Choosing between FHA and conventional financing is a calculation, not a preference. Your credit score can significantly affect which loan costs less, but it is not the only factor. Mortgage insurance can also make a meaningful difference in your total borrowing costs. The right comparison requires looking at the numbers side by side.
FHA loans require mortgage insurance, while conventional loans typically require private mortgage insurance with less than 20% down. FHA and conventional mortgage insurance are priced differently, and credit score can significantly affect conventional PMI costs. The better choice depends on your credit score, down payment, loan terms, and overall mortgage insurance costs.
Why Mortgage Insurance Is the Real Variable
Most buyers already know that FHA loans require mortgage insurance as part of the deal. Fewer realize that conventional loans can require PMI too, with costs that vary partly by credit score. FHA mortgage insurance does not vary based on credit score. However, its rate depends on factors such as loan-to-value ratio and loan term. For many FHA loans, annual MIP is 50 basis points, although the applicable rate depends on the loan's characteristics.
Conventional mortgage insurance can vary significantly with credit score and other loan characteristics. At an 800 or higher credit score, the PMI factor could be as low as 11 basis points. At a 660 credit score, that factor could reach 170 basis points.
That difference can materially affect the monthly payment and overall affordability. Below a 680 credit score, FHA can often have a mortgage insurance advantage. Above 680, the better choice depends more heavily on the borrower's specific loan terms.
Side-by-Side Comparisons Reveal the Difference
The Durbin Team uses a comparison tool that generates side-by-side loan scenarios. It includes an AI-assisted insight layer that flags opportunities a manual review might miss.
Tevis has run these comparisons for over 26 years, but today's technology makes the process faster and more detailed. It can surface options that can be explained to borrowers in real time, as he describes:
"There's a little light bulb we click, and it'll say, 'Hey, if this individual put 6% down instead of 5% down, the mortgage insurance would drop to this, and their interest rate would drop to that, and thus they would save X amount of dollars a month versus putting just a few hundred dollars down more.' Most people won't take the time to run that math."
— Tevis Durbin, Producing Branch Manager, Supreme Lending
Real-time scenario modeling gives borrowers actual numbers to compare instead of relying on assumptions. Understanding how loan-level price adjustments affect mortgage pricing is part of what makes this comparison meaningful. Small changes in down payment or credit score can create meaningful monthly savings.
Not sure which loan type fits your credit profile and down payment? Talk with the Durbin Team about your specific numbers before you settle on a path.
The 20% Down Rule Is a Myth
Here’s a persistent misconception: if you’ve bought a home before, you must put 20% down next time. That has never been a general lending requirement, yet plenty of buyers still treat it as policy.
Tevis recently worked with a buyer who planned to put 20% down on a new home. When the question came up about what remained for flooring and a fence, the answer was “we'll finance those". A quick calculation showed that conventional PMI at 10% down would have been $28 per month. Financing the fence alone would likely cost more than that.
On a conventional loan, reaching 20% equity can eliminate PMI, and for some borrowers, putting 20% down makes sense. But for buyers who would deplete their reserves or take on higher-rate consumer debt to hit that number, the math often works against them. Conventional PMI at 10% or 15% down can be relatively modest, depending on the borrower's profile. Borrowers can generally request PMI cancellation when the loan reaches 80% of the home's original value. Keeping cash available for maintenance, improvements, or life has real value that a blanket “put 20% down” rule ignores entirely.
Before committing to a large down payment, ask what your mortgage insurance would actually cost at 5%, 10%, and 15% down. The difference may be smaller than expected, and the cash you keep could be worth more than the insurance you eliminate.
FHA Faces Resistance in Northern Indiana
One topic worth addressing is how listing agents treat FHA offers, particularly in the Elkhart market. In northern Indiana, it can be difficult to get a listing agent to take an FHA offer seriously. The resistance is often rooted in myths about FHA financing, which can limit the options sellers consider.
The Hamilton County market is more balanced on this front. When an FHA borrower has a strong pre-approval, the lender can speak directly with listing agents about the strength of the file. A pre-approval that has already moved through underwriting carries weight. Knowledge of FHA appraisal requirements and guidelines, along with clear communication, is part of what a strong lender brings to the transaction.
Generic advice ignores the variable that can change the calculation: where your credit score lands on the conventional PMI scale. Tevis puts the issue plainly:
"You'll have somebody in your ear saying, 'You should always go conventional, it doesn't matter, because mortgage insurance falls off after you've got 20% equity and FHA stays on forever.' They don't know your credit score. So I think if they saw on paper that because of your credit score, you're paying three times the mortgage insurance, they'd probably say, 'Yeah, that's probably not a good idea.'"
— Tevis Durbin, Producing Branch Manager, Supreme Lending
Well-intentioned advice from people who already own homes can miss a critical variable. The CFPB's mortgage cost guide shows why comparing total costs, not just rates, matters when weighing FHA vs. conventional financing. That habit can save real money over the life of the loan.
Common Questions About FHA vs. Conventional Loans
Is FHA always the better option for first-time buyers in Indiana?
Not necessarily. FHA offers a lower down payment minimum, and its mortgage insurance does not vary based on credit score. For buyers with stronger credit, a conventional loan may have lower mortgage insurance costs. The right answer depends on your credit score, down payment, loan terms, and how long you plan to stay in the home. Running both scenarios side by side provides a clearer comparison.
Does conventional PMI ever cost more than FHA mortgage insurance?
Yes, especially for borrowers with credit scores in the low-to-mid 600s. In some scenarios, conventional PMI can cost more than three times the FHA mortgage insurance rate. The difference can materially affect the monthly payment, making a side-by-side comparison important.
When does conventional mortgage insurance fall off a loan?
For conventional loans, borrowers can generally request PMI cancellation when the loan balance reaches 80% of the home's original value, subject to applicable requirements. PMI generally terminates automatically at 78% of the home's original value if the borrower is current on the loan. FHA mortgage insurance works differently. For FHA loans with case numbers assigned on or after June 3, 2013, loans above 90% loan-to-value generally carry annual MIP for the life of the loan. Loans at 90% LTV or below generally have an 11-year MIP period. That long-term cost difference is worth factoring into any FHA vs. conventional comparison.
Do repeat buyers have to put 20% down on a conventional loan?
No. Conventional loans are available with as little as 3% down. FHA loans allow 3.5% down for eligible borrowers, regardless of whether they have owned a home before. A 20% down payment is not a general requirement for either loan type. The 20% down payment myth can lead buyers to put more cash into a home than their situation requires.
How does the loan comparison tool actually work?
The tool generates scenarios across loan types and down payment amounts simultaneously. It also flags incremental opportunities, such as a small increase in down payment that lowers both the interest rate and the PMI factor. That kind of shift can create meaningful monthly savings that buyers might otherwise miss. It turns abstract tradeoffs into visible numbers a borrower can evaluate.
How does credit score affect the FHA versus conventional decision?
Credit score can have a significant impact on the conventional mortgage insurance cost. FHA mortgage insurance does not vary based on credit score, while conventional PMI pricing can vary significantly based on credit score and other loan characteristics. A borrower at 760 may receive different conventional PMI pricing than a borrower at 660, even with otherwise similar loan terms. Your credit score drives your rate and your pricing tier and can materially affect the FHA vs. conventional comparison.
Can I remove FHA mortgage insurance by refinancing into a conventional loan?
Yes, refinancing into a conventional loan can be an option once you've built enough equity and the new loan makes financial sense. Borrowers can build equity through principal payments, appreciation, or both. Reaching 20% equity may allow a conventional refinance without PMI, depending on the new loan's terms and loan-to-value ratio. Timing also depends on the home's current value, loan balance, interest rate, and refinancing costs.
What should I bring to a lender conversation to compare FHA and conventional options?
Bring information about your income, assets, debts, and current housing situation. A lender can tell you which documents are needed based on your employment and financial circumstances. Once your credit and financial information are verified, the lender can provide a more precise side-by-side comparison. It can show the mortgage insurance and pricing for different down payment options. Preliminary estimates can help, but actual credit and loan information produces a more accurate comparison.
Choose the Loan That Fits Your Numbers
A default recommendation to ‘just go conventional’ is a guess dressed up as certainty. The right loan depends on your credit score, down payment, loan terms, and how you plan to use the cash you keep.
If you're weighing FHA vs. conventional financing in Hamilton County or anywhere in Indiana, the Durbin Team can run the numbers with you. You'll get a straightforward comparison based on your specific financial situation, not a sales pitch. Connect with the Durbin Team to start the conversation today.
ABOUT THE AUTHOR
Tevis Durbin (NMLS #424899) is a Producing Branch Manager at Supreme Lending with over 26 years of experience in the mortgage industry. Leading the Durbin Team, Tevis combines an MBA in Finance and a degree in Economics with a range of loan programs to help Midwest homebuyers navigate complex markets. He is a Certified Mortgage Advisor, serves on the State Board for the Mortgage Bankers of Indiana, and acts as Communication Chair for the Hamilton County division of MIBOR.