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Two people buy the same $400,000 house. One uses an FHA loan, one uses a conventional loan. Same price, same rate, same week. One of them can pay tens of thousands of dollars more over the life of the loan, and most of that extra money goes to insurance that protects the bank, not them. Here is the actual math.
The simple version
FHA and conventional are two different sets of rules for borrowing money to buy a home. FHA loans are insured by the government and let you in with as little as 3.5 percent down and a lower credit score. Conventional loans are not government insured and usually want stronger credit, but they let you get rid of mortgage insurance once you have enough equity. Both charge you mortgage insurance when you put down less than 20 percent. The difference that costs real money is what happens to that insurance over time. On a conventional loan it eventually stops. On a standard FHA loan it usually does not.
How it actually works
Mortgage insurance is a premium you pay that covers the lender if you stop making payments. You pay it. The bank is the one protected by it. You get no payout and it adds nothing to your equity. It is the price of being allowed to buy with a small down payment.
The two loans charge it differently:
- Conventional: PMI (private mortgage insurance). Charged when you put down less than 20 percent. Under the Homeowners Protection Act of 1998, the lender must automatically cancel it once your loan balance reaches 78 percent of the home's original value, and you can request cancellation at 80 percent. It ends.
- FHA: MIP (mortgage insurance premium). Two parts. An upfront premium of 1.75 percent of the loan, usually rolled into the balance so you also pay interest on it. Then an annual premium charged monthly. On a loan with less than 10 percent down, that annual premium lasts the entire life of the loan. The only way out is to refinance into a conventional loan, which means qualifying again and paying closing costs.
That last point is the one that does the damage, and it is the one buyers almost never have explained to them at the closing table.
The actual math (illustrative)
Same house, same rate, two paths. These are illustrative inputs, not a quote. The premium percentages are the current HUD figures and the rate is the current Freddie Mac 30-year fixed average, both cited in the Sources below.
Assumptions: $400,000 home, 3.5 percent down on both loans, a 6.48 percent fixed rate on both (the 30-year fixed average as of June 4, 2026), 30-year term, loan held the full term without refinancing.
| FHA (3.5% down) | Conventional (3.5% down) | |
|---|---|---|
| Down payment | $14,000 | $14,000 |
| Loan amount | $392,755 (includes financed upfront MIP) | $386,000 |
| Mortgage insurance rate | 0.55% per year plus 1.75% upfront | 0.55% per year |
| Monthly principal and interest | $2,477 | $2,435 |
| Monthly mortgage insurance (year 1) | $180 | $177 |
| When mortgage insurance ends | Never (life of loan) | Year 12 (month 143) |
| Total mortgage insurance paid (over 30 years) | $50,094 | $25,122 |
On these numbers the FHA borrower pays $24,971 more in mortgage insurance over 30 years. None of it builds equity. None of it protects them. It is pure cost, and on the FHA side it never switches off.
A note on interest. At the same rate, the FHA loan also carries slightly more interest, because the upfront premium gets financed into the balance and the down payment is smaller. But the rate is the bigger lever, and FHA rates sometimes run a touch lower than conventional. So the reliable, large gap here is the insurance and how long it lasts, not the interest. At an equal rate the interest difference is small.
That is the FHA premium still running after a conventional borrower's PMI would have cancelled, invested instead at 7% to the 30-year mark. It is not a reason to avoid FHA. For a buyer who cannot qualify any other way, getting into the home has real value too. It is the size of the number, so you can weigh it.
FHA wins on access. A lower credit score, less cash for the down payment, or a better FHA note rate for weaker credit can make FHA the loan you actually qualify for, or the cheaper one. This calculator holds the rate equal, so it does not show that edge.
Conventional wins on cost when you qualify for both. Its insurance ends; FHA insurance under 10% down does not. At the same rate, that is the whole gap.
About PMI: conventional PMI is borrower-paid insurance that cancels automatically once the loan reaches 78% of the original value, and you can request removal at 80%. FHA insurance (MIP) works differently. With less than 10% down it runs for the life of the loan, which is the gap this calculator shows. To model your own credit tier and rate, use the full Mortgage Insurance calculator.
The Real Cost lens
Look at the FHA premium that keeps getting charged after a conventional borrower's PMI would already be gone. At these inputs the conventional PMI cancels in year 12, and the FHA premium keeps running for the rest of the loan, starting at about $180 a month and declining as the balance pays down.
Take that continuing FHA premium and assume it was invested instead, at a 7 percent annual return, from the year-12 cancel point through year 30. It grows to about $45,653.
So the real cost of FHA mortgage insurance, for someone who keeps the loan and never refinances, is not just the extra premiums in dollars. Counting the growth that money could have produced, it is about $45,653. That does not make FHA wrong. For a buyer who cannot qualify any other way, getting into the home is worth real money too. It means the convenience of FHA has a number attached, and this is the size of it. Run that number on both sides before you sign.
What this lesson is NOT
This is not a recommendation to choose FHA or conventional, and it is not personalized advice. It is not a rate quote. PMI rates depend on your credit and your lender, and the figures here are illustrative, not promises. It is not a refinance recommendation. And it is not a substitute for talking to a lender and reading your own Loan Estimate line by line. This is the framework for the cost side. The decision is yours.