life of the loan. That lasting insurance is exactly why a strong-credit Michigan buyer usually comes out ahead with conventional-plus-PMI, even if the FHA note rate looks a touch lower.
When each wins in Michigan
FHA wins for buyers rebuilding credit, those with just 3.5% down, or anyone who wants to pair the loan with MSHDA assistance at a 640 score. Conventional wins for buyers at 700+ who plan to reach 20% equity and shed insurance. The one reliable way to decide is to run both: ask a Michigan lender for an FHA and a conventional Loan Estimate on the same scenario and compare total five-year cost, not the rate alone.
Frequently asked questions
Is an FHA or conventional loan better for a first-time buyer?
It depends on your credit and cash. FHA is easier to qualify for and pairs with MSHDA assistance; conventional costs less long-term at 700+ credit because PMI cancels. Compare both Loan Estimates before deciding.
Can I refinance from FHA to conventional?
Yes, and it's the standard way to drop FHA mortgage insurance. Once you have about 20% equity and qualifying credit, refinancing into a conventional loan cancels the insurance for good — often worth it even if the rate is similar.
Does FHA or conventional have a lower rate?
FHA note rates often run slightly below conventional, but FHA's mortgage insurance can make the all-in cost higher, especially at strong credit. Compare APR and total cost, not just the note rate.