How Much a Conventional Loan Saves Over FHA Insurance on a 2-4 Unit

The Quick Read: The saving comes from three places, and none of them is a fixed number. Conventional has no upfront insurance charge, its monthly insurance is priced to your credit score and down payment, and it can end. FHA insurance often lasts the whole loan. Your credit, your down payment, and how long you keep the loan decide the size of the gap. For some borrowers the gap is zero or reversed.

How Does Each Type of Insurance Work?

FHA insurance has two parts that stack. Conventional insurance has one part that moves with your profile. That structural difference drives nearly every dollar of the comparison.

Mortgage insurance protects the lender if you stop paying. You pay for it, not the lender. On an FHA loan, the upfront premium is 1.75% of the base loan amount. Across the wholesale programs Lendmire places FHA files with, it is financed into the loan rather than paid in cash at the table.

The annual premium is a percentage of your balance, charged monthly. In the programs we place, it runs between 0.15% and 0.75% depending on term, loan amount, and LTV. HUD’s Mortgagee Letter 2023-05 sets out the table. It varies by loan size, LTV, and term. It does not vary by credit score. That matters later.

Conventional PMI is the opposite. Private insurers price it, and the price moves with your credit score, your LTV, and the property. Stronger credit and a bigger down payment pull it down. Weaker credit pushes it up. No agency publishes a PMI price list, so this article gives none.

Where Do the Savings Actually Come From?

There are three buckets, and blending them is how people get confused. Count each one separately.

Bucket one: the upfront premium. Conventional skips it. On FHA you owe 1.75% of the base loan, and because it is financed, you also carry it as part of your balance. On a 2-4 unit, balances are bigger, so this one-time charge is bigger too. That is the cleanest saving, and it shows up on day one.

Bucket two: the monthly premium. This one swings both ways. A borrower with strong credit and a healthy down payment often finds conventional monthly insurance lower than FHA’s. A borrower with a lower score and a thin down payment often finds the opposite. Same property, opposite answers.

Bucket three: the end date. This is where the long-run money sits. On a thirty-year FHA loan above 90% LTV, the annual premium lasts the whole term. At or below 90% LTV, it ends after eleven years. Most low-down-payment FHA loans therefore carry the premium for life. Conventional PMI has an exit. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.

Here is the part most explainers skip. The FHA premium isn’t the only thing that gets bigger on a larger loan. Because every premium is a percentage of a bigger balance, the dollar saving on a fourplex scales up compared with a duplex, as long as conventional is priced well for you.

How Does PMI Come Off, and Does It Work the Same on a 2-4 Unit?

On a one-unit home, you can ask to cancel PMI at 80% of the original value, and it ends automatically at 78%. The CFPB explains the conditions: a written request, a good payment history, no junior liens, and proof your value hasn’t dropped.

Here is the catch. That legal framework is described for single-family principal residences. A 2-4 unit may fall under the investor’s own guidelines instead of the statutory right. Treat that as a reason to ask, not a fact to bank on.

The “PMI drops at 80%” talking point is weaker on a 2-4 unit than on a house. A good loan officer should tell you the actual cancellation terms for your loan before you pick.

What Changes on 3-4 Units?

The FHA premium formula doesn’t care how many units you buy. The underwriting does. Whether you choose FHA or conventional, you must live in one of the units. Owner-occupied only, one to four units.

On FHA, three- and four-unit buyers face a self-sufficiency test. HUD’s Handbook 4000.1 glossary defines net self-sufficiency rental income as rent over and above the full payment. In plain words, the property’s rent, after vacancy and maintenance factors, has to cover the payment. Duplexes generally skip it. Check the current handbook text, since details get updated.

This test interacts with insurance in a way few pages mention. The payment it measures includes FHA mortgage insurance. A higher insurance cost makes the test harder to pass. A property that fails can’t close on FHA at that loan amount, whatever your income.

Reserves matter too. Three- and four-unit FHA buyers need verified reserves after closing, and those can’t come from a gift. That affects your cash to close, which cuts into any saving you hoped to find.

How Is the Rent Counted?

Rent from the other units can help you qualify, but not all of it counts. Under HUD Mortgagee Letter 2023-17, with no rental history, the lender uses 75 percent of the lesser of the appraiser’s market rent or the lease rent. The net rental income then adds to your gross income.

Fannie Mae’s Selling Guide generally lets rent from the units you don’t live in count and generally disallows rent from the unit you occupy. It can also limit how much rent counts if you have no landlord history or no current housing payment. The appraiser reports the rent either way.

So rent can change which loan you qualify for, not just which one costs less. Run both before assuming.

Does Leverage Change the Comparison?

Yes. A bigger down payment is the main lever that makes conventional cheaper. FHA allows financing up to 96.5% LTV, with a 3.5% minimum investment at a 580 decision score. Across the wholesale programs we place files with, 580 is where FHA starts. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.

Conventional can go close to that. Fannie Mae’s eligibility matrix shows 95% maximum LTV for 2-4 unit principal-residence purchases under standard eligibility, with a lower cap for cash-out refinances. Footnotes on loan amount apply, and high-balance or manually underwritten loans can carry lower limits.

So a conventional loan is available at high leverage. But at 95% LTV, PMI is at its priciest. The saving is largest when you put more down. That is the honest tension: conventional rewards cash, FHA rewards flexibility. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.

Who Saves the Most, and Who Doesn’t?

Picture a buyer with a high score purchasing a fourplex with 15% down. Conventional PMI would be priced favorably, can come off later, and skips the upfront premium. That buyer likely saves in all three buckets. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.

Now picture a buyer at the credit floor putting down the minimum on a duplex. Conventional PMI could price high. FHA’s premium doesn’t react to the score. FHA may win on monthly cost, and the buyer accepts the long-run insurance.

Honestly, the middle is a toss-up. The stronger play depends on how long you expect to keep the loan, and few buyers know that on day one.

When Does FHA Still Make Sense?

FHA wins more often than its reputation suggests. It makes sense when credit is mid-range, cash is tight, or your debt ratios need room. The base ratio pair is 31/43 (housing to total income) with no compensating factors. With documented factors, ratios can reach 40/50 at the top tier, though the automated finding governs most files. A non-occupant co-borrower is allowed, and seller contributions can run to 6% of the price.

Conventional guidelines are generally tighter on credit and have their own rental-income limits. If conventional won’t approve you, the insurance saving is academic.

Can You Refinance Out of FHA Insurance Later?

Yes, and it is the standard exit. An FHA Streamline refinance stays inside FHA, needs no appraisal and a limited credit review, but the premium continues. It doesn’t shed insurance. Refinancing into a conventional loan is what removes it.

That route comes with its own tests: equity, credit, and property value. Conventional cash-out refinances on 2-4 units have lower leverage limits than purchases, so equity requirements matter. Refinancing also has closing costs, so the net saving is the insurance you drop minus what the new loan costs. Lendmire’s piece How Much FHA Cash-Out Costs vs Conventional on a 2-4 Unit Primary Home walks through the refinance side.

How Do You Compare Two Quotes?

Ask your loan officer for both loans on the same property, same down payment, side by side. Then check these items:

1. The upfront premium and whether it is financed.

2. The monthly insurance line on each.

3. When each insurance charge ends, in writing.

4. Cash to close, including reserves on 3-4 units.

5. Whether rent counts the same way under each program.

Ask each lender for the full terms in writing, and compare them line by line. If you are buying a home and want to see whether FHA loan programs fit your file, Lendmire can arrange both options and show what each one asks of you. County loan limits apply and change every year. HUD publishes the 2-4 unit limits, which are tied to the national conforming limit.

Key Terms Defined

Upfront premium (UFMIP): a one-time FHA insurance charge of 1.75% of the base loan, usually financed into the loan.

Annual premium (MIP): FHA’s monthly insurance charge, set by term, loan size, and LTV.

PMI: private mortgage insurance on a conventional loan, priced by credit score and LTV.

LTV: loan-to-value, the loan amount divided by the home’s value or price.

Self-sufficiency test: an FHA check on 3-4 units that the property’s net rent covers the full payment.

Reserves: verified savings you hold after closing.

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

About Lendmire

Lendmire (NMLS# 2371349) is a mortgage brokerage serving homeowners and home buyers in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. HUD Mortgagee Letter 2023-05

2. CFPB: When can I remove PMI

3. HUD Handbook 4000.1 glossary

4. HUD Mortgagee Letter 2023-17

5. Selling Guide

6. Fannie Mae eligibility matrix

7. HUD FHA 2026 loan limits release