FHA and conventional loans are the two most common ways to finance a home purchase in Washington, DC, and the «cheaper» option isn’t the same for everyone. Your credit score and down payment size usually decide which loan actually costs less over time, more than any general rule about FHA or conventional being better.
Quick answer: if your credit score is 680 or higher and you can put down at least 5%, a conventional loan is usually cheaper, mainly because PMI can be removed once you reach 20% equity. If your credit score is below 680 or you have limited savings for a down payment, an FHA loan is often the more accessible and sometimes cheaper option upfront. Read our breakdown on FHA Loan Requirements and Limits in Washington, DC.
In this guide
- The core differences between FHA and conventional loans
- Down payment comparison
- Mortgage insurance: the biggest cost difference
- Real cost comparison by credit score
- DTI and qualifying differences
- Property and condo differences
- How to decide which fits you
- FAQs
The core differences between FHA and conventional loans
| Feature | FHA | Conventional |
|---|---|---|
| Minimum credit score | 580 (3.5% down) | 620 (varies by lender/program) |
| Minimum down payment | 3.5% | 3–5% (first-time buyer programs), 5% standard |
| Mortgage insurance | MIP, often for life of loan if under 10% down | PMI, removable at 20% equity |
| Loan limits | High-cost area limit for DC | Conforming limit, also elevated for high-cost areas |
| Property standards | Stricter minimum property standards | More flexible |
| Best fit | Lower credit, smaller down payment | Stronger credit, more savings |
Down payment comparison
On a $450,000 home:
| Loan type | Down payment % | Down payment amount |
|---|---|---|
| FHA | 3.5% | $15,750 |
| Conventional (first-time buyer program) | 3% | $13,500 |
| Conventional (standard) | 5% | $22,500 |
Interestingly, some conventional first-time buyer programs allow a lower down payment than FHA. The bigger cost difference usually isn’t the down payment itself, but the mortgage insurance that follows it. Learn how to build your savings in How to Save for a Down Payment in a High-Cost City Like DC
Mortgage insurance: the biggest cost difference
This is where FHA and conventional loans diverge the most.
FHA (MIP):
- Upfront MIP paid at closing or financed into the loan.
- Annual MIP paid monthly.
- With less than 10% down, MIP typically lasts for the life of the loan.
- With 10% or more down, MIP can often be removed after 11 years.
Conventional (PMI):
- No upfront premium in most cases.
- Monthly PMI based on credit score and down payment.
- Can be removed once you reach 20% equity (by payments or value increase), regardless of your original down payment.
- Rate varies more by credit score than FHA’s MIP does. Learn more in What Is Private Mortgage Insurance and How to Avoid It.
The key insight: a borrower with a lower credit score might pay a similar or even lower monthly PMI-equivalent cost with FHA initially, but could end up paying mortgage insurance for many more years than an equivalent conventional borrower, especially if they never refinance.
Real cost comparison by credit score
These examples use a $450,000 home price and a 5% down payment ($22,500), financing $427,500, with a 30-year term. Figures are illustrative; confirm with current lender quotes.
Credit score: 640
| FHA | Conventional | |
|---|---|---|
| Rate (illustrative) | 6.25% | 6.75% |
| Principal & interest | about $2,678 | about $2,773 |
| Monthly MIP/PMI | about $178 | about $260* |
| Total monthly | about $2,856 | about $3,033* |
| Insurance duration | Life of loan (5% down) | PMI can be removed after meeting cancellation requirements |
At this credit score, FHA is cheaper monthly, and often easier to qualify for, even though the insurance lasts longer.
Credit score: 720
| FHA | Conventional | |
|---|---|---|
| Rate (illustrative) | 6.00% | 6.25% |
| Principal & interest | about $2,608 | about $2,632 |
| Monthly MIP/PMI | about $178 | about $140* |
| Total monthly | about $2,786 | about $2,772* |
| Insurance duration | Life of loan (5% down) | PMI can be removed after meeting cancellation requirements |
Conventional PMI is not a fixed national amount, so those $260/$140 figures should be presented as illustrative assumptions, not as universal PMI prices.
Illustrative assumptions: FHA calculations include the 1.75% upfront MIP financed into the loan. FHA annual MIP is based on the applicable HUD schedule. Conventional PMI amounts and interest rates are hypothetical examples and vary by lender, credit profile, LTV and other pricing factors. Actual quotes may differ.
Long-term view
Even when FHA is cheaper month-to-month at a given moment, a conventional loan’s PMI removal date usually makes it cheaper over the life of the loan for borrowers with 680+ credit, since FHA’s MIP often continues indefinitely without refinancing. For borrowers with lower scores, FHA is frequently the only realistic path to approval in the first place, making the comparison less about «cheaper» and more about «possible.»
DTI and qualifying differences
- FHA tends to allow higher DTI ratios with strong compensating factors. Check guidelines in Debt-to-Income Ratio for Mortgages: Limits and How to Improve It
- Conventional loans are generally stricter on DTI unless you have a strong credit score and healthy reserves.
- FHA is often more forgiving of past credit events (like an older late payment or a prior bankruptcy that’s been resolved), sometimes allowing approval sooner than conventional guidelines would.
Property and condo differences
- FHA requires the property to meet specific minimum standards, verified through an FHA appraisal, and condos generally need to be on the FHA-approved list.
- Conventional loans have more flexible property requirements in many cases, though condo projects still go through their own review process (sometimes called a «limited» or «full» project review depending on the loan and lender).
- For DC’s many older rowhouses, FHA’s stricter property standards can occasionally require repairs before closing that a conventional appraisal might not flag the same way.
How to decide which fits you
Lean FHA if:
- Your credit score is below 680.
- You have limited savings and need the lowest possible down payment combined with more flexible qualifying.
- You’re comfortable with the idea of refinancing later to remove mortgage insurance once your credit and equity improve.
Lean conventional if:
- Your credit score is 680 or higher.
- You can put down at least 5%, ideally with a plan to reach 20% equity within a reasonable timeframe.
- You’re buying a condo in a building that isn’t FHA-approved.
- You want the option to remove mortgage insurance without refinancing.
Get both quotes regardless. The only reliable way to know which is cheaper for your specific situation is to ask a lender to run real numbers for both, using your actual credit score, target home price and down payment.
Next steps
- Check your credit score to see which pricing tier you likely fall into in Minimum Credit Score to Buy a Home in DC by Loan Type.
- Ask at least one lender for side-by-side FHA and conventional quotes at your target price and down payment.
- If you’re near the 680 credit threshold, consider whether a short credit-improvement effort could shift which loan is cheaper for you. [Link: Minimum Credit Score to Buy a Home in DC by Loan Type]
- Factor in your plans to refinance or stay long-term, since that changes which loan’s insurance structure costs less overall.
Frequently asked questions
Is FHA always cheaper than conventional for first-time buyers? No. It depends heavily on your credit score. FHA is often cheaper or more accessible for borrowers with lower scores, while conventional loans are frequently cheaper for borrowers with scores of 680 and above.
Can I switch from FHA to conventional later? Yes, through refinancing, once you’ve built enough equity and your credit has improved. This is a common strategy for removing FHA’s long-term mortgage insurance.
Does FHA allow a lower down payment than conventional? Sometimes, but not always. Some conventional first-time buyer programs allow down payments as low as 3%, which is actually lower than FHA’s 3.5% minimum. Compare specific program terms rather than assuming FHA always requires less down.
Which loan is easier to qualify for with a high DTI? FHA generally allows higher DTI ratios with strong compensating factors, making it often easier to qualify for buyers carrying more existing debt.
Do I have to use FHA if I have a lower credit score? Not necessarily. Some conventional lenders do approve loans with scores in the 620s, though usually at less favorable pricing than a borrower with FHA and the same score would see. Getting quotes for both is the only way to know for certain.
Disclosure: This article is for educational purposes and isn’t financial advice. Rates, mortgage insurance costs and loan guidelines vary by lender and change over time; confirm current figures with a licensed lender before making decisions.