If you're buying a home in Michigan with less than 20% down, you'll almost certainly be choosing between FHA and conventional financing. The math isn't always obvious — and the wrong choice can cost you $30,000+ over the life of the loan. Here's the side-by-side analysis.
The TL;DR answer.
FHA loans usually cost less in year one for buyers with credit scores under 700 and down payments under 10%. Conventional loans usually win on total cost over the life of the loan for buyers with stronger credit who can hit at least 5% down.
But "year one" matters more than "lifetime" for most Michigan buyers — because most refinance or sell within 7-10 years. So the right answer is rarely about which loan is theoretically cheaper; it's about which loan fits where you are right now.
Credit under 680 or down payment under 5%? FHA usually wins. Credit 740+ with 20% down? Conventional almost always wins. The gray zone (680-740 credit, 5-15% down) is where running the actual numbers matters.
Year-one cost comparison on a $350,000 home.
Let's run real numbers. Michigan first-time buyer, 700 credit score, 5% down payment, planning to keep the home for at least 5 years. Same home, same buyer, two loan types.
| Factor | FHA | Conventional |
|---|---|---|
| Home price | $350,000 | $350,000 |
| Down payment (5%) | $17,500 | $17,500 |
| Base loan amount | $332,500 | $332,500 |
| Upfront MIP (1.75%, financed) | $5,819 | — |
| Total loan amount | $338,319 | $332,500 |
| Interest rate (illustrative) | 6.25% | 6.50% |
| P&I monthly payment | $2,083 | $2,102 |
| Monthly MIP / PMI | $155 (0.55% MIP) | $200 (0.72% PMI) |
| Monthly taxes + insurance (est.) | $525 | $525 |
| Total monthly payment | $2,763 | $2,827 |
| Year-one cost (12 × payment) | $33,156 | $33,924 |
FHA wins year one by about $768 in this scenario. That's not huge, but it adds up over the first 3-5 years before the PMI on the conventional loan drops off automatically.
Where credit score changes the answer.
The above example used a 700 credit score. Move that number and the equation shifts dramatically.
| Credit Score | FHA Rate (est.) | Conventional Rate (est.) | Winner |
|---|---|---|---|
| 580-619 | 6.50% | Not eligible | FHA only |
| 620-659 | 6.25% | 7.25% | FHA |
| 660-699 | 6.25% | 6.75% | FHA |
| 700-739 | 6.25% | 6.50% | FHA (year 1), Conv (lifetime) |
| 740-779 | 6.25% | 6.25% | Conventional |
| 780+ | 6.25% | 6.00% | Conventional |
The pattern: FHA mortgage rates are largely flat across credit scores. The government insures the loan, so the lender's risk is the same whether you're at 580 or 800. Conventional rates, by contrast, are extremely sensitive to credit — every 20-point drop in score adds roughly 0.25% to your rate.
This is why FHA is almost always better for credit under 680. Not because FHA is cheaper in absolute terms, but because conventional gets much more expensive as credit drops.
Mortgage insurance: the real differentiator.
FHA carries Mortgage Insurance Premium (MIP). Conventional loans under 20% down carry Private Mortgage Insurance (PMI). These behave very differently, and the difference is where most people misunderstand the FHA-vs-conventional choice.
PMI drops off automatically at 78% loan-to-value
Federal law requires PMI to terminate automatically when you reach 78% LTV based on your original amortization schedule — typically around year 10-11 for a 30-year loan with 5% down. If your home appreciates faster than that, you can request earlier removal at 80% LTV by paying for a new appraisal. Many Michigan buyers eliminate PMI by year 4-6 simply through appreciation.
MIP lasts the life of the loan
FHA loans with less than 10% down keep MIP for the entire 30-year term. There is no automatic cancellation. The only way to get rid of MIP is to refinance into a conventional loan — which is why many FHA buyers do exactly that once they reach 20% equity. This is a planned step, not a problem.
If you put 10% or more down on an FHA loan, MIP drops off after 11 years automatically. If you put less than 10% down, you'll likely refinance to conventional once you hit 20% equity to eliminate MIP. Plan for this from day one.
Michigan-specific considerations.
FHA loan limits
For 2026, the FHA limit for a single-family home in most Michigan counties is $524,225. This applies to Wayne, Oakland, Macomb, Washtenaw, Genesee, Kent, and virtually every other county. If your purchase price exceeds this limit, FHA isn't available and you'll need conventional or jumbo financing.
MSHDA programs work with both
Michigan State Housing Development Authority (MSHDA) offers down payment assistance through the MI Home Loan, MI Home Loan Flex, and MI 10K DPA programs. These can pair with either FHA or conventional financing. The MI 10K DPA program offers up to $10,000 forgivable over 10 years for first-time buyers in targeted areas — that money goes toward your down payment regardless of which loan type you choose.
Property condition standards
FHA appraisers follow HUD Minimum Property Standards — they'll flag peeling paint on pre-1978 homes, missing handrails, broken windows, and other safety items. This can complicate FHA financing on older Detroit-area properties. Conventional appraisers are more flexible. If you're buying a fixer-upper in Detroit, Hamtramck, or older parts of Dearborn, this matters.
When each loan wins.
FHA wins when:
- Your credit is under 700
- Your down payment is under 5%
- You expect to refinance within 5-7 years anyway
- Your debt-to-income ratio is high (FHA allows up to 57%; conventional caps closer to 50%)
- You have one borrower with strong credit and one with weaker credit (FHA averages scores differently)
- You're buying a multi-unit property (2-4 units) and planning to live in one unit
Conventional wins when:
- Your credit is 740+ and you have 5%+ down
- You have 20%+ down (no mortgage insurance at all)
- You're buying a second home, vacation home, or investment property (FHA is owner-occupied primary only)
- The home doesn't meet FHA property standards
- The purchase price exceeds the FHA limit
- You're confident you won't refinance and want PMI to drop off automatically
How to decide for your situation.
The honest answer is: don't decide based on a blog post. Decide based on real numbers run on your real file. A good broker should:
- Pull your actual credit (not a self-reported estimate)
- Run automated underwriting under both loan types (DU for conventional, TOTAL Scorecard for FHA)
- Show you both side-by-side with real rates from real wholesale lenders
- Project total cost over your realistic ownership horizon, not over a theoretical 30 years
If you're in Michigan and want this analysis done for free with no credit pull until you're ready, that's exactly what Express Home Loans does on every initial call. The conversation takes about 30 minutes and you walk away with a clear recommendation backed by numbers.
Compare loan programs on the home purchase page, or read more about FHA financing specifics.
