Should You Buy Now? Comparing FHA vs. Conventional in a Flat Market

You're scrolling through listings, and every home you like gets snatched up by an all-cash investor. The news says prices are flat, rates are hovering near 6.67%, and you're wondering: Is now a terrible time to buy? Or is this the window everyone's been waiting for?

I've been covering real estate for a decade, and I've seen markets turn on a dime. But this time, the data is screaming something different. Home prices are essentially flat year-over-year—up just 0.5% nationally (NAR). That's not a crash, but it's not a boom either. It's a standoff. And in a standoff, the buyer with the right weapon wins.

So, let's cut through the noise and compare the two most common ways to finance a home today: the FHA loan and the conventional loan. I'll break them down on down payment, mortgage insurance, closing costs, and who they're actually for. Then I'll tell you which one I'd choose—and why.

Down Payment: The First Hurdle

The biggest myth I hear is that you need 20% down. That's simply false for most buyers. Conventional loans can go as low as 3% down (Bankrate), and FHA loans require just 3.5% with a credit score of 580 or higher (Bankrate). But here's the kicker: the typical first-time buyer in 2026 put down 10%—the highest share since 1989 (NAR Generational Trends). That tells me buyers are scared, and they're over-saving.

If you're a veteran, the VA loan blows both out of the water with 0% down (Bankrate). And if you're in a rural area, USDA offers 0% down too (Bankrate). But for most of us, it's FHA vs. conventional.

Putting down less than 20% on a conventional loan usually means you'll pay private mortgage insurance (PMI) (CFPB PMI). FHA, on the other hand, charges an upfront mortgage insurance premium of 1.75% of the loan amount, plus an annual premium that lasts for the life of the loan if you put down less than 10% (FHA/HUD). That's a huge difference.

Mortgage Insurance: The Hidden Cost

Here's where the math gets interesting. Conventional PMI can be canceled once you reach 20% equity, and it's automatically terminated at 22% (CFPB Homeowners Protection Act). FHA mortgage insurance, however, is a different beast. If you put down less than 10%, you're stuck paying that annual premium for the entire life of the loan (FHA/HUD). That's not a small detail—it's thousands of dollars over time.

Let's run a concrete example. Say you're buying a $300,000 home with 3.5% down. That's a $10,500 down payment, and the loan amount is $289,500. FHA's upfront MIP is 1.75% of that loan, or about $5,066. Annual MIP is typically 0.55% of the loan, which comes to about $1,592 per year, or $133 a month. On a conventional loan with 3% down, your PMI might be around $100 a month, but you can cancel it when you hit 20% equity. On FHA, you're paying that premium for 30 years unless you refinance. That's a dealbreaker for me.

But wait—there's a catch. Conventional loans with less than 20% down often require a higher credit score. If your score is below 580, FHA might be your only option, and you'll need a 10% down payment (FHA/HUD). So it's not a one-size-fits-all.

Closing Costs and Seller Contributions

Closing costs typically run 2% to 5% of the purchase price (Bankrate). On a $400,000 home, that's $8,000 to $20,000. Ouch. But here's a silver lining: FHA allows sellers to contribute up to 6% of the purchase price toward your closing costs (FHA/HUD). Conventional loans have lower limits, often around 3%. In a buyer's market, that 6% can be a game-changer.

And don't forget the Closing Disclosure rule: you must receive it at least three business days before closing (CFPB). That's your chance to review everything and walk away if something's off.

Who Each Loan Is For

FHA is for buyers with lower credit scores (580-660) or those who need the seller contribution to make the deal work. It's also the only path if you have a credit score between 500 and 579, but then you need 10% down (FHA/HUD). Conventional is for buyers with good credit (usually 620+) who can handle a slightly higher down payment and want to avoid the lifetime mortgage insurance trap. It's also better if you're putting down 20% or more, because then you avoid PMI entirely.

If you're a veteran, stop reading this and call a VA lender. The VA funding fee is 2.3% for first-time buyers with no down payment, but it's waived if you receive disability compensation (VA). That's a no-brainer.

The Verdict: Conventional Wins (for Most)

I'm going to be blunt: if you have a credit score above 660 and can scrape together a 5% down payment, a conventional loan is the better choice. The ability to cancel PMI at 20% equity is a massive advantage over FHA's lifetime mortgage insurance. Yes, the seller contribution limit is lower, but you can negotiate the price down instead.

Here's why I'm so adamant: in a flat market, every dollar counts. Home prices are barely moving—up just 0.5% year-over-year nationally (NAR). Appreciation isn't going to rescue you from a bad loan. You need to keep your monthly costs as low as possible, and that means avoiding perpetual mortgage insurance.

But don't take my word for it. Run the numbers for your specific situation. Use a mortgage calculator and compare the total cost over 5, 10, and 30 years. The difference could be tens of thousands of dollars.

Now, if your credit is below 660, FHA might be your only option. That's fine—it's a solid program. But plan to refinance into a conventional loan once you build equity and improve your credit. And if you're a veteran, go VA. No question.

So, should you buy now? If you have a stable job, a 5% down payment, and plan to stay put for at least five years, yes. The market is flat, but that means you're not overpaying. And with rates at 6.67% (Freddie Mac), you can always refinance later if rates drop. The worst thing you can do is wait for a crash that may never come.

The single most important thing to remember: don't let the 20% down myth paralyze you. Compare the real costs of FHA vs. conventional, and make the choice that fits your credit and your wallet.

Sources

• Bankrate - https://www.bankrate.com/mortgages/how-to-buy-a-house/
• NAR - https://www.nar.realtor/press-releases/home-prices-increased-in-71-of-metro-areas-in-first-quarter-of-2026
• FHA/HUD - https://www.hud.gov/program_offices/housing/sfh/ins/203bfaq
• CFPB PMI - https://www.consumerfinance.gov/ask-cfpb/what-is-private-mortgage-insurance-en-122/
• CFPB Homeowners Protection Act - https://www.consumerfinance.gov/compliance/supervision-examinations/homeowners-protection-act-hpa-or-pmi-cancellation-act-examination-procedures/
• Freddie Mac - https://freddiemac.gcs-web.com/news-releases/news-release-details/mortgage-rates-average-667