How Much a First-Time Buyer Saves on a Conventional Loan vs FHA Insurance

The Quick Read: The savings come mostly from how long mortgage insurance lasts, not from the first monthly bill. Conventional insurance can be removed once equity builds. On a low-down-payment FHA loan, the annual premium generally stays for the full loan term. A buyer with strong credit and a solid down payment often comes out ahead on conventional. A buyer with a lower score, a thinner file, or higher debt often does better on FHA. No single savings number fits every buyer, and the real figure shows up only in side-by-side quotes on your own file.

Side-by-Side

Here is how the two loan types compare on structure. The rows leave out pricing on purpose, because quotes change with the file. For the FHA side, see Lendmire’s overview of FHA loan programs.

Two points in that table drive most of the savings math. FHA pricing does not move with credit score the way conventional insurance does. And FHA insurance on a thirty-year loan above 90% LTV lasts for the term, while conventional insurance has legal exit points. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.

How Does the Insurance Difference Create Savings?

The savings come from three drivers: the size of the premium, the credit-based pricing on the conventional side, and how long each premium lasts. Change any one and the answer can flip. That is why a single “you will save this much” figure is not honest.

The premium amount. FHA charges two premiums. The upfront premium is 1.75% of the base loan, and it is financed, so it adds to the balance instead of coming out of pocket. The annual premium runs between 0.15% and 0.75% of the balance, depending on term, loan amount and LTV. Conventional loans with under 20% down carry private mortgage insurance (PMI) but typically no financed upfront premium of that kind. Fannie Mae’s Selling Guide requires mortgage insurance on a conventional first mortgage when the LTV is above 80%.

The credit-based pricing. Conventional pricing is risk-based. A higher score generally means cheaper insurance and cheaper loan-level pricing. A lower score pushes both up. FHA’s annual premium is set by term, amount and LTV, so a weaker score does not change the premium. That is the main reason FHA wins for some buyers.

The duration. This is where the largest gap opens up. On a 3.5% down FHA loan, you are above 90% LTV, so the annual premium generally runs for the loan term. At 90% LTV or below, it ends after eleven years. The Congressional Research Service describes that eleven-year rule for borrowers whose FHA loans started at 90% LTV or lower. Conventional PMI has no such lock-in.

HUD also lowered the FHA annual premium for newer case numbers in Mortgagee Letter 2023-05. The letter has exclusions, and older case numbers follow older rules. If you are comparing against someone else’s FHA loan, check which case-number date applies.

Three Lenses on Savings

Savings look different depending on when you measure them. Lenders and buyers who mix these up end up arguing about numbers that are not the same thing.

1. Upfront cash. The FHA premium is financed, so it does not raise cash to close. It raises the balance. Conventional with 3% down needs a smaller minimum investment than FHA’s 3.5%, though the difference is small. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.

2. Monthly cost. This is the lens most buyers use, and it is the least stable. A buyer with strong credit often sees lower monthly insurance on conventional. A buyer with a mid-range score may see the reverse.

3. Cost over the stay. This one is the most honest. Add the insurance paid over the years the buyer expects to live in the home. A buyer who stays seven to ten years on a low-down-payment FHA loan keeps paying the annual premium. The same buyer on conventional pays PMI only until equity reaches the cancellation point.

Worked Scenarios

These are modeled in percentages and plain words. They show how the answer moves, not what you will pay.

Scenario one: strong credit, 5% down. The buyer has a solid score and a low debt load, and puts 5% down. Conventional insurance is priced favorably, and the buyer can ask to cancel PMI once the balance is scheduled to reach 80% of the original value. This buyer typically saves the most on conventional. The FHA loan would carry both premiums, and the annual one would last the full term.

Scenario two: lower score, 3.5% down. The buyer sits closer to the 580 floor, with a moderate debt load. Conventional pricing on a weaker score can make insurance and loan-level costs high, or the buyer may not qualify for the minimum-down conventional option at all. FHA’s premium does not rise because of the score. This buyer often does better on FHA, even with the longer premium.

Scenario three: mid-range score, 10% down. This is the closest call. At 10% down, an FHA loan sits at 90% LTV, so the annual premium ends after eleven years instead of lasting the term. Conventional insurance is cheaper at 90% LTV than at 97%. Quotes on both products decide it, and the winner can change with a small move in score or down payment. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.

When Conventional Is the Better Fit

Conventional is usually the stronger pick when the credit profile is clean and the buyer plans to stay in the home for several years. The savings are not automatic. They depend on the quote.

• Strong credit. Risk-based pricing rewards a higher score. A weaker score erases the advantage.
• A larger down payment. Moving from a minimal down payment toward a larger one lowers conventional insurance and gets the buyer closer to the 80% cancellation point sooner.
• A long stay. Cancellation matters only if the buyer keeps the home long enough to build equity and use it.
• Low debt load. Conventional underwriting leans on automated findings, and a clean debt picture helps.
• A wish to avoid the upfront premium. The FHA upfront premium is financed, but it still raises the balance on day one. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.

How removal works matters here. The CFPB says a borrower can ask the servicer to cancel PMI on the date the balance is scheduled to reach 80% of the home’s original value. The request has to be in writing. The borrower needs a good payment history and no junior liens, and may need to show the value has not dropped below the original value. The CFPB’s examination procedures add that servicers must end PMI automatically when the balance is first scheduled to reach 78% of original value, if the borrower is current. There is also a midpoint backstop in the amortization schedule.

Here is the catch: the 80% request is not automatic. A buyer who never asks pays longer than needed. A drop in home value, a second lien, or late payments can also block cancellation. The CFPB has also flagged servicer failures to cancel on time in a compliance bulletin, so it pays to track the dates on your PMI disclosure.

One more point on the first-time label. The standard 97% conventional option is aimed at first-time buyers and generally requires at least one first-time buyer on a purchase. Pricing on that product is also risk-based. First-time status is tied to ownership history, so it is worth confirming with the lender before you plan around it.

When FHA Is the Better Fit

FHA is usually the stronger pick when credit is thinner, the down payment is small, or debt is higher. It trades a longer insurance period for broader approval room.

• A score in the lower range. Wholesale programs Lendmire places FHA files with start at a 580 decision score. FHA premiums do not change with the score, so the cost is easier to predict.
• Little down. FHA allows financing up to 96.5% of value, which means a 3.5% minimum investment. Lendmire’s article FHA vs. Conventional Loan for a First-Time Buyer With Little Down covers that path.
• Higher debt ratios. The base pair is 31/43. Documented compensating factors can push it up to 40/50 at the top tier, and the automated finding governs most files.
• Help from family. A non-occupant co-borrower is allowed, and seller or interested-party contributions are allowed up to 6% of the price.
• Past credit events. HUD’s waiting periods apply, such as two years from a Chapter 7 discharge and three years from a foreclosure. These are HUD rules, not a promise from any broker.

FHA files also come with a plain exit plan. Once the buyer has equity and a stronger score, a refinance into a conventional loan is a common route to ending FHA mortgage insurance. That refinance has its own closing costs, built into the loan terms or the balance, so the savings need to outweigh them. An FHA Streamline refinances an existing FHA loan with no appraisal and a limited credit review, but the premium continues. It does not end FHA insurance. Only a move to a different loan type does.

Where These Files Get Stuck

On FHA and conventional purchases alike, a few items cause most of the trouble, and they tend to come down to paperwork and property.

• Appraised value. For a purchase, LTV uses the lower of the sale price or the appraised value. A low appraisal raises the LTV and can push up insurance on a conventional loan. On FHA it cuts the maximum loan, and the buyer covers the gap or renegotiates.
• Credit score cliffs. On conventional, small score moves change pricing. A buyer sitting just under a tier should ask what a modest improvement would do before applying.
• Debt-to-income surprises. Student loans, car payments and credit cards all count. FHA’s ratio room is larger than the conventional base case, but it is not unlimited.
• Lender overlays. Some lenders set a higher credit floor than HUD’s minimum. That is why Lendmire compares wholesale options instead of leaning on one program’s minimum.
• Source of funds. Gift funds and seller contributions need clear documentation on both loan types.
• Condo status. Condo approval rules differ between FHA and conventional. Lendmire’s article FHA vs Conventional Loan for a First-Time Condo Buyer: Appraisal Rules covers the appraisal rules.

The Honest Verdict

Conventional saves more when the file is strong. FHA saves more, or is often a strong option, when the file is not. That is the whole answer, and everything else is detail.

A buyer with a high score, a down payment near 5% or more, and a plan to stay for years should get conventional quotes first. The ability to cancel PMI is the main source of savings. A buyer near the credit floor, or with thin cash and higher debt, should get FHA quotes first. The predictable premium and wider approval room can outweigh the longer insurance period.

Buyers in the middle should run both. Ask for the same scenario on each loan: same price, same down payment, same closing date. Then compare the monthly cost, the cash needed, and how long the insurance lasts. Add the cost of a later refinance if you plan to exit FHA.

Every program figure here is subject to lender guidelines and full file review, and none of it is a commitment to lend.

Key Terms Defined

PMI (private mortgage insurance): Insurance on a conventional loan that protects the lender, not the borrower, if the loan defaults.

MIP (mortgage insurance premium): The FHA’s insurance charge, made up of an upfront premium and an annual premium.

LTV (loan-to-value): The loan amount divided by the lower of the price or the appraised value.

Upfront premium: The one-time FHA charge of 1.75% of the base loan, which is financed into the balance.

Overlay: A lender’s own credit or file standard that sits above the program’s minimum.

Decision score: The credit score a lender uses to decide whether a file fits a program.

Next Step

If you are buying a home and want to see whether an FHA loan fits your file, Lendmire can help you compare the options and what each one asks of the file. Lendmire is a mortgage broker arranging FHA, VA, conventional and jumbo loans through wholesale lenders in 16 states, and a side-by-side quote on both loans is the clearest way to see where your savings land.

For your own numbers, request a scenario review with Lendmire.

About Lendmire

Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Lendmire arranges FHA, VA, conventional and jumbo purchase and refinance loans through wholesale lenders; every file is underwritten by the lender under the applicable program guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. Fannie Mae Selling Guide B7-1-01

2. Congressional Research Service: FHA-Insured Home Loans

3. HUD Mortgagee Letter 2023-05

4. CFPB: When can I remove PMI?

5. CFPB Homeowners Protection Act examination procedures

6. CFPB Compliance Bulletin 2015-03