The mortgage you choose today will cost you tens of thousands of dollars over the life of your loan. The question is whether you're paying more upfront or bleeding money slowly over 30 years.

TL;DR: FHA loans can often look more affordable at first glance with lower down payments and easier qualification, but conventional loans typically cost less over the long haul for Michigan buyers who can qualify. The real answer depends on your credit score, how long you plan to stay in the home, and whether you can hit that 20% down payment threshold.

The Real Cost Comparison Nobody Talks About

Here's what frustrates me about most FHA vs conventional conversations: they focus entirely on getting you into the house. That's only half the equation. What matters just as much is what happens after you close.

I work with first-time buyers in Michigan every single day. Many of them come to me convinced that FHA is their only option because they've heard it's "easier to qualify" or "better for first-time buyers." Sometimes that's true. Often it's not.

Let me break down the actual numbers so you can make a decision based on facts, not assumptions.

Understanding the Upfront Costs

FHA Loan Costs at Closing

FHA loans require a minimum 3.5% down payment if your credit score is 580 or higher. On a $250,000 home in Grand Rapids or Ann Arbor, that's $8,750 out of pocket for your down payment.

But here's where it gets expensive: FHA charges an upfront mortgage insurance premium of 1.75% of your loan amount. On that same $250,000 home with minimum down payment, you're looking at $4,209 added to your loan balance right out of the gate.

Most buyers roll this into their loan, which means you're now financing $245,459 instead of $241,250. You're paying interest on that extra $4,209 for the next 30 years.

Conventional Loan Costs at Closing

Conventional loans through Fannie Mae and Freddie Mac offer down payments as low as 3% for first-time buyers. That's $7,500 on a $250,000 home.

No upfront mortgage insurance premium. Your loan amount stays at $242,500.

Already, you can see the conventional loan starts with a lower balance and ½% lower down payment. But the real difference shows up in what happens next.

The Monthly Payment Breakdown

FHA Monthly Mortgage Insurance

FHA loans require annual mortgage insurance premiums that get divided into your monthly payment. Currently, if you put down less than 10%, you pay 0.55% of your loan amount annually for the entire life of the loan.

Read that again: the entire life of the loan.

On a $245,459 loan balance, that's roughly $112 per month in mortgage insurance that never goes away unless you refinance into a conventional loan later.

Conventional Private Mortgage Insurance

Conventional loans also require private mortgage insurance when you put down less than 20%. The difference is that PMI rates vary based on your credit score and down payment amount, typically ranging from 0.2% to 1.5% annually.

Here's the critical distinction: Conventional PMI automatically cancels when you reach 22% equity in your home, or you can request removal at 20% equity but may be required to get an appraisal to back up your equity claim.

For a Michigan buyer with a 680 credit score putting 5% down on that $250,000 home, PMI might run around 0.61% annually, or about $121 per month on a $237,500 loan.

Yes, that's higher than FHA's monthly premium initially. But it disappears.

Running the Long-Term Numbers

Let me show you what this looks like over time using realistic Michigan scenarios. Before we dive in, it’s important to recognize that FHA loan rates are 0.25% - 0.5% lower than Conventional. This often results in a lower payment initially especially with borrowers below a 680 credit score.

Scenario: $250,000 Home Purchase

FHA Loan (3.5% down, 6.5% interest rate)

• Loan amount: $245,459 (including UFMIP)

• Monthly principal and interest: $1,551

• Monthly mortgage insurance: $112

• Total monthly payment (P&I + MI): $1,663
  

Conventional Loan (5% down, 6.99% interest rate, 680 credit score)

• Loan amount: $237,500

• Monthly principal and interest: $1,580

• Monthly PMI: $121

• Total monthly payment (P&I + PMI): $1,701

At first glance, the conventional loan costs you $38 more per month. Not earth-shattering.

But here's where it gets interesting.

Year 7: The Crossover Point

Assuming modest 3% annual home appreciation in Michigan markets like Lansing, Kalamazoo, or the Metro Detroit suburbs, you'll hit 22% equity around year 7 with the conventional loan.

At that point, your PMI disappears. Your payment drops to $1,580.

Meanwhile, the FHA borrower is still paying $1,663 every single month.

From year 7 through year 30, the conventional borrower saves $74 per month. That's $888 per year, or $20,424 over the remaining 23 years of the loan.

Total Cost Comparison Over 30 Years

FHA Total Payments: $598,680 Conventional Total Payments: $578,964

The conventional loan saves approximately $20,424 over the life of the loan in this scenario.

When FHA Actually Makes More Sense

I'm not here to tell you conventional loans are always better. That would be dishonest.

FHA loans make financial sense in specific situations:

Credit Score Below 680

Conventional PMI rates climb significantly for borrowers with credit scores below 680. At 640, you might pay 1.04% or more annually for PMI, which changes the math considerably.

FHA's mortgage insurance rates don't vary based on credit score. If your score is 620, you pay the same 0.55% as someone with a 760.

For Michigan buyers working to rebuild credit while trying to purchase before prices climb higher, FHA can be the smarter short-term play.

Higher Debt-to-Income Ratios

FHA allows debt-to-income ratios up to 56.99% in some cases with compensating factors. Conventional loans typically cap at 45% to 50%.

If you're carrying student loans, car payments, or other debts that push your ratios higher, FHA might be your only path to homeownership right now.

Planning to Refinance Within 3-5 Years

If you're confident you'll refinance before year 7, the long-term cost difference shrinks. Some buyers use FHA as a stepping stone, building equity and improving credit before refinancing into a conventional loan.

Just factor in refinancing costs of $3,000 to $6,000 when running your numbers.

The Michigan-Specific Factors

Michigan's housing market creates unique considerations for this decision.

Property Values and Appreciation

Markets like Grand Rapids, Ann Arbor, and parts of Oakland County have seen strong appreciation over the past decade. Faster appreciation means reaching that 20% equity threshold sooner, which favors conventional loans.

However, some Michigan markets have been more stagnant. If you're buying in an area with slower growth, it might take longer to eliminate PMI, which narrows the gap between FHA and conventional costs.

FHA Loan Limits in Michigan

For 2026, FHA loan limits in Michigan sit at $541,287. In higher-cost areas, limits can reach $1,249,125.

If you're looking at homes above these limits, conventional is your only option anyway.

Property Condition Requirements

FHA loans have stricter property condition requirements. The home must meet minimum property standards, which can be challenging with older Michigan housing stock.

I've seen deals fall apart because a home needed a new roof or had peeling paint that the seller refused to address. Conventional loans offer more flexibility on property condition.

Making Your Decision

Here's my straightforward advice for Michigan first-time buyers trying to choose between FHA and conventional:

Choose Conventional If:

• Your credit score is 680 or higher

• You can put down at least 5%

• You plan to stay in the home for 7+ years

• You want the lowest total cost over time

Choose FHA If:

• Your credit score is below 680

• You need the lowest possible down payment

• Your debt-to-income ratio exceeds conventional limits

• You plan to refinance within 3-5 years

Run Your Own Numbers: Every situation is different. The scenarios I've outlined use general assumptions. Your actual costs depend on your specific credit score, the home price, current interest rates, and how long you plan to stay.

The Question Most Buyers Forget to Ask

Before you decide between FHA and conventional, ask yourself this: What's the cost of waiting?

Michigan home prices have increased significantly over the past several years. Every month you spend trying to save a larger down payment or improve your credit score, home prices may be climbing.

Sometimes the "perfect" loan choice is the one that gets you into a home now, building equity instead of paying rent.

Other times, waiting six months to improve your credit score from 640 to 700 could save you tens of thousands in PMI costs.

There's no universal right answer. There's only the right answer for your situation.

Getting Clarity on Your Best Path Forward

I've walked hundreds of Michigan buyers through this exact decision. The math matters, but so does understanding your complete financial picture, your timeline, and your goals.

If you're trying to figure out whether FHA or conventional makes more sense for your situation, I'd encourage you to get specific numbers based on your actual credit profile and the homes you're considering.

Michigan Mortgage Solutions offers a Free Practice Purchase consultation where we can run real scenarios using your information. No pressure, no obligation. Just clarity on what your options actually look like.

You can schedule a consultation at michiganmortgagesolutions.com/home-purchase-consultation or call (248) 963-1894.

The worst financial decision is the one made without complete information. Get the numbers. Then decide.