Choosing the right home loan is a critical decision for aspiring homeowners. Two of the most common options are FHA loans and conventional loans. While both help you finance a home, they cater to different borrower profiles and have distinct requirements and costs. This guide will help you understand the differences and how to estimate potential costs using our calculator.
What is an FHA Loan?
FHA loans are insured by the Federal Housing Administration, a part of the U.S. Department of Housing and Urban Development (HUD). They are designed to make homeownership more accessible, particularly for borrowers with lower credit scores or smaller down payments. Key features include:
Lower Credit Score Requirements: Typically, FHA loans allow credit scores as low as 500 with a 10% down payment, or 580 with a 3.5% down payment.
Lower Down Payment: As little as 3.5% down is often possible.
Mortgage Insurance Premiums (MIP): All FHA loans require both an upfront MIP (paid at closing) and an annual MIP (paid monthly as part of your mortgage payment). This insurance protects the lender.
Loan Limits: FHA loan limits vary by county and are generally lower than conventional loan limits.
What is a Conventional Loan?
Conventional loans are not backed by a government agency like the FHA. They are the most common type of mortgage and are often preferred by borrowers with stronger financial profiles. Key features include:
Higher Credit Score Requirements: Lenders typically prefer credit scores of 620 or higher for conventional loans.
Down Payment Flexibility: Down payments can range from 3% to 20% or more.
Private Mortgage Insurance (PMI): If your down payment is less than 20%, you will usually be required to pay PMI. Unlike FHA MIP, PMI can often be canceled once you reach a certain equity level (typically 80% loan-to-value ratio).
Loan Limits: Conventional loans have conforming loan limits set by the Federal Housing Finance Agency (FHFA), with higher limits available for "jumbo" loans.
How the Calculator Works:
Our calculator helps you compare the estimated monthly costs of an FHA loan versus a conventional loan based on the details you provide. It calculates:
Principal and Interest (P&I): This is the core loan payment that pays down your debt and covers the interest charged by the lender. It's calculated using the standard mortgage payment formula:
$ M = P \left[ \frac{i(1+i)^n}{(1+i)^n – 1} \right] $
Where:
M = Monthly Payment
P = Principal Loan Amount (Loan Amount – Down Payment Amount)
n = Total Number of Payments (Loan Term in Years * 12)
Mortgage Insurance Costs:
FHA Upfront MIP: Calculated as (Loan Amount * FHA Upfront MIP Percentage). This is a one-time cost typically rolled into the loan.
FHA Annual MIP: Calculated as (Loan Amount * FHA Annual MIP Percentage / 12). This is the monthly cost for the FHA's mortgage insurance.
Conventional PMI: Calculated as (Loan Amount * Conventional PMI Percentage / 12). This is the monthly cost for private mortgage insurance. The calculator assumes PMI is required if the down payment is less than 20%.
Total Monthly Payment: This is the sum of P&I and the applicable monthly mortgage insurance (MIP or PMI).
When to Choose Which:
Choose FHA if: You have a lower credit score (below 620), a smaller down payment (less than 5-10%), or are struggling to qualify for a conventional loan.
Choose Conventional if: You have a good to excellent credit score (620+), a larger down payment (20%+ to avoid PMI, or 5%+), and want the potential to cancel mortgage insurance later.
Disclaimer: This calculator provides an ESTIMATE only. Actual loan terms, interest rates, fees, and insurance costs will vary based on lender, borrower qualifications, market conditions, and specific loan products. Consult with a mortgage professional for personalized advice.
function calculateLoanComparison() {
var loanAmount = parseFloat(document.getElementById("loanAmount").value);
var interestRate = parseFloat(document.getElementById("interestRate").value);
var loanTerm = parseInt(document.getElementById("loanTerm").value);
var fhaUpfrontMortgageInsuranceRate = parseFloat(document.getElementById("fhaUpfrontMortgageInsurance").value);
var fhaAnnualMortgageInsuranceRate = parseFloat(document.getElementById("fhaAnnualMortgageInsurance").value);
var conventionalPrivateMortgageInsuranceRate = parseFloat(document.getElementById("conventionalPrivateMortgageInsurance").value);
var downPaymentPercentage = parseFloat(document.getElementById("downPayment").value);
var errorMessageElement = document.getElementById("errorMessage");
errorMessageElement.style.display = 'none';
errorMessageElement.textContent = ";
// — Input Validation —
if (isNaN(loanAmount) || loanAmount <= 0) {
errorMessageElement.textContent = "Please enter a valid Loan Amount.";
errorMessageElement.style.display = 'block';
return;
}
if (isNaN(interestRate) || interestRate < 0) {
errorMessageElement.textContent = "Please enter a valid Annual Interest Rate.";
errorMessageElement.style.display = 'block';
return;
}
if (isNaN(loanTerm) || loanTerm <= 0) {
errorMessageElement.textContent = "Please enter a valid Loan Term.";
errorMessageElement.style.display = 'block';
return;
}
if (isNaN(fhaUpfrontMortgageInsuranceRate) || fhaUpfrontMortgageInsuranceRate < 0) {
errorMessageElement.textContent = "Please enter a valid FHA Upfront MIP rate.";
errorMessageElement.style.display = 'block';
return;
}
if (isNaN(fhaAnnualMortgageInsuranceRate) || fhaAnnualMortgageInsuranceRate < 0) {
errorMessageElement.textContent = "Please enter a valid FHA Annual MIP rate.";
errorMessageElement.style.display = 'block';
return;
}
if (isNaN(conventionalPrivateMortgageInsuranceRate) || conventionalPrivateMortgageInsuranceRate < 0) {
errorMessageElement.textContent = "Please enter a valid Conventional PMI rate.";
errorMessageElement.style.display = 'block';
return;
}
if (isNaN(downPaymentPercentage) || downPaymentPercentage 100) {
errorMessageElement.textContent = "Please enter a valid Down Payment percentage (0-100%).";
errorMessageElement.style.display = 'block';
return;
}
var downPaymentAmount = loanAmount * (downPaymentPercentage / 100);
var principalLoanAmount = loanAmount – downPaymentAmount; // This is the amount financed, not the total home price
// — Mortgage Calculation Function —
function calculateMortgagePayment(principal, annualRate, termYears) {
if (principal <= 0) return 0; // Handle cases with zero principal
var monthlyRate = (annualRate / 100) / 12;
var numberOfPayments = termYears * 12;
if (monthlyRate === 0) { // Handle 0% interest rate
return principal / numberOfPayments;
}
var numerator = monthlyRate * Math.pow(1 + monthlyRate, numberOfPayments);
var denominator = Math.pow(1 + monthlyRate, numberOfPayments) – 1;
if (denominator === 0) return 0; // Avoid division by zero if something unexpected happens
return principal * (numerator / denominator);
}
// — Conventional Loan Calculation —
var conventionalPMIAmount = 0;
if (downPaymentPercentage < 20) {
conventionalPMIAmount = (principalLoanAmount * (conventionalPrivateMortgageInsuranceRate / 100)) / 12;
}
var conventionalMonthlyPI = calculateMortgagePayment(principalLoanAmount, interestRate, loanTerm);
var conventionalTotalMonthly = conventionalMonthlyPI + conventionalPMIAmount;
// — FHA Loan Calculation —
var fhaUpfrontMIPCost = loanAmount * (fhaUpfrontMortgageInsuranceRate / 100); // Typically rolled into loan, but good to show cost
var fhaAnnualMIPCost = (loanAmount * (fhaAnnualMortgageInsuranceRate / 100)) / 12;
// For FHA, the principal for P&I calculation often includes the upfront MIP.
// However, for simplicity in this comparison, we'll calculate P&I on the original principal financed amount,
// and show upfront MIP as a separate cost. A more complex calculation might add it.
var fhaMonthlyPI = calculateMortgagePayment(principalLoanAmount, interestRate, loanTerm);
var fhaTotalMonthly = fhaMonthlyPI + fhaAnnualMIPCost;
// — Display Results —
document.getElementById("conventionalMonthlyPI").textContent = formatCurrency(conventionalMonthlyPI);
document.getElementById("conventionalMonthlyPMI").textContent = formatCurrency(conventionalPMIAmount);
document.getElementById("conventionalTotalMonthly").textContent = formatCurrency(conventionalTotalMonthly);
document.getElementById("fhaMonthlyPI").textContent = formatCurrency(fhaMonthlyPI);
document.getElementById("fhaUpfrontMIPCost").textContent = formatCurrency(fhaUpfrontMIPCost);
document.getElementById("fhaAnnualMIPCost").textContent = formatCurrency(fhaAnnualMIPCost);
document.getElementById("fhaTotalMonthly").textContent = formatCurrency(fhaTotalMonthly);
var generalResultsContainer = document.getElementById("generalResults");
generalResultsContainer.style.display = 'block';
var lowerMonthlyPaymentValue = 0;
var paymentDifferenceValue = 0;
if (conventionalTotalMonthly < fhaTotalMonthly) {
lowerMonthlyPaymentValue = conventionalTotalMonthly;
paymentDifferenceValue = fhaTotalMonthly – conventionalTotalMonthly;
document.getElementById("lowerMonthlyPayment").textContent = "Conventional Loan";
} else {
lowerMonthlyPaymentValue = fhaTotalMonthly;
paymentDifferenceValue = conventionalTotalMonthly – fhaTotalMonthly;
document.getElementById("lowerMonthlyPayment").textContent = "FHA Loan";
}
document.getElementById("paymentDifference").textContent = formatCurrency(paymentDifferenceValue) + " cheaper per month";
}
function formatCurrency(amount) {
return "$" + amount.toFixed(2).replace(/\d(?=(\d{3})+\.)/g, '$&,');
}
// Initial calculation on load
document.addEventListener('DOMContentLoaded', function() {
calculateLoanComparison();
});