FHA vs. Conventional Loans in California: Down Payment, Mortgage Insurance and Condo Rules

By Matthew Martinez, Founder, CEO & Managing Broker, Diamond Real Estate Group. California DRE #01869679.

An FHA loan requires at least 3.5% down and carries both an upfront mortgage insurance premium of 1.75% and an annual premium that, with less than 10% down, lasts for the life of the loan. A conventional loan can start at 3% down for eligible buyers, and its private mortgage insurance can be cancelled once you reach 80% of the home’s original value. FHA tends to be more flexible on credit; conventional is often cheaper over time for buyers with stronger credit, and the two also differ on loan limits and condo approval.

Side-by-side

	FHA	Conventional (Fannie Mae)
Minimum down payment	3.5% of appraised value (with a credit score of 580 or higher)	3% on eligible 97% LTV loans; otherwise per Fannie Mae’s eligibility matrix
Credit score floor	580+ for maximum financing; 500–579 limited to 90% LTV; below 500 ineligible	No minimum for loans run through Desktop Underwriter; 620 (fixed) or 640 (ARM) if manually underwritten
Mortgage insurance	Upfront 1.75% of base loan, plus annual MIP	Private mortgage insurance when LTV is over 80%
How long insurance lasts	11 years if LTV at origination is 90% or less; otherwise the life of the loan	Cancellable on request at 80% of original value; ends automatically at 78%
Loan limit (2026, one unit)	County FHA limit, from $541,287 (Lake) to $1,249,125	County conforming limit, $832,750 to $1,249,125
Condos	Project must be FHA-approved, or the unit must get single-unit approval	Lender reviews the project under Fannie Mae rules; some units are exempt from full review
Who can pay part of the down payment	Not the seller or anyone who benefits from the sale	Depends on program; seller contributions are capped

Sources: 12 U.S.C. 1709(b)(9); HUD Mortgagee Letter 10-29; HUD Mortgagee Letter 2023-05; Fannie Mae 97% LTV FAQs; Fannie Mae B3-5.1-01; Fannie Mae B7-1-01; CFPB on PMI removal; FHFA 2026 county limits; HUD CY2026 FHA limits. Lenders can set stricter standards than these program minimums ("overlays").

Down payment

FHA. Federal law requires an FHA borrower to invest at least 3.5% of the appraised value in cash or its equivalent, and that money can’t come from the seller or anyone else who benefits financially from the sale (12 U.S.C. 1709(b)(9)). HUD’s credit-score rules add a condition: buyers with scores from 500 to 579 are limited to 90% loan-to-value, meaning at least 10% down (HUD ML 10-29).

Conventional. Fannie Mae offers 97% loan-to-value (3% down) purchase loans two ways: its standard 97% option, where at least one borrower is a first-time homebuyer, and HomeReady, with an income limit of 80% of area median income and no first-time buyer requirement. Both are limited to fixed-rate loans on one-unit principal residences (including eligible condos), must be underwritten in Desktop Underwriter, and exclude high-balance loans (Fannie Mae).

That last point matters in our higher-cost counties. In Sonoma, Napa, Monterey, San Diego and the Bay Area ceiling counties, a conventional loan above the $832,750 baseline is "high-balance," so 3% down isn’t available at that loan size. See 2026 loan limits by county.

Either loan can often be paired with assistance programs. Our down payment assistance guide covers CalHFA and county programs, and the first-time home buyer guide walks through the full process.

Mortgage insurance: the biggest long-term difference

FHA MIP

FHA charges an upfront premium of 1.75% of the base loan amount (HUD ML 2023-05). On a $600,000 base loan, that’s $10,500. The annual premium depends on the loan term, loan amount and loan-to-value. For loans longer than 15 years:

Base loan amount	LTV at origination	Annual MIP	How long it’s charged
$726,200 or less	90% or less	0.50%	11 years
$726,200 or less	Over 90% to 95%	0.50%	Life of loan
$726,200 or less	Over 95%	0.55%	Life of loan
Over $726,200	90% or less	0.70%	11 years
Over $726,200	Over 90% to 95%	0.70%	Life of loan
Over $726,200	Over 95%	0.75%	Life of loan

Source: HUD Mortgagee Letter 2023-05, effective for case numbers endorsed on or after March 20, 2023. HUD’s letter also lists lower premiums for terms of 15 years or less. HUD can change premiums by mortgagee letter, so check the current figure with your lender.

The $726,200 threshold matters in counties like Marin, San Mateo or Santa Clara, where FHA limits reach $1,249,125: a larger FHA loan pays the higher annual rate.

Conventional PMI

Fannie Mae requires mortgage insurance on a conventional first mortgage when loan-to-value is over 80%, measured on a purchase against the lower of the price or appraised value (Fannie Mae B7-1-01). The cost is set by the mortgage insurer and the lender based on your file; we don’t quote it.

The federal Homeowners Protection Act gives you cancellation rights on most loans for single-family principal residences closed on or after July 29, 1999 (CFPB):

By request at 80%. You can ask in writing to cancel PMI when your balance reaches 80% of the original value, if you have a good payment history, are current, have no junior liens, and can show the value hasn’t declined.
Automatically at 78%. The servicer must end PMI when the scheduled balance reaches 78% of original value, if you’re current.
At the midpoint. PMI ends the month after the midpoint of the loan’s amortization schedule (year 15 of a 30-year loan), if you’re current.

CFPB notes that FHA and VA loans follow different rules. That contrast is the core of the cost comparison: with less than 10% down, FHA’s annual MIP stays for the life of the loan, while conventional PMI has a set path to ending.

Credit and property standards

Credit. FHA’s floors are set by HUD: 580 for maximum financing, 500 to 579 at 90% loan-to-value, and no FHA financing below 500 (HUD ML 10-29). Fannie Mae, as of its April 22, 2026 Selling Guide update, doesn’t require a minimum score for loans run through Desktop Underwriter, but sets 620 for fixed-rate and 640 for adjustable-rate loans underwritten manually (B3-5.1-01). In both programs, the score also affects pricing and mortgage insurance cost, and lenders commonly add their own minimums.

Property. FHA appraisals review the home against HUD’s property requirements in Handbook 4000.1, so condition items an appraiser flags may need to be fixed before closing. Conventional appraisals follow Fannie Mae or Freddie Mac standards. Either way, a separate home inspection is your own tool for evaluating the house; the appraisal protects the lender.

Condo approval: often the deciding factor

FHA. An FHA loan on a condo needs either an FHA-approved project or single-unit approval. You can search approved projects with HUD’s condominium lookup. For single-unit approval, HUD says the project can’t already be FHA-approved, must be complete and ready for occupancy, must have at least five units, and can’t be a manufactured home project (HUD condominiums). When HUD adopted its 2019 condo rule, it limited single-unit approvals to 10% of units in projects of 10 or more units (two units in smaller projects), set a general 50% owner-occupancy threshold and moved recertification to every three years (HUD, 2019). Confirm current thresholds in Handbook 4000.1 with your lender.

Conventional. Fannie Mae’s lender reviews the project under its own rules. Its Selling Guide lists full reviews, its Project Eligibility Review Service for new projects, and acceptance of FHA project approval for established attached condos. It waives a full project review for detached condo units, units in two- to ten-unit projects and most PUD units, though some basic requirements still apply (B4-2.1-01, August 5, 2026).

In practice: if you’re shopping for a condo with FHA financing, check the project’s approval status before you write the offer. Our guide to buying a condo in California and the Contra Costa condo and townhome reserve analysis cover the HOA documents and budgets lenders review.

Which one fits?

FHA often fits buyers with lower credit scores, limited savings or higher debt ratios, especially for purchases under the county FHA limit. Conventional often fits buyers with stronger credit who can reach 80% loan-to-value within a reasonable time, buyers above the FHA limit in counties like Lake, Mendocino or Solano where FHA limits sit below the conforming limit, and buyers of condos in projects without FHA approval. Above the conforming limit, see jumbo loans. Eligible veterans should compare both with a VA home loan, which has its own funding fee and entitlement rules.

Ask your lender for side-by-side Loan Estimates for FHA and conventional on the same price and down payment. Then compare total payments over the years you expect to keep the loan, including when mortgage insurance would end.

Questions people ask

Is FHA or conventional cheaper?

It depends on your credit, down payment and how long you’ll keep the loan. FHA charges a 1.75% upfront premium plus annual MIP; conventional PMI can be cancelled at 80% of original value (HUD ML 2023-05, CFPB). Compare Loan Estimates.

Can I remove FHA mortgage insurance?

If your loan-to-value at origination was 90% or less, annual MIP is charged for 11 years; above 90%, it lasts for the life of the loan, under HUD’s current schedule. Refinancing into a conventional loan later would end FHA MIP, but it’s a new loan with its own costs and qualifying.

What’s the minimum down payment on a conventional loan?

3% on Fannie Mae’s 97% LTV options for eligible buyers: fixed-rate, one-unit primary home, not high-balance (Fannie Mae).

What credit score do I need for FHA?

580 for maximum financing; 500 to 579 requires at least 10% down (HUD ML 10-29). Lenders may require higher scores.

Can the seller pay my FHA down payment?

No. The required 3.5% can’t come from the seller or anyone who benefits from the sale (12 U.S.C. 1709(b)(9)). Sellers can contribute toward closing costs within limits; see seller concessions.

How do I know if a condo is FHA-approved?

Search HUD’s condominium lookup by name or location. If the project isn’t listed, ask your lender about single-unit approval.

Is the FHA loan limit the same as the conforming limit?

In the Bay Area ceiling counties, Sonoma, Napa, Monterey and San Diego, yes for 2026. In Lake, Mendocino, Solano, Sacramento, Placer, El Dorado and Yolo, the FHA limit is lower (loan limits by county).

Sources & notes

Conventional rules here are Fannie Mae’s; Freddie Mac’s can differ. FHA condo thresholds come from HUD’s 2019 rule announcement; confirm current figures in Handbook 4000.1. The $600,000 example is arithmetic. We don’t quote rates or PMI premiums. General information, not legal, tax or lending advice. Updated November 2026. Primary sources are linked in this guide.

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