FHA vs Conventional
Closing Costs Comparison: FHA vs Conventional 2026
FHA closing costs are typically $1,500-5,000 higher than conventional, almost entirely due to the 1.75% Upfront Mortgage Insurance Premium. But FHA allows 6% seller concessions vs conventional's sliding scale starting at 3% -- which can flip the equation on negotiated purchases.
$8,500-12,000
FHA typical closing cost
$300k purchase
$6,000-9,500
Conventional typical
$300k purchase, 5% down
6%
FHA seller concessions
of purchase price
3-9%
Conv. seller concessions
depends on LTV
The UFMIP: FHA's Biggest Closing Cost
Upfront Mortgage Insurance Premium (UFMIP)
1.75% of base loan amount
Source: HUD Mortgagee Letter 2024-04
The UFMIP is 1.75% of the base loan amount (not the purchase price), charged on every FHA loan regardless of credit score, down payment, or loan term. On a $300,000 purchase with 3.5% down, the base loan is $289,500 and the UFMIP is $5,066. This amount can be financed into the new loan, raising the actual loan amount to $294,566 -- meaning you owe more than the property cost.
When comparing "cash to close" figures between FHA and conventional, always verify whether the UFMIP has been financed into the loan or paid upfront. Most loan scenarios finance it -- meaning the quoted closing costs look similar to conventional, but the loan balance is $5,000 higher than expected.
There is no FHA UFMIP equivalent in conventional lending. PMI is paid monthly (or sometimes as a single upfront premium negotiated with the lender), but a 1.75% upfront charge against the loan balance is unique to FHA. See the MIP vs PMI total cost analysis for the 30-year implications.
Closing Costs Line by Line
The table below compares every significant closing cost item for FHA and conventional loans. Figures are representative ranges for a $300,000 purchase in 2026. Your Loan Estimate (required by RESPA within 3 business days of application) will show exact numbers.
| Cost Item | FHA | Conventional |
|---|---|---|
| Origination / Lender Fee | $1,000-2,000 | $800-2,000 |
| Appraisal Fee | $500-800 (FHA-approved appraiser required) | $400-700 |
| Credit Report | $30-50 | $30-50 |
| Title Search | $200-400 | $200-400 |
| Title Insurance (owner) | $500-1,500 | $500-1,500 |
| Title Insurance (lender) | $300-800 | $300-800 |
| Escrow / Settlement Fee | $500-1,000 | $400-900 |
| Recording Fees | $75-200 | $75-200 |
| Survey | $400-700 (sometimes required) | $400-700 (less often required) |
| Flood Determination | $20-50 | $20-50 |
| Homeowners Insurance (1st year) | $800-2,000 | $800-2,000 |
| Prepaid Interest (prorated) | $500-1,500 | $500-1,500 |
| Property Tax Escrow (2-3 months) | $600-1,500 | $600-1,500 |
| Upfront Mortgage Insurance Premium | 1.75% of base loan | N/A (no UFMIP) |
| PMI/MIP Escrow (1st year upfront) | Included in UFMIP | N/A if 20%+ down |
| HOA Transfer / Move-In Fee | Varies (if applicable) | Varies (if applicable) |
| Inspection (optional but recommended) | $350-500 | $350-500 |
Ranges are national estimates for 2026. Significant regional variation exists (title insurance especially). Source: CFPB Closing Cost Survey, ALTA Rate Surveys.
Seller Concession Rules: FHA vs Conventional
Seller concessions (also called "interested party contributions") allow the seller to credit the buyer at closing, effectively paying for some or all closing costs. The rules differ significantly between FHA and conventional, and exceeding the limit is a material underwriting issue.
| LTV / Scenario | FHA Seller Concession Limit | Conventional Rules (Fannie B3-4.1-03) |
|---|---|---|
| Any LTV | 6% of purchase price | FHA: HUD 4000.1 II.A.8.b -- includes ALL interested party contributions |
| Conv. LTV > 90% (< 10% DP) | N/A | Conventional limit: 3% of purchase price (Fannie B3-4.1-03) |
| Conv. LTV 75.01-90% (10-24.99% DP) | N/A | Conventional limit: 6% of purchase price |
| Conv. LTV <= 75% (25%+ DP) | N/A | Conventional limit: 9% of purchase price |
| Investment (conventional) | N/A | Conventional limit: 2% of purchase price (investment property) |
FHA 6% Rule
FHA's 6% cap applies to all concessions combined: closing costs, pre-paids, HOA fees, and discount points. It is based on the lesser of the sales price or appraised value. Any concession above 6% results in a dollar-for-dollar reduction in the FHA loan amount, effectively penalising the purchase. Source: HUD 4000.1 II.A.8.b.
Conventional 3/6/9% Rule
Conventional seller concessions are tiered by LTV. The 3% limit at high LTV (above 90%) is less generous than FHA's 6%. However, conventional buyers with 25%+ down enjoy 9% -- useful for luxury purchases with negotiating power. Source: Fannie Mae Selling Guide B3-4.1-03.
Strategic Use of Seller Concessions
In a buyer's market, requesting seller concessions of 4-5% on an FHA purchase can effectively make closing cost-free. The seller agrees to a slightly higher purchase price with a concession, the buyer finances the higher price but brings minimal cash to closing. This is legal and common. The appraised value must support the purchase price -- concessions cannot be used to inflate the transaction above appraised value.
Worked Example: $320,000 Purchase, No Seller Concessions
Both scenarios assume $320,000 purchase price, no seller concessions, closing in mid-month (15 days of prepaid interest), 30-year fixed rate, Texas (no state income tax, representative closing costs).
| Closing Cost Item | FHA 3.5% Down | Conventional 5% Down |
|---|---|---|
| Down payment | $11,200 | $16,000 |
| UFMIP (1.75% of base loan) | $5,390 | $0 |
| Origination fee (0.5%) | $1,543 | $1,520 |
| Appraisal | $650 | $525 |
| Title (search + lender insurance) | $900 | $900 |
| Owner's title insurance | $1,100 | $1,100 |
| Escrow/settlement fee | $800 | $750 |
| Credit report | $45 | $45 |
| Recording fees | $125 | $125 |
| Homeowners insurance (first year) | $1,200 | $1,200 |
| Prepaid interest (15 days @ 6.80%/6.70%) | $890 | $872 |
| Property tax escrow (3 months) | $975 | $975 |
| TOTAL closing costs (excl. DP) | $13,618 | $8,012 |
| TOTAL cash to close (inc. DP) | $24,818 | $24,012 |
FHA UFMIP financed into loan (not paid upfront) in this scenario. If paid upfront: FHA cash to close = $30,208.
Key Observation
When UFMIP is financed, total cash-to-close figures are surprisingly similar ($24,818 FHA vs $24,012 conventional) despite the lower FHA down payment. This is because closing cost fees and prepaids are nearly identical. The difference emerges over time through the higher loan balance (UFMIP financed) and 30-year MIP. This is why total cost of ownership comparisons matter more than upfront cost comparisons.
Reading Your Loan Estimate
RESPA requires lenders to provide a standardised Loan Estimate (LE) within 3 business days of receiving a complete application. The LE uses a uniform format mandated by CFPB, making FHA and conventional directly comparable. Key sections to review:
Page 1: Loan Terms
Loan amount (check if UFMIP is included), interest rate, monthly P+I, MIP/PMI, projected total monthly payment. This is your apples-to-apples comparison number.
Page 2: Closing Cost Details
Section A = Origination. Section B = Services you cannot shop. Section C = Services you can shop (title, settlement). Section G = Taxes and government fees. Section H = Prepaids. Section I = Initial escrow.
Page 3: Comparisons
APR (better for FHA comparison because it includes UFMIP cost), total interest percentage (TIP), and in 5 years total you will have paid. This section makes long-term costs visible.
Frequently Asked Questions
Can I negotiate closing costs on FHA loans?
What is the FHA origination fee limit?
Can conventional PMI be paid upfront instead of monthly?
Do FHA and conventional appraisals differ?
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