Conventional, FHA, VA, USDA: A Plain-English Guide to Mortgage Loan Types
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In this article
A side-by-side look at the most common mortgage programs, who qualifies, and what each one costs over the life of the loan.
Key Takeaways
- Conventional loans offer flexibility but typically require stronger credit and a larger down payment.
- FHA loans help buyers with lower credit scores qualify, though mortgage insurance costs can add up significantly.
- VA loans are exclusively for eligible veterans and active-duty service members, often with no down payment required.
- USDA loans serve rural and suburban buyers who meet income limits and geographic eligibility requirements.
- Each loan type carries distinct costs, eligibility rules, and long-term financial implications.
What Separates These Four Loan Programs
Before comparing terms, it helps to understand the structural difference between these programs. Conventional loans are not backed by the federal government — they're issued by private lenders and must conform to guidelines set by Fannie Mae or Freddie Mac, the government-sponsored enterprises that purchase most mortgages on the secondary market. The other three programs are government-backed, meaning the federal agency (FHA, VA, or USDA) insures or guarantees the loan, reducing the lender's risk and allowing more flexible qualifying terms.
That government backing is a double-edged sword: it opens homeownership to more buyers, but usually comes with mandatory fees — such as mortgage insurance premiums or guarantee fees — that increase your total loan cost. For a full walkthrough of every stage in the buying process, see The Home-Buying Process, Start to Finish.
| Conventional | FHA | VA | USDA | |
|---|---|---|---|---|
| Government Backing | None | FHA (HUD) | Dept. of Veterans Affairs | Dept. of Agriculture |
| Minimum Down Payment | 3%–5% (typical) | 3.5% (580+ score) | 0% | 0% |
| Minimum Credit Score | 620 (typical) | 500–580 (varies) | None set by VA | 640 (typical) |
| Mortgage Insurance | PMI; cancellable at 20% equity | MIP; often life-of-loan | None | Annual fee 0.35% |
| Eligibility Restriction | Open to all | Open to all | Military/veterans only | Rural/income limits |
| Upfront Fee | None standard | 1.75% MIP | Funding fee (varies) | 1% guarantee fee |
Eligibility Requirements at a Glance
Conventional: Most lenders require a minimum credit score of 620, though scores above 740 unlock the best rates. Down payments can be as low as 3% for first-time buyers through specific programs, but anything under 20% triggers private mortgage insurance (PMI). Debt-to-income (DTI) ratios are generally capped around 45–50%.
FHA: Borrowers with credit scores as low as 580 can qualify with a 3.5% down payment; scores between 500–579 require 10% down. There's no hard DTI cap, but lenders typically look for ratios below 57%. FHA loans require both an upfront mortgage insurance premium (currently 1.75% of the loan amount) and an annual premium spread across monthly payments. Misconceptions about credit thresholds often keep eligible buyers away — see Common Myths About Credit Scores and Mortgage Eligibility for clarity.
VA: Restricted to veterans, active-duty service members, National Guard members, reservists, and eligible surviving spouses with a valid Certificate of Eligibility (COE). The VA sets no minimum credit score, though individual lenders typically impose their own floor around 580–620. No down payment is required, and there's no ongoing mortgage insurance — only a one-time funding fee that varies based on service type and down payment amount.
USDA: Buyers must purchase in a USDA-designated rural or eligible suburban area and meet household income limits, which are set at 115% of the area median income. A minimum score around 640 is typically expected by lenders, though the USDA program itself doesn't mandate one. USDA loans carry both an upfront guarantee fee (1%) and an annual fee (0.35% of the remaining balance).
Get Pre-Qualified for Multiple Loan Types
Before settling on a loan program, ask your lender to show you side-by-side estimates for each loan type you may qualify for. The difference in monthly payment and total interest paid can be substantial. Reviewing key mortgage terminology beforehand will help you read and compare loan estimates more effectively.
Long-Term Cost Considerations
Mortgage insurance is one of the most significant cost differences across these programs. With a conventional loan, PMI is cancellable once you reach 20% equity — by law, lenders must remove it automatically at 22% equity. FHA annual premiums, however, cannot be canceled on loans originated with less than 10% down; borrowers are locked in for the life of the loan unless they refinance.
VA loans eliminate ongoing insurance costs entirely, which can translate to hundreds of dollars in monthly savings compared to FHA. USDA's annual fee of 0.35% is lower than FHA's typical annual premium and remains for the life of the loan, but the lower purchase prices common in rural areas often offset this.
Watch for "Low Down Payment" Fine Print
A smaller down payment reduces your upfront cash requirement but increases your loan balance, monthly payment, and — for FHA loans — your total mortgage insurance costs. On a 30-year FHA loan with 3.5% down, you may pay tens of thousands in insurance premiums that cannot be canceled. Run the full amortization numbers, not just the monthly payment, before deciding.
Loan limits also matter. Conventional conforming loans have annual loan limits set by the Federal Housing Finance Agency (FHFA), which adjusts them periodically. FHA limits vary by county. VA loans removed their loan limits for eligible borrowers with full entitlement. USDA loans are constrained by income limits rather than strict loan caps. Once you understand the loan type that fits your profile, reviewing how rate structure affects long-term cost is equally important — see Fixed-Rate vs. Adjustable-Rate Mortgages for a detailed comparison.
This article is for general informational purposes only and does not constitute personalized financial or mortgage advice. Loan terms, eligibility requirements, and fees are subject to change. Consult a licensed mortgage professional or HUD-approved housing counselor for guidance specific to your financial situation.
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Real Estate Editorial Team
Real Estate Editorial Team is the collective byline for our editorial team and contributor network. Articles published under this byline or an editorial pen name are researched, written, and reviewed according to our editorial standards for clarity, consistency, and independence before publication.
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