FHA vs. conventional: how closing costs compare

FHA and conventional are the two loan types most first-time buyers weigh against each other. FHA — backed by the Federal Housing Administration — is friendlier to lower credit scores and down payments as small as 3.5%. Conventional loans aren't government-insured and reward stronger credit with better pricing and more flexible insurance. When it comes to closing costs, most of the bill is the same; the differences are concentrated in a few specific places. Let's isolate them.

What's the same

The bulk of any closing — for either loan type — doesn't change:

• Lender fees (origination, underwriting, processing) — set by your lender, not the program.
• Appraisal and inspection — both loans require an appraisal; both buyers should get an inspection. (FHA appraisals apply minimum property standards, but the fee is comparable.)
• Title insurance, recording fees, and transfer tax — tied to the property and your state, identical regardless of loan. See the transfer tax lookup and title fee estimator.
• Prepaids and escrow — a year of homeowners insurance and a few months of property tax, the same for both.

If you run the closing cost calculator and toggle between “Conventional” and “FHA,” you'll see most lines stay put. Only the insurance-related lines move.

Difference #1: FHA upfront mortgage insurance

The headline difference is FHA's upfront mortgage insurance premium (UFMIP): a one-time charge of 1.75% of the loan amount. On a $290,000 loan that's $5,075. Crucially, it's almost always financed into the loan rather than paid at the table — so it raises your loan balance, not your cash to close. The calculator shows it as a line so you see the full picture, but in practice it rarely affects the check you bring on closing day. Conventional loans have no equivalent upfront premium.

Difference #2: ongoing mortgage insurance

Both loans usually carry monthly insurance when you put down less than 20% — but the rules differ sharply, and this is where the long-run cost lives (it's not a closing cost, but it should shape your decision):

• FHA annual MIP is collected monthly and, on most loans with the minimum down payment, lasts the entire life of the loan. The only way off it is refinancing.
• Conventional PMI automatically ends once you reach 22% equity (and you can request cancellation at 20%). It's also risk-based, so strong credit means a lower PMI rate.

For a buyer who'll stay put for many years, conventional's cancelable insurance can save thousands — which is exactly why some buyers start with FHA and refinance to conventional once they cross 20% equity.

Compares rates from multiple lenders on their own site. We never rank by what a lender pays us.

Difference #3: seller-concession limits

A seller concession is a credit the seller gives you toward closing costs — and the two programs cap it differently:

• FHA: up to 6% of the price, no matter your down payment.
• Conventional: 3% with less than 10% down, 6% at 10%–25% down, and 9% above 25% down.

For a low-down-payment buyer in a soft market, FHA's flat 6% ceiling gives you more room to ask the seller to cover costs. Our seller concessions guide explains how to use that room without weakening your offer.

A side-by-side example

Imagine a $300,000 home. With conventional at 5% down, your down payment is $15,000 and closing costs might land near $10,500 — cash to close around $25,500, with cancelable PMI. With FHA at 3.5% down, your down payment is $10,500 and ordinary closing costs are about the same $10,500; the 1.75% UFMIP (~$5,066) is financed in, so cash to close is roughly $21,000 — lower upfront, but with longer-lasting insurance baked into the monthly payment. FHA wins on cash today; conventional often wins over a long horizon.

How to decide

There's no universal answer — it turns on your credit, your down payment, how long you'll stay, and how much help the seller will give. The honest move is to price both:

• Run the closing cost calculator twice — once Conventional, once FHA — at your actual down payment to compare cash to close.
• Ask two or three lenders for a Loan Estimate on each program; the monthly insurance and rate differences matter as much as the closing line.
• Factor in how long you'll own the home — the shorter the horizon, the more FHA's lower upfront cost (and the chance to refinance) can win.

Then check your state page for the local transfer-tax and title rules that apply no matter which loan you choose.