Do I still pay mortgage insurance on an FHA loan if I put 20% down?

Yes. FHA loans require mortgage insurance premiums (MIP) regardless of your down payment size. Even with 20% down, you must pay both an upfront MIP of 1.75% of the loan amount and an annual MIP of 0.15% to 0.55% depending on loan term and amount. Unlike conventional loans, FHA mortgage insurance cannot be removed simply because you reach 20% equity at the time of purchase.

Can I avoid PMI on a conventional loan with 20% down?

Yes. Conventional loans do not require private mortgage insurance (PMI) when you put 20% or more down. This is one of the biggest advantages of conventional loans over FHA when you have a substantial down payment. Eliminating PMI saves you 0.15% to 1.0% of the loan amount annually, which can mean hundreds of dollars per month.

Is an FHA loan ever better than conventional with 20% down?

FHA can be better if your credit score is below 680, since FHA interest rates do not increase as sharply as conventional rates for lower credit scores. FHA also allows higher DTI ratios and more flexible income verification. However, the lifetime MIP cost usually outweighs these benefits unless you plan to refinance within a few years.

How much money does 20% down save on a conventional loan vs FHA?

On a $400,000 home with 20% down ($80,000), a conventional loan saves you the FHA upfront MIP of $5,600 (1.75% of $320,000) plus annual MIP of approximately $1,440 to $1,760 per year. Over 30 years, total savings can exceed $40,000 to $50,000 when you factor in both the eliminated MIP and typically lower conventional interest rates.

Can I remove FHA mortgage insurance later if I put 20% down?

For FHA loans originated after June 3, 2013, if your down payment is 10% or more, MIP can be removed after 11 years. With 20% down at purchase, you still must wait 11 years to cancel MIP. The only way to eliminate FHA mortgage insurance sooner is to refinance into a conventional loan once you have sufficient equity.

What credit score do I need for a conventional loan with 20% down?

Most conventional lenders require a minimum credit score of 620 with 20% down, but you will get the best interest rates with a score of 740 or higher. With 20% down and a credit score above 740, conventional loans almost always offer better total costs than FHA.

Does 20% down give better interest rates on conventional loans?

Yes. Putting 20% down typically secures the best available conventional interest rates because it eliminates PMI risk and presents you as a lower-risk borrower. Lenders offer their most competitive pricing at or below 80% loan-to-value ratio.

Should I put 20% down on an FHA loan or switch to conventional?

In nearly all cases, if you have 20% down and a credit score of 680 or above, a conventional loan will cost less over time than an FHA loan. The only reasons to choose FHA with 20% down are significant credit issues, high DTI, or non-traditional income that conventional guidelines will not accept.

FHA vs Conventional Loan With 20% Down: Which Is Better in 2026?

Quick Answer

If you have a 20% down payment and a credit score of 680 or higher, a conventional loan is almost always cheaper than an FHA loan in 2026. The biggest reason: conventional loans eliminate PMI entirely at 20% down, while FHA loans still charge both upfront MIP (1.75%) and annual MIP regardless of down payment size. On a $400,000 home, choosing conventional over FHA with 20% down can save you $40,000+ over the life of the loan. FHA only wins if your credit score is below 680 or you need flexible income/DTI qualification.

Key Takeaways

Conventional eliminates PMI at 20% down — the single biggest cost difference between the two loan types.
FHA charges MIP no matter what — 1.75% upfront + 0.15%–0.55% annually, even with 50% down.
Total 30-year savings of $40,000–$55,000 when choosing conventional over FHA with 20% down on a typical home.
FHA rates are less credit-sensitive — below 680 credit, FHA may actually offer a lower rate despite the MIP.
Refinancing is the only escape from FHA MIP — with 20% down, plan to refinance into conventional after 6–12 months if rates allow.
Conventional offers better investment property terms — with 20% down, conventional allows investment properties and second homes; FHA does not.

Why 20% Down Changes the FHA vs Conventional Math

Most FHA vs conventional comparisons assume a 3.5% to 5% down payment, where FHA’s lower down payment requirement and flexible credit standards give it a clear advantage for cash-strapped buyers. But when you bring 20% down to the table, the calculation shifts dramatically.

The PMI/MIP Crossover

At 20% down, conventional loans automatically eliminate private mortgage insurance (PMI). This is not negotiable — it is a feature of conventional lending. Once your loan-to-value (LTV) ratio hits 80%, PMI disappears.

FHA loans work differently. FHA mortgage insurance premium (MIP) is mandatory regardless of down payment amount. Even if you put down 50%, you still pay:

FHA MIP Component	Cost	When It Applies
Upfront MIP	1.75% of loan amount	Paid at closing (can be financed)
Annual MIP (30-year, >$625k)	0.55% of loan amount	Paid monthly for 11 years (if ≥10% down)
Annual MIP (30-year, ≤$625k)	0.15%–0.50% of loan amount	Paid monthly for 11 years (if ≥10% down)

Real Dollar Comparison on a $400,000 Home

Let’s say you are buying a $400,000 home with 20% down ($80,000). Your loan amount is $320,000.

FHA Loan Costs (20% Down):

Upfront MIP: $5,600 (1.75% × $320,000) — usually financed into the loan
Annual MIP: ~$1,440/year ($120/month) at 0.45% rate for 11 years
Total MIP cost over 11 years: ~$21,440 ($5,600 + $15,840)
If financed, upfront MIP accrues interest over 30 years: additional ~$5,800

Conventional Loan Costs (20% Down):

Upfront PMI: $0
Monthly PMI: $0
Total mortgage insurance cost: $0

Difference: $21,440+ in mortgage insurance alone, and that does not account for the typically higher FHA interest rates.

Detailed Cost Comparison: FHA vs Conventional With 20% Down

Here is a side-by-side breakdown for a $400,000 home purchase with 20% down ($80,000), assuming a 720 credit score and a 30-year fixed-rate mortgage in mid-2026.

Scenario A: Credit Score 720 (Strong Credit)

Factor	FHA Loan	Conventional Loan
Loan amount	$325,600 ($320k + $5,600 UFMIP)	$320,000
Interest rate	~6.875%	~6.500%
Monthly P&I	~$2,143	~$2,023
Monthly MIP/PMI	~$122 (for 11 years)	$0
Total monthly payment	~$2,265	~$2,023
Monthly savings (conv)	—	$242/month
30-year total cost difference	—	~$47,000 saved

Scenario B: Credit Score 640 (Lower Credit)

Factor	FHA Loan	Conventional Loan
Loan amount	$325,600	$320,000
Interest rate	~7.000%	~7.500% (rate hit for low credit)
Monthly P&I	~$2,162	~$2,239
Monthly MIP/PMI	~$122	$0
Total monthly payment	~$2,284	~$2,239
Monthly savings (conv)	—	$45/month
30-year total cost difference	—	~$12,000 saved (conv still wins, but margin shrinks)

Scenario C: Credit Score 600 (Very Low Credit)

Factor	FHA Loan	Conventional Loan
Loan amount	$325,600	May not qualify
Interest rate	~7.125%	~8.000%+ (if approved)
Monthly P&I	~$2,190	~$2,347
Monthly MIP/PMI	~$122	$0
Total monthly payment	~$2,312	~$2,347
Monthly savings (FHA)	$35/month	—

In this scenario, FHA actually wins because conventional rates spike significantly below 620 credit.

When FHA With 20% Down Actually Makes Sense

Despite the conventional advantage at 20% down, there are specific situations where FHA is the better choice:

1. Credit Score Below 680

FHA interest rates are less sensitive to credit score changes than conventional rates. If your score is in the 580–679 range, the conventional rate hit (often 0.5%–1.0% higher) combined with possible lender overlays can make FHA cheaper overall despite the MIP.

2. High Debt-to-Income Ratio (Above 45%)

FHA allows DTI ratios up to 56.99% with compensating factors (per HUD Handbook 4000.1), while most conventional lenders cap at 50% and prefer 43% or lower. If your DTI is high, FHA may be the only option even with 20% down.

3. Non-Traditional Credit History

If you lack a traditional credit score (no credit cards, no loans) but have a strong 20% down payment saved through cash, FHA allows non-traditional credit verification using rent, utility, and insurance payment history. Conventional loans rarely accommodate this.

4. Recent Credit Events (Bankruptcy, Foreclosure, Short Sale)

FHA has shorter waiting periods:

Chapter 7 Bankruptcy: 2 years (FHA) vs 4 years (conventional)
Foreclosure: 3 years (FHA) vs 7 years (conventional)
Short Sale: 3 years (FHA) vs 4 years (conventional)

If you are within these windows, FHA may be your only viable option.

5. You Plan to Refinance Within 2–3 Years

If you expect your credit to improve or rates to drop, starting with FHA and refinancing to conventional later can be a strategic move. You would pay MIP for the short term, then eliminate it via refinancing once you qualify for conventional pricing.

The Refinance Exit Strategy

For borrowers who choose FHA with 20% down (usually due to credit), the refinance exit strategy is critical:

Monitor your credit score — Once it crosses 680, conventional refinancing becomes attractive.
Wait for rate dips — Even a 0.25% rate drop can make refinancing worthwhile.
Calculate break-even — Refinancing costs (~$3,000–$5,000) should be recovered within 12–18 months of monthly savings.
Request a new appraisal — If your home has appreciated, your LTV will be even stronger for conventional refinancing.

Example: You buy with FHA at 7.0% with a 640 credit score. Eighteen months later, your score is 700 and rates have dipped to 6.25%. Refinancing to conventional eliminates MIP ($122/month), secures a lower rate, and saves you ~$300/month total. Break-even on $4,000 in closing costs: 13 months.

How 20% Down Affects Other Loan Features

Interest Rate Pricing

Conventional lenders offer their best rates at 80% LTV (20% down). This is because loans at or below 80% LTV carry significantly lower default risk. You may see rate improvements of 0.125%–0.375% compared to a 95% LTV conventional loan.

FHA rates are relatively flat across down payment amounts. Putting 20% down on an FHA loan does not meaningfully improve your rate compared to putting 3.5% down.

Loan Limits

With 20% down, you can afford more expensive homes, but each loan type has different limits:

FHA loan limits (2026): Up to $1,149,825 in high-cost areas; $524,225 in standard areas
Conventional conforming limits (2026): $806,500 in standard areas; $1,209,750 in high-cost areas
Jumbo loans: Above conventional limits, 20% down is often a minimum requirement

If you are buying a higher-priced home, conventional conforming and jumbo loan limits are more generous than FHA limits in most markets.

Property Type Flexibility

With 20% down, conventional loans allow you to finance:

Primary residences
Second homes (vacation properties)
Investment properties (1–4 units)
Condominiums (including non-warrantable condos with some lenders)

FHA with 20% down is restricted to:

Primary residences only
No second homes or investment properties
FHA-approved condo projects only

This is a significant advantage for conventional if you are considering house hacking or buying a vacation home.

Cash Reserves and Qualifying

Both loan types benefit from the stronger financial position that 20% down demonstrates, but conventional lenders may offer:

Reduced reserve requirements (2 months vs 6 months)
More flexible gift fund rules
Expanded eligibility for non-occupant co-borrowers

Step-by-Step: Choosing Between FHA and Conventional With 20% Down

Step 1: Check Your Credit Score

740+: Conventional is almost certainly better. You will get the best rates and zero PMI.
680–739: Conventional is still better. Rate advantage + no PMI = significant savings.
620–679: Compare offers. Conventional likely still wins, but the gap narrows.
580–619: FHA is likely better. Conventional rates spike and approvals become harder.
Below 580: FHA only. Most conventional lenders will not approve.

Step 2: Calculate Total Cost of Ownership

Do not just compare monthly payments. Factor in:

Upfront MIP/PMI costs
Monthly mortgage insurance
Interest rate differences over the full term
Tax implications (MIP and PMI are both deductible in 2026 if income is below phaseout limits)

Use our FHA vs Conventional Calculator for a detailed breakdown.

Step 3: Evaluate Your 5-Year Plan

Staying 5+ years? Conventional’s savings compound — the longer you stay, the more you save.
Moving in 3–5 years? The upfront MIP on FHA makes it expensive for short holding periods.
Planning to renovate? An FHA 203(k) loan could be worth the MIP if you need renovation financing.

Step 4: Get Pre-Approved for Both

Request Loan Estimates (LE) from lenders for both FHA and conventional. The standardized LE format makes side-by-side comparison easy. Focus on:

Section A (origination charges)
Section B (services you cannot shop for)
Section C (services you can shop for)
Line H (monthly MIP/PMI)
Page 3 (total cost over 5 years)

Step 5: Choose and Lock

Once you have both offers, the math usually makes the decision obvious. If conventional is cheaper by $100+/month, choose conventional. If the difference is under $50/month, consider other factors like property type flexibility and future refinancing plans.

Common Myths About 20% Down and FHA Loans

Myth 1: “20% down removes FHA mortgage insurance”

False. FHA loans require MIP regardless of down payment. Only after 11 years (with ≥10% down) can MIP be removed, and only on loans originated after June 3, 2013.

Myth 2: “FHA offers lower rates than conventional”

Generally false. FHA rates are sometimes quoted lower, but when you factor in the upfront MIP and monthly MIP, the effective rate is higher. FHA rates appear competitive because they are less credit-sensitive, not because they are inherently lower.

Myth 3: “You should never put 20% down on an FHA loan”

Mostly true, but with exceptions. For most borrowers, putting 20% down on a conventional loan is the better financial choice. However, borrowers with credit scores below 680, high DTI, or recent credit events may benefit from FHA despite the MIP.

Myth 4: “Conventional loans require 20% down”

False. Conventional loans require as little as 3% down (Fannie Mae HomeReady, Freddie Mac Home Possible) or 5% down (standard conventional). The 20% threshold simply eliminates PMI — it is not a minimum requirement.

FHA MIP vs Conventional PMI Comparison — Deep dive into how each mortgage insurance type works and costs
FHA vs Conventional Total Cost Over 30 Years — Full lifecycle cost analysis
FHA vs Conventional Interest Rates — How rates differ by credit score and market conditions
Conventional Loan PMI Removal Guide — How to remove PMI as fast as possible
FHA Mortgage Insurance Removal Guide — Can you cancel MIP? Here is what to know
FHA vs Conventional DTI Requirements — How debt-to-income ratios affect qualification

The Bottom Line

Having 20% down puts you in a strong financial position, and in most cases, a conventional loan maximizes that advantage. The elimination of PMI alone saves tens of thousands of dollars over the life of the loan, and conventional rates at 80% LTV are typically 0.25%–0.50% lower than FHA rates.

Choose FHA with 20% down only if:

Your credit score is below 680 and conventional rates are uncompetitive
Your DTI exceeds conventional limits
You have recent credit events within conventional waiting periods
You need non-traditional income or credit verification

For everyone else with 20% down and decent credit, conventional is the clear winner. Take the money you would have spent on MIP and invest it, save it, or use it for home improvements that build equity.

Ready to compare exact numbers? Use our free FHA vs Conventional Loan Calculator to see your total costs side by side.