FHA vs. Conventional Mortgage Insurance:

When comparing FHA and conventional loans, don't just look at the interest rate. Mortgage insurance can make a big difference in your monthly payment.

FHA MIP

FHA mortgage insurance premium is not directly priced based on your FICO score. The cost is primarily determined by factors like your loan amount, term, and LTV. That means a borrower with a 640 FICO and a borrower with a 740 FICO could potentially have the same FHA MIP rate if their loan structure is otherwise the same.

Conventional PMI

Conventional PMI is different. Your FICO score can significantly affect your PMI rate. Generally, higher credit scores mean lower PMI costs when the other loan factors are the same. So, a borrower with a 740 FICO and 5% down could pay considerably less PMI than someone with a 640 FICO and the same down payment.

The Bottom Line

This is why there's no universal answer to "Is FHA or conventional better?" A borrower with lower credit may find FHA's mortgage insurance more competitive, while a borrower with strong credit may benefit from lower conventional PMI, and the ability to eventually eliminate it.

Don't compare loans based on rate alone. Compare the total monthly payment, including mortgage insurance.

PMI/MIP pricing varies by loan scenario and lender. Your actual cost will depend on your specific qualifications and loan structure.