If you're buying your first home in DC, you'll likely choose between an FHA loan and a conventional loan. Both work for first-time buyers, both can be combined with DC assistance programs, and both have trade-offs worth understanding before you decide.
Side-by-Side Comparison
| Feature | FHA Loan | Conventional Loan |
|---|---|---|
| Minimum down payment | 3.5% | 3% |
| Minimum credit score | 580 (3.5% down) | 620 |
| Mortgage insurance | MIP for life of loan | PMI until 20% equity |
| Loan limit (DC, 2026) | $1,249,125 | $1,249,125 (conforming ceiling) |
| Seller concessions | Up to 6% | Up to 3-9% (varies by LTV) |
| Property requirements | Must meet FHA standards | Less restrictive |
| Condo requirements | Building must be FHA-approved | Must be warrantable |
| DTI limit | Up to 50% (with compensating factors) | Up to 45-50% |
FHA Loan: The Details
Advantages
Lower credit threshold: FHA accepts scores as low as 580 with 3.5% down (and even 500 with 10% down). If your credit is fair rather than good, FHA gives you more options.
Higher DTI allowance: FHA can approve debt-to-income ratios up to 50% with compensating factors (strong reserves, minimal payment shock, etc.). This helps buyers with student loans or other debts.
Easier qualification: FHA underwriting is generally more forgiving of credit blemishes, shorter credit history, or non-traditional credit.
Seller concessions: Sellers can contribute up to 6% of the purchase price toward your closing costs. On a $450,000 purchase, that's $27,000.
Disadvantages
Mortgage insurance for life: FHA charges an upfront mortgage insurance premium (1.75% of the loan, rolled into the balance) plus an annual premium (0.55% of the loan, paid monthly). The annual premium never goes away — you pay it for the life of the loan unless you refinance to a conventional loan.
On a $430,000 FHA loan:
- Upfront MIP: $7,525 (added to loan balance)
- Monthly MIP: ~$197/month — for the life of the loan
Building approval required: For condos, the building must be FHA-approved or qualify for single-unit approval. Many smaller DC buildings, especially older conversions, aren't FHA-approved.
Property standards: FHA appraisals are stricter. The property must meet Minimum Property Standards — issues like peeling paint, broken windows, or faulty systems must be repaired before closing.
Conventional Loan: The Details
Advantages
PMI drops off: Private mortgage insurance (PMI) is required with less than 20% down, but it's automatically canceled once you reach 78% loan-to-value (or you can request cancellation at 80%). FHA's MIP never drops off.
On a $485,000 conventional loan with 3% down:
- Monthly PMI: ~$180-$250/month
- PMI drops off after ~8-10 years of payments (or sooner with appreciation)
- Lifetime savings vs. FHA MIP: $20,000-$40,000+
More condo options: Conventional loans only require warrantability (Fannie Mae/Freddie Mac guidelines), not FHA building approval. Many DC condos are warrantable but not FHA-approved, giving conventional buyers a larger pool of properties.
Less restrictive appraisal: Conventional appraisals focus primarily on value, not property condition. Minor issues that would flag on an FHA appraisal often pass conventional review.
Lower total cost over time: The combination of PMI cancellation and no upfront mortgage insurance makes conventional loans cheaper over the life of the loan for most borrowers.
Disadvantages
Higher credit requirement: Minimum 620, with the best rates at 740+. Borrowers in the 620-679 range will pay significantly higher rates.
Stricter at lower scores: While FHA treats a 620 score fairly well, conventional loans with a 620 score carry much higher mortgage insurance costs and interest rates.
How They Compare in DC
For a $450,000 DC Condo Purchase
FHA (3.5% down, 660 credit score)
| Component | Monthly |
|---|---|
| Down payment | $15,750 |
| Loan amount | $434,250 + $7,599 MIP = $441,849 |
| P&I (6.5%) | $2,793 |
| MIP | $203 |
| Property tax | $260 |
| HOA dues | $400 |
| Insurance | $30 |
| Total monthly | $3,686 |
Conventional (3% down, 660 credit score)
| Component | Monthly |
|---|---|
| Down payment | $13,500 |
| Loan amount | $436,500 |
| P&I (6.75%) | $2,830 |
| PMI | $240 |
| Property tax | $260 |
| HOA dues | $400 |
| Insurance | $30 |
| Total monthly | $3,760 |
At a 660 score, FHA is $74/month cheaper initially. But the conventional PMI drops off while FHA MIP doesn't — making conventional cheaper over time.
The Breakeven Point
For most DC buyers, conventional becomes the better deal after 5-8 years. If you plan to stay longer than that (or if your score is 700+, where conventional rates are significantly better), conventional wins.
When to Choose FHA
- Your credit score is below 680
- You have a high DTI ratio (45-50%)
- You want maximum seller concessions (6% vs 3%)
- You plan to refinance within a few years anyway
- The building is FHA-approved and you need the lowest possible down payment
When to Choose Conventional
- Your credit score is 700+
- You want PMI to eventually drop off
- You're buying in a non-FHA-approved building
- You plan to stay for 5+ years
- You want to avoid the upfront MIP fee
- You're buying a rowhouse or property with minor condition issues that might fail FHA inspection
The "Start FHA, Refinance to Conventional" Strategy
Some DC buyers use FHA to get in the door — especially if their credit score is lower or they need the higher DTI allowance — and refinance to a conventional loan after 1-2 years once they've:
- Improved their credit score
- Built some equity
- Stabilized their finances
This works but has costs: refinancing involves new closing costs ($3,000-$8,000 in DC — though recordation tax isn't one of them, since DC fully exempts residential refinances with a one-page affidavit filed at closing). Run the numbers to make sure the savings from dropping MIP outweigh the refinance costs.
Both Work with DC Programs
Good news: both FHA and conventional loans work with DC's first-time buyer assistance programs:
- HPAP: Compatible with both
- DC Open Doors: Available through participating lenders for both
- Reduced recordation tax: Applies regardless of loan type
- Homestead deduction: Applies to all owner-occupied properties
The loan type doesn't limit your access to assistance — it affects your interest rate, insurance costs, and available properties. Choose based on your credit profile, timeline, and the specific property you want to buy.
Ready to take the next step? See our first-time DC buyer guide or get pre-qualified — two minutes, no credit pull.
