When most first-time buyers hear the word “mortgage,” they think of one type of loan. In reality, there are four major government-backed and conventional loan programs available to US buyers, and choosing the wrong one can cost you thousands of dollars in unnecessary fees, a higher interest rate, or a larger down payment than you actually needed to make.
The four programs (Conventional, FHA, VA, and USDA) each serve a different buyer profile. They have different down payment requirements, different credit score thresholds, different mortgage insurance structures, and different eligibility rules. Some buyers qualify for multiple programs and genuinely need to compare them. Others have one clear best option based on their situation.
This article covers each program in depth: what it is, who qualifies, what it costs, and who it’s best for. Then it gives you a direct comparison across the factors that actually matter for your decision.
The Four Loan Programs at a Glance
Before diving into each program individually, here’s the landscape. The US mortgage market has four major loan types that most buyers will consider. Each exists for a specific reason: conventional is the standard private-market option, while FHA, VA, and USDA are government-backed programs designed to expand homeownership access to specific groups of buyers.
The right program isn’t necessarily the most popular one. It’s the one that matches your eligibility, minimises your upfront and ongoing costs, and fits the home you’re buying. For eligible veterans, VA almost always wins. For rural buyers, USDA can be surprisingly powerful. For most other buyers, the choice comes down to conventional vs FHA based on credit score and down payment.
Conventional Loans: The Standard Option
Conventional loans are not insured by the federal government. They’re originated by private lenders and typically sold to Fannie Mae or Freddie Mac, which sets the underwriting standards. Because there’s no government guarantee, lenders take on more risk, which is why conventional loans have stricter credit and DTI requirements than government-backed alternatives.
Despite the stricter requirements, conventional loans are the most flexible in terms of property types, loan amounts, and long-term cost for borrowers with strong profiles. PMI is required with less than 20% down, but it can be cancelled once you reach 20% equity. FHA mortgage insurance, by contrast, is often permanent.
Key requirements
- Minimum credit score: 620 (though 660+ gets meaningfully better rates)
- Minimum down payment: 3% (HomeReady, Home Possible programs); standard is 5–20%
- Maximum back-end DTI: 43–45% (automated underwriting can push higher)
- Loan limits: $806,500 in most counties in 2025 (higher in high-cost areas)
- Property types: Primary homes, second homes, investment properties
- PMI: Required below 20% down; cancellable at 20% equity
- PMI cancellable at 20% equity
- No upfront mortgage insurance fee
- Works for second homes and investment properties
- Lower total cost for borrowers with 700+ score
- More flexible on property condition
- Stricter credit requirements (620+ minimum)
- Higher rates for lower credit scores
- PMI rates vary significantly by lender
- Stricter DTI limits than FHA
FHA Loans: The Flexible Entry Point
FHA loans are insured by the Federal Housing Administration, a division of HUD. Because the government covers the lender’s risk if you default, lenders can offer more flexible terms: lower credit score minimums, higher allowable DTI ratios, and smaller down payments than conventional loans require.
The tradeoff is mortgage insurance. FHA loans require both an upfront mortgage insurance premium (UFMIP) of 1.75% of the loan amount paid at closing, and an annual mortgage insurance premium (MIP) paid monthly. On most FHA loans originated after June 2013 with less than 10% down, the MIP lasts for the life of the loan. This is the single biggest financial drawback of FHA for buyers who plan to stay long-term.
Key requirements
- Minimum credit score: 580 for 3.5% down; 500–579 requires 10% down
- Minimum down payment: 3.5% with 580+ score
- Maximum back-end DTI: 43–50% (with compensating factors)
- Loan limits: $524,225 in most counties in 2025 (lower than conventional)
- Property types: Primary residence only
- Upfront MIP: 1.75% of loan amount (can be rolled into loan)
- Annual MIP: 0.55–1.05% of loan balance annually, often for the life of the loan
- Lower credit score minimum (580)
- Higher DTI tolerance (up to 50%)
- Only 3.5% down required
- More forgiving on recent credit events
- Gift funds accepted for full down payment
- MIP lasts the life of the loan (under 10% down)
- Upfront 1.75% MIP at closing
- Primary residence only
- Lower loan limits than conventional
- Stricter property condition requirements
VA Loans: The Best Deal in Mortgage Lending
VA loans are, for eligible borrowers, the most advantageous mortgage product available in the US market. No down payment required. No private mortgage insurance. Competitive rates. Higher DTI tolerance. These features combine to make VA loans significantly cheaper, both upfront and monthly, than any other loan program for the same buyer.
The VA doesn’t lend money directly. It guarantees a portion of the loan made by private lenders, which is what allows lenders to offer these terms without PMI or a required down payment. The guarantee is the benefit earned through military service.
Eligibility requirements
- Active duty service members: 90 continuous days of active duty
- Veterans: 181 days during peacetime, 90 days during wartime
- National Guard / Reserves: 6 years of service, or 90 days active duty under Title 32
- Surviving spouses: Of service members who died in the line of duty or from service-connected disability
Key requirements
- Minimum credit score: No official VA minimum; lenders typically require 620
- Minimum down payment: 0% (no down payment required)
- Back-end DTI: 41% preferred; residual income test may allow higher
- Funding fee: 1.25–3.3% of loan amount (waived for disability-rated veterans)
- Property types: Primary residence only
- Mortgage insurance: None, ever
The VA charges a one-time funding fee (1.25–3.3% of the loan amount) that can be rolled into the loan. This replaces the ongoing mortgage insurance that FHA and conventional borrowers pay. For a first-time use with 0% down, the fee is 2.15%, which on a $300,000 loan comes to $6,450 rolled into the loan balance. Compare this to FHA, where the upfront MIP is 1.75% plus ongoing monthly MIP for the life of the loan. For most VA buyers, the funding fee is dramatically cheaper over time than either alternative. Veterans with a service-connected disability rating of 10% or more have the funding fee waived entirely.
- Zero down payment required
- No mortgage insurance ever
- Competitive interest rates
- Higher DTI tolerance (residual income test)
- Funding fee waived for disabled veterans
- No prepayment penalty
- Eligibility required; not available to all buyers
- One-time funding fee (can be rolled in)
- Primary residence only
- Some sellers unfamiliar with VA appraisal requirements
USDA Loans: The Hidden Zero-Down Option
USDA loans are one of the least-known mortgage programs in the US, which is a shame because they offer zero down payment and below-market rates to eligible buyers. The catch is that both the property and the buyer must meet eligibility criteria, and many buyers are surprised to discover that USDA-eligible areas include not just farmland but large suburban areas around major cities.
The USDA’s definition of “rural” is broader than most people assume. Around 97% of the US land area is technically USDA-eligible, and approximately 35% of the US population lives in USDA-eligible areas. The USDA eligibility map is the first thing to check if you’re buying outside a major urban core.
Key requirements
- Property location: Must be in a USDA-designated eligible area (check usda.gov eligibility map)
- Income limit: Household income cannot exceed 115% of the area median income (AMI)
- Minimum credit score: No official minimum; lenders typically require 640
- Minimum down payment: 0%
- Maximum back-end DTI: 41% (some flexibility with strong compensating factors)
- Guarantee fee: 1% upfront + 0.35% annual fee (much lower than FHA MIP)
- Property types: Primary residence only; must be modest in size
- Zero down payment
- Below-market interest rates
- Annual fee much lower than FHA MIP
- Available to non-veterans
- Can roll guarantee fee into loan
- Property must be in eligible area
- Income limits apply
- Primary residence only
- Slower processing than conventional
- Home must be modest; no luxury properties
Side-by-Side Comparison: All Four Programs
Here’s every major factor compared directly across all four loan programs.
| Factor | Conventional | FHA | VA | USDA |
|---|---|---|---|---|
| Min down payment | 3–5% | 3.5% | 0% | 0% |
| Min credit score | 620 | 580 (500 w/ 10% down) | 620 (lender) | 640 (lender) |
| Max back-end DTI | 43–45% | 43–50% | 41% (residual) | 41% |
| Mortgage insurance | PMI, cancellable at 20% equity | MIP, often permanent | None ✅ | Annual fee (0.35%) |
| Upfront fee | None | 1.75% UFMIP | 1.25–3.3% funding fee | 1% guarantee fee |
| Property types | Primary, 2nd, investment | Primary only | Primary only | Primary only |
| Eligibility restriction | None | None | Military service | Location + income |
| Loan limit (2025) | $806,500 most areas | $524,225 most areas | No limit (with full entitlement) | Area-based limits |
See Your Monthly Payment Under Any Loan Program
Enter your home price, down payment, and interest rate. The mortgage calculator shows your full monthly payment including PMI, taxes, and insurance for any loan type side by side.
Calculate My Payment →The Mortgage Insurance Question
Mortgage insurance is one of the most important, and most misunderstood, cost differences between loan programs. It’s worth understanding clearly because the wrong choice can cost you $30,000–$50,000 over the life of a loan.
Conventional PMI: the cancellable option
Private mortgage insurance on conventional loans is typically 0.5–1.5% of the loan amount annually, paid monthly. On a $260,000 loan at 1%, that’s $217/month. But here’s what matters: once your loan balance reaches 80% of the original purchase price (i.e., you have 20% equity), you can request PMI cancellation. Lenders are required by law to automatically cancel it at 78% LTV. The PMI burden is finite and predictable.
FHA MIP: the long-term cost trap
FHA mortgage insurance has two components. The upfront MIP is 1.75% of the loan amount paid at closing (or rolled into the loan). The annual MIP is 0.55–1.05% of the outstanding balance paid monthly. On most FHA loans with less than 10% down originated after June 2013, the annual MIP lasts for the entire loan term, all 30 years. It never cancels based on equity. The only way to eliminate FHA MIP is to refinance into a conventional loan once you have sufficient equity and improved credit.
$280,000 loan, 5% down, 680 credit score
Conventional PMI: ~$175/month, cancels at year 8–9 when 20% equity is reached. Total PMI paid: ~$18,900
FHA MIP: $4,550 upfront + ~$128/month ongoing for 30 years. Total MIP cost: ~$50,650
Difference over 10 years: ~$16,000 in favour of conventional. This is why borrowers with 680+ scores who can qualify for conventional should generally avoid FHA.
VA and USDA: the alternatives
VA loans have no ongoing mortgage insurance whatsoever, making them the cheapest long-term option for eligible buyers. USDA charges a 0.35% annual guarantee fee on the outstanding balance, which is much lower than FHA MIP and cheaper than conventional PMI on smaller down payments.
Which Loan Is Right for You?
The decision tree is actually simpler than most buyers think once you apply it to your specific situation.
Step 1: Check VA eligibility first
If you or your spouse have qualifying military service, check VA eligibility before considering any other program. If you’re eligible, VA wins in almost every scenario: zero down, no PMI, competitive rates. The only exception is if you’re buying an investment property or second home, where VA doesn’t apply.
Step 2: Check USDA property eligibility
If you’re not VA-eligible, check whether your target property is in a USDA-eligible area at usda.gov. If it is and your household income is under the area limit, USDA is typically better than FHA: zero down, lower ongoing fees, and competitive rates.
Step 3: Conventional vs FHA
For buyers who don’t qualify for VA or USDA, the choice comes down to credit score and down payment:
| Your Situation | Recommended Program | Reason |
|---|---|---|
| Credit 700+, 10%+ down | Conventional | Lower total cost, PMI cancellable |
| Credit 680–699, 5%+ down | Conventional (borderline) | Slightly better long-term than FHA |
| Credit 620–679, any down payment | FHA | Better rates and terms at this score range |
| Credit 580–619, 3.5% down | FHA | FHA is the only realistic option |
| High DTI (43–50%), moderate credit | FHA | FHA allows higher DTI limits |
| Buying in rural/suburban area | USDA (if eligible) | Zero down, lower fees than FHA |
| Military/veteran buyer | VA | Best overall terms available |
Real Buyer Scenarios
Abstract comparisons only go so far. Here’s how the loan program decision plays out for four realistic buyers.
Profile: $72,000 income, 710 credit score, $18,000 saved, $400 monthly debts, buying in Columbus, OH at $280,000
Down payment available: ~6.4% ($18,000 after closing cost reserve)
Best option: Conventional. With 710 credit, they get competitive conventional rates. PMI will cancel in 7–8 years. Total cost is lower than FHA over any hold period above 5 years. DTI ratio with $400 existing debt is manageable.
Profile: $68,000 income, 635 credit score, $12,000 saved, $900 monthly debts (car + student loans), buying in Phoenix at $310,000
Down payment available: ~3.5% ($10,850)
Best option: FHA. At 635 credit, conventional rates are punitive. FHA’s 50% DTI allowance accommodates the $900 existing debt load. The MIP cost is real but this buyer may refinance to conventional in 3–5 years once credit improves and equity builds.
Profile: $85,000 income, 680 credit score, $15,000 saved, $500 monthly debts, veteran with VA eligibility, buying near Nashville at $350,000
Best option: VA, no question. Zero down payment, no PMI ever, competitive rate. The 2.15% funding fee ($7,525 rolled into the loan) is far cheaper over any hold period than either PMI or FHA MIP. The saved $15,000 stays as an emergency reserve.
Profile: $58,000 income, 655 credit score, $8,000 saved, $350 monthly debts, buying in a suburb of Memphis at $215,000 (USDA-eligible area)
Best option: USDA. Zero down, annual guarantee fee of only 0.35% (~$62/month), and income is under the area limit. Compare to FHA: 3.5% down ($7,525) + 1.75% UFMIP + ongoing 0.55% annual MIP. USDA saves this buyer both the down payment and significantly on insurance costs.
Calculate Your Payment Under Any Loan Type
Enter your loan details and see your full monthly payment (principal, interest, taxes, insurance, and PMI) for conventional, FHA, or any other loan program you’re considering.
Run My Mortgage Calculation →
