Choosing between an FHA and a conventional loan is one of the largest money decisions a Virginia buyer or refinancer makes, and the lower advertised rate is often not the cheaper loan. Mortgage insurance, credit-score pricing, closing costs, and how long you keep the loan all change the real cost, and they change it differently for each program. Duane Buziak, NMLS #1110647, compares the two on total cost rather than headline rate. The first step is a soft credit pull, so your score is not affected while you compare. Three terms come up repeatedly: MIP is FHA mortgage insurance, PMI is private mortgage insurance on conventional loans, and LTV is loan-to-value, the loan amount divided by the home’s value.
1. Start with a Soft Credit Pull Before You Compare Anything
A hard inquiry happens when a creditor pulls your report to make a credit decision, and it can lower your score slightly. A soft pull lets a broker see your credit position without that effect. For comparing programs, a soft credit pull mortgage review is enough to price both loan types accurately, because FHA and conventional pricing both depend on your score. Duane Buziak uses the NoTouch Credit Pull, which reads the report without recording a hard inquiry, and the pricing runs on VantageScore 4.0.
For example, imagine a buyer with a 668 score. From one NoTouch Credit PreQual, that buyer receives an FHA estimate and a conventional estimate, and the score is the same afterward as before. Without it, the buyer might apply with three companies to see both programs and collect three hard inquiries before understanding the options.
- Request a free NoTouch Credit PreQual.
- Review which score the pricing used and whether any report errors need correcting first.
- Ask for FHA and conventional quotes side by side, using the same price, down payment, and term.
- Choose your program before any formal application triggers a hard pull.
The common mistake is letting several companies each run a hard pull just to compare programs. Scoring models often group mortgage inquiries made in a short window, but you do not need to test that when a no hard inquiry mortgage pre approval path exists.
What to measure: hard inquiries during the comparison phase (target: zero) and the number of programs quoted (target: at least FHA and conventional, with any special programs you may qualify for).
2. Compare Mortgage Insurance Over the Life of the Loan
The monthly premium is only part of the cost. FHA charges an upfront MIP, currently 1.75% of the base loan as of the most recent HUD schedule I reviewed, plus an annual MIP billed monthly. Conventional PMI has no upfront charge in many cases, and it can be removed. Per HUD Handbook 4000.1, FHA annual MIP lasts for the life of the loan when you put down less than 10%, and for 11 years when you put down 10% or more. Confirm current rates before deciding, since HUD adjusts them.
Here is a labelled illustration. Suppose a $350,000 base loan. Upfront MIP at 1.75% is $6,125, usually financed into the loan. Assume an annual MIP of 0.55%, about $1,925 in year one, or roughly $160 a month, falling slightly as the balance declines. Assume conventional PMI at 0.60%, about $175 a month, which is a hypothetical figure because real PMI depends on score and LTV. Under the FHA loan, insurance costs roughly $19,000 by year 7 and roughly $33,000 by year 15, because it never ends. Under the conventional loan, PMI is roughly $14,700 by year 7 and about $21,500 in total, since it ends near year 10 once the balance reaches 80% of the original value.
- Get written MIP and PMI quotes for the same loan amount.
- Add the upfront MIP to the FHA side.
- Total the cumulative cost at your expected holding period.
- Note when PMI can be removed. The CFPB explains cancellation rights on its homeownership pages.
The common mistake is comparing only the monthly premium while ignoring the upfront MIP and the fact that MIP may never expire. A cheaper monthly insurance line can still be the costlier loan.
What to measure: cumulative insurance dollars paid at 5, 7, and 10 years for each program.
3. Run a Three-Rate Payment Scenario on Both Loan Types
Rates move between quote and lock, and the two programs respond to those moves differently once insurance is added. Building the same table at three rates shows how sensitive each loan is. The figures below are illustrations, not quotes. They use a $350,000 base loan on a 30-year fixed term, with the insurance estimates from strategy 2.
- 6.50%: principal and interest $2,212.24; total interest $446,406. With insurance: FHA about $2,372.66 a month, conventional about $2,387.24.
- 6.75%: principal and interest $2,270.11; total interest $467,240. With insurance: FHA about $2,430.53, conventional about $2,445.11.
- 7.00%: principal and interest $2,328.56; total interest $488,282. With insurance: FHA about $2,488.98, conventional about $2,503.56.
Each quarter point adds roughly $58 a month and about $20,000 in lifetime interest. Taxes and homeowners insurance are left out because they are the same on both sides. One caveat: an FHA loan with financed upfront MIP starts from a larger balance of $356,125, which raises the real principal and interest by about $39 a month at 6.50%.
- Fix the same price, loan amount, and term for both programs.
- Use each program’s actual quoted rate, not a rate you assume.
- Add MIP or PMI, property taxes, and homeowners insurance.
- Compare totals at your expected holding period, not just month one.
The common mistake is putting FHA at one rate beside conventional at another without equalizing the assumptions. That produces a winner created by the spreadsheet, not the loans.
What to measure: total monthly payment and total cost over the years you expect to keep the loan.
4. Use Credit Score Bands to Pick the Likely Winner
Conventional loans are priced with LLPAs, loan-level price adjustments, which are fees built into the rate that grow as scores fall and LTV rises. The grid is published on the Fannie Mae Single-Family site and changes from time to time, so check the current version. FHA does not adjust its MIP by credit score, which is why it tends to look better as scores drop.
For example, imagine two buyers. The first has a 640 score and 5% down. Conventional pricing for that profile carries a heavy LLPA and high PMI, so FHA often comes out ahead. The second has a 760 score and 10% down. That profile gets conventional’s best pricing bands and low PMI, and FHA’s flat mortgage insurance usually cannot compete. These are tendencies, not rules, and the quote decides.
- Pull the current LLPA matrix and find your score and LTV cell.
- Ask for both quotes at your actual score.
- Ask what a 20 to 40 point score improvement would do to conventional pricing.
- Decide whether waiting a few months to improve the score is worth it.
The common mistake is assuming FHA is always better below 700. In some cases a 680 score with a large down payment prices better on conventional. The reverse can also hold: a high score with minimal down payment can still favor FHA.
What to measure: the difference in rate and in monthly insurance cost between the two programs at your score band, and how that difference changes if your score rises.
5. Match Down Payment and Debt-to-Income to Each Program
The cheaper loan on paper is worthless if you cannot qualify for it. DTI, debt-to-income, is your monthly debt payments divided by gross monthly income, and the two programs have different tolerance. FHA allows 3.5% down with a qualifying score and, per HUD Handbook 4000.1, requires 10% down for lower scores. Conventional can be as low as 3% down on some programs, though not for every borrower.
Take an illustration: a borrower with a 47% DTI and 3.5% down. FHA automated underwriting can accept that profile, sometimes with compensating factors such as reserves. The same file is borderline for conventional, where ratios close to 50% leave little room. The borrower needs the FHA path, or needs to pay off debt before applying.
- Calculate DTI using the full proposed payment, including insurance, taxes, and any HOA dues.
- Confirm that gift funds and down payment assistance, including Virginia Housing programs, are allowed under each loan type.
- Request automated underwriting findings for both programs.
- Count cash to close, not just the down payment.
The common mistake is treating 3.5% as the only cash needed. Closing costs, prepaid taxes and insurance, and required reserves can add thousands, and thin reserves can turn an approval into a condition.
What to measure: DTI percentage under each program and total cash to close for each.
6. Test Discount Points With a Real Breakeven Calculation
A discount point costs 1% of the loan amount and lowers the rate by an amount that varies by day and program. The question is whether you will keep the loan long enough to earn the cost back. Illustration: on $350,000, one point costs $3,500. If it moves the rate from 6.75% to 6.50%, the payment falls from $2,270.11 to $2,212.24, a savings of $57.87 a month. Divide $3,500 by $57.87 and you get about 60 months, or five years. Verify these exact figures against your own quote.
Past breakeven, the point pays you back. At 10 years the savings total about $6,944, so a net gain of about $3,444. If you sell or refinance in year three, you lose about $1,764 on the purchase. FHA borrowers should consider this carefully because many plan to refinance into conventional once equity allows dropping MIP.
- Ask for pricing at par, with one point, and with a credit toward closing costs.
- Divide the point cost by the monthly savings.
- Compare the breakeven month to your realistic time in the home.
- Check the credit option too, which raises the rate to offset closing costs and suits shorter horizons.
The common mistake is paying points on a loan you will refinance or sell before breakeven. Be honest about your timeline, not your best-case plan.
What to measure: breakeven month against the number of months you expect to hold the loan.
7. Compare Offers Through a Broker With Access to Hundreds of Wholesale Sources
A single company can only quote what is on its own shelf. A broker can price FHA and conventional across many wholesale sources in one comparison, and that matters because rate, fees, and credit toward closing costs vary between sources on the same day. Duane Buziak shops hundreds of wholesale sources at one time, with a no credit hit mortgage application at the start.
- Single product shelf: one set of rates, one fee schedule, one underwriting view. A borrower sees one FHA price and one conventional price.
- Broker with wholesale access: many rate and fee combinations. A borrower sees the lowest total cost across sources, plus the option to switch programs if a file fits another source better.
- Ask Duane Buziak to quote both programs with itemized fees, credits, and points.
- Compare Loan Estimates line by line, focusing on Section A origination charges and Section J total closing costs.
- Choose the program, and lock when the numbers fit.
- Revisit refinancing once equity allows. FHA borrowers with enough equity can refinance to conventional and drop MIP, and Duane Buziak can plan that timing from the start.
The common mistake is choosing on the lowest advertised rate rather than the Loan Estimate total. A low rate with high fees or points can cost more than a slightly higher rate with credits.
What to measure: APR, total closing costs on the Loan Estimate, and time to close.
Where to Begin When Weighing FHA Against Conventional
Do strategy 1 first. A soft pull gives you accurate pricing for both programs without a score change. Then do strategies 2 and 3, because insurance cost and the three-rate payment table show what each loan truly costs month by month and over years. Use strategies 4 through 7 to refine the choice: score bands, qualifying fit, points, and shopping across wholesale sources. If your timeline is short, the points analysis may matter less than insurance duration.
Get your free NoTouch Credit PreQual today from Powerhouse Mortgages by Duane Buziak. Ready to secure your dream home with Virginia’s most trusted mortgage experts? Discover your buying power without impacting your credit score. Then experience why homebuyers choose our faster close times and access to hundreds of lenders working for you.
