# FHA, VA, or Conventional: The Real Cost of a Low Rate

By Michael McDermott (@michaelmcdermott) · Published 2026-10-14

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Here's a question I get almost every week: "Which loan has the lowest rate?" It's a fair place to start. But it's not where I'd finish.

Right now, FHA and VA rates are averaging a bit lower than conventional. On Mortgage News Daily's index as of Friday, October 9, FHA and VA were running roughly 0.30% below the conventional 30-year fixed. That gap gets a lot of attention.

What gets less attention is everything that comes with each loan. **Mortgage insurance. Upfront fees. How long those costs stick around.** Once you add those in, the loan with the lowest rate isn't always the one that costs you the least.

Let me walk you through how I compare them.

#### Key Takeaways

-   The lowest rate isn't the cheapest loan — mortgage insurance, upfront fees, and how long they last decide the real cost.
-   Conventional PMI is temporary and credit-sensitive; FHA MIP is flat across credit scores and can last the life of the loan under 10% down.
-   VA often wins for eligible veterans: no down payment requirement, no monthly mortgage insurance, and a funding fee that some borrowers don't pay at all.
-   A side-by-side comparison on the same house — rate, APR, payment, cash to close, and insurance duration — is the only honest way to choose.

## The three loans in plain English

**Conventional** is the standard loan that follows Fannie Mae and Freddie Mac guidelines. Qualified first-time buyers can put as little as 3% down. With less than 20% down, you'll pay private mortgage insurance (PMI).

**FHA** is insured by the Federal Housing Administration. It's more forgiving on credit, and the minimum down payment is 3.5% for most buyers. Every FHA loan carries mortgage insurance, no matter how much you put down.

**VA** is for eligible veterans, service members and some surviving spouses. There's no down payment required for most eligible buyers and no monthly mortgage insurance. Instead, there's a one-time funding fee, unless you're exempt.

![Aerial view of Phoenix residential neighborhoods](https://images.unsplash.com/photo-1706403222567-06fe8d8dc93e?crop=entropy&cs=tinysrgb&fit=crop&fm=jpg&ixid=M3w5Mzk0NDN8MHwxfHNlYXJjaHwxfHxQaG9lbml4JTIwQXJpem9uYSUyMHJlc2lkZW50aWFsJTIwaG9tZXN8ZW58MHwwfHx8MTc5MTk5MzEyOHww&ixlib=rb-4.1.0&q=80&w=1200&h=630)

## Where the real cost difference hides

The rate is only one line on the page. Here's what else I look at.

**Conventional PMI depends on your credit.** The stronger your credit score and the bigger your down payment, the cheaper PMI gets. It's also temporary. You can ask to remove it once your balance reaches 80% of the home's original value, and it has to come off automatically at 78% as long as you're current on payments.

FHA mortgage insurance doesn't care about your credit score. It costs the same whether you're at 640 or 780. There's an upfront premium of **1.75% of the base loan amount** (most people roll it into the loan) plus an annual premium paid monthly, under HUD rules. And here's the big one: with less than 10% down, the annual premium stays for the life of the loan. The only ways out are refinancing or paying the loan off. With 10% or more down, it drops off after 11 years.

The **VA funding fee** depends on your down payment and whether you've used your benefit before. For a first-time use with less than 5% down, it's 2.15% of the loan amount. It goes down with 5% or 10% down and up on later uses. Veterans receiving VA disability compensation, and a few other groups, don't pay it at all. That exemption alone can make VA hard to beat.

## The math behind the side-by-side

To see why the lowest rate can lose, you have to add the insurance costs to the payment, not just compare the rates. FHA charges an **upfront premium of 1.75% of the base loan amount** plus an annual premium paid monthly, per HUD's rules. Most buyers roll that upfront amount into the loan, which means you finance it and pay interest on it for the life of the loan.

The duration is what separates the two programs. Conventional PMI on a loan with less than 20% down comes off once you reach 20% equity — you can request cancellation and it drops automatically around the 78% loan-to-value mark. FHA MIP under 10% down lasts the entire loan term, with the only exits being a refinance or payoff.

## How that plays out for real buyers

Here's the pattern I see over and over:

**Strong credit, 5% to 10% down:** Conventional often wins, even with a slightly higher rate. PMI is cheaper for good credit, and it comes off down the road. FHA's lower rate can get eaten up by mortgage insurance that never leaves.

**Credit still being rebuilt, or a higher debt load:** FHA often wins. Because its mortgage insurance doesn't go up with a lower score, it can come out ahead where conventional PMI gets expensive.

**Eligible veteran, especially with a disability rating:** VA is usually the first loan I run. No down payment requirement, no monthly mortgage insurance, and possibly no funding fee.

**Somewhere in the middle:** That's most people. And that's exactly why I don't guess.

![Mortgage loan comparison documents and calculator](https://convex.voce.com/api/storage/ca9a445d-75ae-42a7-84c6-be782bec81ac)

## The side-by-side is the whole point

When you're shopping, I'll put the loans you qualify for next to each other. Same house, same price, different programs. You'll see the rate, the APR, the monthly payment with mortgage insurance, the cash to close, and how long the mortgage insurance lasts.

Since I shop around 300 lenders, the same program can price differently from one lender to the next, too. That's worth knowing before you pick a lane.

One more thing. I never want you choosing a loan because you're counting on a refinance later. If rates drop and a refinance makes sense, great. But pick the loan that works on its own today.

?Frequently Asked Questions5 questions

1Is FHA only for first-time buyers?

No. FHA is open to repeat buyers too, as long as the home will be your primary residence.

2Can I get rid of FHA mortgage insurance?

If you put down 10% or more, the annual premium ends after 11 years. With less than 10% down, it stays for the life of the loan unless you refinance or pay it off.

3Do I need 20% down to buy a home?

No. Conventional can go as low as 3% down for qualified first-time buyers, FHA is 3.5% for most buyers, and VA requires no down payment for most eligible buyers. Less than 20% down usually means some form of mortgage insurance or a funding fee.

4Can I use my VA benefit more than once?

Yes. The funding fee is higher on later uses with less than 5% down, but the benefit can be used again.

5Which loan should I start with?

Start with the conversation, not the rate. Tell me your credit picture, how much you have for a down payment, and whether you're VA eligible, and I'll show you which loans fit and what each one really costs.

## What the recent rate data shows

Right now the rate gap is real, but narrow. FHA and VA 30-year fixed loans have been running about **0.30% below conventional** on Mortgage News Daily's national index as of Friday, October 9 — shared as market commentary, not a quote or offer of credit. On a typical loan amount, that difference is a few hundred dollars a year: meaningful, but rarely enough to decide between programs once insurance and fees are added in.

That spread also moves quickly. Mortgage News Daily's index reported a sharp single-day move in early October, and lenders update their advertised offerings throughout the day. A rate quoted today is a snapshot of a moving market, not a locked guarantee.

## A quick recap before you pick

Three decisions carry most of the weight. **Your down payment** sets whether mortgage insurance is even on the table and, for FHA, whether it lasts 11 years or the life of the loan. **Your credit score** decides whether conventional PMI is cheap and removable or a heavy fixed drag. **Your VA eligibility** can remove both the down payment hurdle and the funding fee entirely.

Run those three inputs through the side-by-side I described, and the lowest rate usually stops being the deciding factor. That's the point of the exercise — the loan that fits your numbers is the one that costs you least over the years you'll live in the home.

If you're buying in Phoenix or anywhere in Arizona and want to see FHA, VA and conventional side by side on your own numbers, start at themcdteam.com. Apply if you're ready, or schedule a call and we'll walk through it together.

Rates mentioned are Mortgage News Daily national index averages of advertised rates as of Friday, October 9, 2026, shared as market commentary only. They're not a rate quote or an offer of credit, and an APR can't be calculated for an index average. Down payment, mortgage insurance and funding fee figures describe general program guidelines and can change. Your actual rate, APR, payment and costs depend on your credit, loan amount, down payment, property and program at the time you lock. All loans are subject to credit approval and program guidelines.

Michael McDermott, NMLS 184065 | NEXA Lending, NMLS 1660690 | Equal Housing Opportunity