Conventional vs FHA vs VA vs USDA Loans: Which Mortgage Is Right for You?
Four main mortgage types, four very different situations. Here's an honest breakdown of who each loan type is actually designed for — and the trade-offs that matter.
When you apply for a mortgage, you're not just applying for a loan amount — you're choosing a loan type. The four main mortgage types (conventional, FHA, VA, and USDA) have different down payment requirements, credit score minimums, insurance costs, and eligibility rules. Picking the right one matters both for qualification and for how much you pay over the life of the loan.
Quick verdict:
- Conventional: Best for buyers with 5–20%+ down and a credit score above 680
- FHA: Best for buyers with lower credit scores or who can only put 3.5–10% down
- VA: Best for eligible veterans and service members — often the best loan available, zero down payment required
- USDA: Best for buyers in eligible rural/suburban areas with moderate income
Conventional Loans
What They Are
Conventional loans are not backed by the federal government. They're funded by private lenders and typically sold to Fannie Mae or Freddie Mac, which means they follow their "conforming loan" guidelines.
Requirements
- Minimum credit score: 620 (lenders often prefer 680+)
- Minimum down payment: 3% (for first-time buyers on certain programs) or 5% standard
- DTI limit: Typically 43–45%
- Loan limits: $806,500 in most areas (2026), higher in high-cost areas
Mortgage Insurance
Private Mortgage Insurance (PMI) is required with less than 20% down. PMI costs 0.2–2% of the loan amount annually — typically $100–400/month. It automatically cancels at 20% equity.
Best For
Buyers with good credit and a reasonable down payment. At 20% down and a 720+ credit score, you'll get the best rate tier and no mortgage insurance. As credit scores drop or down payment decreases, conventional loans become less advantageous relative to FHA.
The crossover point is roughly a 680 credit score and 10% down — below this, FHA often wins on total cost.
FHA Loans
What They Are
FHA loans are backed by the Federal Housing Administration. Because the government insures the lender against default, FHA loans have more flexible qualification requirements than conventional.
Requirements
- Minimum credit score: 580 for 3.5% down; 500–579 for 10% down
- Minimum down payment: 3.5% (with 580+ credit score)
- DTI limit: Up to 57% in some cases (more flexible than conventional)
- Loan limits: $524,225 in most areas (2026), higher in high-cost markets
Mortgage Insurance
FHA requires two types of mortgage insurance:
- Upfront MIP: 1.75% of the loan amount, paid at closing (can be rolled into the loan)
- Annual MIP: 0.55% of the loan amount per year (for most loans), divided across monthly payments
The critical difference from PMI: FHA MIP does not cancel automatically for loans with less than 10% down. You pay it for the life of the loan. On a 10%+ down payment, MIP cancels at 11 years.
This makes FHA loans expensive over the long term for buyers who put less than 10% down. Many buyers start with FHA and refinance into a conventional loan once they've built 20% equity.
Best For
- Buyers with credit scores in the 580–680 range where conventional loans are either unavailable or significantly more expensive
- Buyers who can only afford 3.5% down
- Buyers with higher DTI ratios that conventional lenders won't accommodate
The FHA MIP Math
On a $350,000 FHA loan with 3.5% down:
- Upfront MIP: $5,951 (financed into loan)
- Annual MIP: ~$1,732/year ($144/month)
If you put 3.5% down, you pay that $144/month forever (until you refinance or sell). Over 10 years, that's $17,000+ in mortgage insurance. This cost is real and should be part of your calculation.
VA Loans
What They Are
VA loans are guaranteed by the Department of Veterans Affairs and available to eligible active duty service members, veterans, and surviving spouses.
Requirements
- Eligibility: Active duty service members, veterans with honorable discharge, National Guard/Reserve members with certain service requirements, and surviving spouses of service members who died in service or from service-related disability
- Minimum credit score: No VA minimum, but most lenders require 620+
- Down payment: 0% required (no down payment needed)
- DTI limit: Flexible; VA uses a residual income test in addition to DTI
Mortgage Insurance
None. VA loans charge a one-time funding fee (1.25–3.3% of the loan amount, depending on service type and down payment) but no monthly mortgage insurance. The funding fee can be waived for veterans with a service-connected disability rating.
Best For
Any eligible veteran or service member. VA loans are typically the best mortgage available to those who qualify:
- Zero down payment with no monthly PMI
- Competitive interest rates (often lower than conventional)
- No prepayment penalties
- Assumable by subsequent buyers (a meaningful benefit if rates rise significantly)
- Foreclosure assistance programs if you face financial hardship
If you're eligible, there's almost no scenario where a conventional or FHA loan beats a VA loan.
Using VA Loan Benefits More Than Once
Your VA loan entitlement can be restored after paying off a VA loan (selling the home or refinancing to conventional). You can also have multiple VA loans simultaneously in some circumstances. Talk to a VA-approved lender about your specific entitlement situation.
USDA Loans
What They Are
USDA loans are guaranteed by the U.S. Department of Agriculture. Despite the name, they're not just for farms — they're designed for moderate-income buyers in eligible rural and suburban areas.
Requirements
- Location: The property must be in a USDA-eligible area. Use the USDA eligibility map at eligibility.sc.egov.usda.gov to check. Many suburban areas qualify — the geographic footprint is larger than most people expect.
- Income limits: Generally cannot exceed 115% of the area median income. Limits vary by location and household size.
- Credit score: Typically 640+ for streamlined processing
- Down payment: 0% required
Mortgage Insurance
- Upfront guarantee fee: 1% of the loan amount (can be rolled in)
- Annual fee: 0.35% of the remaining loan balance per year
The USDA guarantee fees are lower than FHA MIP, and the annual fee does decline as you pay down the loan. However, like FHA, it doesn't cancel automatically — you'd need to refinance once you reach 20% equity.
Best For
Moderate-income buyers purchasing in eligible rural or suburban areas who don't have a down payment saved. In eligible areas, USDA is often a strong alternative to FHA — lower insurance costs and zero down payment.
Side-by-Side Comparison
| Conventional | FHA | VA | USDA | |
|---|---|---|---|---|
| Minimum down payment | 3–5% | 3.5% | 0% | 0% |
| Minimum credit score | 620 | 580 | None (620 typical) | 640 |
| Monthly mortgage insurance | PMI (until 20% equity) | MIP (life of loan if less than 10% down) | None | 0.35%/year |
| Upfront insurance | None | 1.75% | Funding fee (1.25–3.3%) | 1% guarantee fee |
| Loan limits | $806,500 (standard) | $524,225 (standard) | None | Varies by area |
| Eligibility | General public | General public | Military/veterans | Rural areas + income limits |
How to Choose
If you're a veteran or active duty: VA loan, full stop. Investigate your eligibility and start there.
If you're in a rural/suburban USDA-eligible area with moderate income: Compare USDA vs. FHA vs. conventional based on your credit and down payment.
If you have strong credit (680+) and 10–20% down: Conventional is likely your best option.
If you have lower credit (580–680) or only 3.5% down: FHA is usually the path.
If you're between conventional and FHA: Get quotes for both and compare the total monthly cost including all insurance. As credit improves and you build equity, you can refinance from FHA to conventional.
Related reading:
Free Weekly Newsletter
One money tip a week. No fluff.
Join readers who get our best personal finance guides and tool recommendations.
No spam. Unsubscribe any time.