FHA vs Conventional vs VA vs USDA: Which Loan is Right for You

The Four Main Loan Types

When buying a home, most borrowers choose from four loan programs: Conventional, FHA, VA, and USDA. Each has different requirements for credit score, down payment, and mortgage insurance. Choosing the right one can save you tens of thousands of dollars over the life of your loan.

Conventional loans are the most common, backed by private lenders. FHA loans are insured by the Federal Housing Administration. VA loans are guaranteed by the Department of Veterans Affairs. USDA loans are backed by the US Department of Agriculture for rural properties.

Conventional Loans

Best for borrowers with good credit (680+) and at least 5% down. Conventional loans offer the most flexibility and lowest long-term costs for qualified buyers.

Down payment: As low as 3% for first-time buyers, 5% standard. PMI required below 20% down but can be removed once you reach 20% equity. Credit score: 620 minimum, but 740+ gets the best rates. Loan limits: $766,550 in most areas for 2026.

The big advantage of conventional loans is that PMI goes away. With FHA loans, mortgage insurance lasts the entire loan. A conventional borrower who puts 10% down and reaches 20% equity in 5-7 years saves thousands by dropping PMI.

FHA Loans

Best for borrowers with lower credit scores (580+) or smaller down payments. FHA loans are more forgiving on credit but come with permanent mortgage insurance.

Down payment: 3.5% with 580+ credit score, 10% with 500-579. Mortgage insurance: 1.75% upfront plus 0.55% annually for the life of the loan if you put less than 10% down. Credit score: 580 for 3.5% down, 500 for 10% down. Loan limits: $498,257 in most areas.

The catch: FHA mortgage insurance never goes away unless you refinance into a conventional loan. On a $300,000 loan, that is an extra $1,650 per year for 30 years — over $49,500 total. Many buyers start with FHA then refinance to conventional once their credit and equity improve.

VA Loans

Best for veterans, active-duty military, and eligible surviving spouses. VA loans are arguably the best mortgage product available with zero down payment and no mortgage insurance.

Down payment: 0% — no down payment required. Mortgage insurance: None. Instead, a one-time funding fee of 1.25-3.3% can be rolled into the loan. Credit score: No official VA minimum, but most lenders require 620+. Loan limits: No limit for borrowers with full entitlement.

VA loans also typically offer the lowest interest rates of any loan type. The only downside is the funding fee, which ranges from 1.25% for first-time use with 10%+ down to 3.3% for subsequent use with no down payment. Disabled veterans are exempt from the funding fee entirely.

USDA Loans

Best for moderate-income buyers in eligible rural and suburban areas. Like VA loans, USDA requires zero down payment.

Down payment: 0%. Mortgage insurance: 1% upfront plus 0.35% annually — the lowest of any government loan. Credit score: 640 recommended. Income limits: Generally 115% of area median income. Location: Must be in a USDA-eligible area.

Many buyers are surprised to learn that USDA-eligible areas include suburbs and small towns near major cities, not just farmland. Check the USDA eligibility map before assuming you do not qualify.

Which Loan Should You Choose

If you are a veteran or active military: VA loan is almost always the best choice. Zero down, no PMI, lowest rates.

If you have 20% down and 740+ credit: Conventional loan gives you the best rate with no PMI from day one.

If you have 5-19% down and 680+ credit: Conventional loan with PMI that drops off when you hit 20% equity.

If you have below 680 credit or minimal savings: FHA loan gets you in the door, plan to refinance to conventional in 2-3 years.

If you are buying in a rural or suburban area with moderate income: USDA loan offers zero down with the lowest mortgage insurance rates.