FHA vs VA vs Conventional vs USDA Loans: Which Is Right for You?

When you start researching mortgages as a first-time buyer, four loan types come up constantly — FHA, VA, USDA, and conventional. Each one has different down payment rules, credit score requirements, mortgage insurance costs, and fees. Picking the wrong one doesn't just cost you money upfront; it can add tens of thousands of dollars to the total life-of-loan expense.

This guide breaks down all four side by side so you can match your situation to the right loan type before you ever walk into a lender's office.

The quick summary

Conventional loans

A conventional loan is not backed by a government agency. It follows guidelines set by Fannie Mae and Freddie Mac, and it's the most common mortgage type in the US.

Down payment: The minimum is 3% for first-time buyers through programs like Fannie Mae's HomeReady. Most buyers put down 5%, 10%, or 20%.

Credit: You generally need a FICO score of at least 620. Better scores unlock meaningfully better rates — going from 620 to 760 can reduce your rate by 0.5% or more.

Mortgage insurance: If you put down less than 20%, you'll pay Private Mortgage Insurance (PMI). PMI is not permanent — it automatically cancels when your loan balance reaches 78% of the original home value, and you can request early cancellation at 80%.

Loan limits (2025): The conforming loan limit is $806,500 for most of the country. In high-cost areas like parts of California and New York, the ceiling rises to $1,209,750.

Best for: Buyers with a credit score of 620 or higher who want the flexibility to build equity and eventually eliminate mortgage insurance.

FHA loans

FHA loans are insured by the Federal Housing Administration and are specifically designed for buyers with lower credit scores or smaller down payments.

Down payment: 3.5% with a score of 580 or higher. If your score is between 500 and 579, you'll need 10% down.

Credit: The official floor is 500, though most lenders set their own minimum at 580 because the 3.5% down option requires it.

Mortgage insurance: This is the most important FHA trade-off. You pay an upfront Mortgage Insurance Premium (MIP) of 1.75% of the loan amount at closing (it can be rolled into the loan). You also pay an annual MIP, typically around 0.55% per year, divided across your monthly payments. If you put down less than 10%, the annual MIP lasts for the entire life of the loan — there is no automatic cancellation like there is with conventional PMI.

FHA assumable loans: One genuinely useful FHA feature that buyers overlook: FHA loans are assumable. A future buyer can take over your mortgage — including your interest rate — instead of getting a new loan. In a rising-rate environment, this makes an FHA loan easier to sell.

Loan limits (2025): The FHA floor is $524,225 in low-cost areas and rises to $1,209,750 in high-cost areas.

Best for: Buyers with credit scores between 500–679 who can't qualify for conventional terms, or anyone who values the assumability feature.

The key FHA trade-off: You get access to the loan with lower credit, but you pay mortgage insurance for far longer. If your credit score climbs above 620 after a few years, it's worth checking whether refinancing to a conventional loan to eliminate MIP makes financial sense.

VA loans

VA loans are guaranteed by the Department of Veterans Affairs and are available to active-duty service members, veterans, and eligible surviving spouses.

Down payment: Zero. VA loans require no down payment at all, which is the single most significant financial benefit for eligible borrowers.

Credit: There is no official VA minimum credit score, but individual lenders typically require 620. Some lenders will go lower for VA loans than they would for conventional.

Mortgage insurance: None. VA loans do not have PMI or MIP of any kind.

Funding fee: The trade-off for no mortgage insurance is a one-time VA Funding Fee. For first-time VA loan use with less than 5% down, the fee is 2.15% of the loan amount. For a subsequent use with less than 5% down, it rises to 3.3%. Veterans with a service-connected disability rating are fully exempt from the funding fee.

VA loan entitlement: Each eligible veteran has a "basic entitlement" of $36,000 and an additional entitlement for higher loan amounts. In practice, this means you can borrow up to the conforming loan limit ($806,500 in most areas) with zero down payment and no loan limit restrictions if you have your full entitlement.

VA loan for first-time buyers: The zero-down requirement and no-PMI structure mean a VA-eligible first-time buyer's monthly payment is substantially lower than the equivalent FHA or conventional loan. On a $400,000 purchase, skipping a 3.5% FHA down payment keeps $14,000 in your pocket at closing.

Best for: Any eligible veteran or service member — this is almost always the best financial option available to those who qualify.

USDA loans

USDA loans are backed by the US Department of Agriculture and are limited to properties in eligible rural and suburban areas.

Down payment: Zero.

Credit: No official minimum, but lenders generally want a score of 640 for automated approval.

Income limits: You must earn no more than 115% of the area median income for your household size. This varies significantly by county.

Fees: USDA loans carry a 1% upfront guarantee fee and an annual fee of 0.35% of the loan balance. The annual fee is lower than FHA's MIP in most scenarios, and it does reduce over time as the loan balance falls.

Property eligibility: Not all properties qualify. The USDA maintains an online map where you can check whether a specific address is in an eligible area — many suburbs and smaller cities qualify even if they don't feel "rural."

Best for: Buyers purchasing in eligible areas who meet income limits. The zero-down requirement combined with a lower ongoing fee than FHA makes this a compelling option for qualifying buyers.

The mortgage insurance question

The biggest practical difference between these loan types is how mortgage insurance works over time:

• Conventional PMI can be eliminated once you reach 20% equity. Average PMI cost is 0.5%–1.5% of the loan amount annually.
• FHA MIP (with less than 10% down) lasts the entire loan term. On a $350,000 loan at 0.55% annually, that's $1,925 per year — or $57,750 over a 30-year loan.
• VA loans have no ongoing mortgage insurance at all. The upfront funding fee is paid once and done.
• USDA charges 0.35% annually, which is lower than FHA but permanent like FHA.

This is why many buyers with eligible military service find that VA beats FHA decisively, even though VA's funding fee looks significant upfront — the ongoing savings compound over time.

Putting it together

Here's a simple decision framework:

You're a veteran or active duty: Start with VA. The zero-down and no-PMI combination is hard to beat.

You have a credit score below 620: FHA is likely your path. Conventional loans require 620 minimum.

You have a score of 620+ and at least 3–5% down: Run both FHA and conventional numbers. With a score of 680 or higher, conventional PMI is often cheaper than FHA's lifetime MIP — especially because it can be removed.

You're buying in a rural or suburban area and you meet income limits: Check USDA eligibility first. Zero down with a lower ongoing fee than FHA is a significant advantage.

You have 20% down: Conventional is the default choice — no mortgage insurance at all.

Making the comparison concrete

The problem most buyers hit is that loan officers naturally lean toward the products their institution is most comfortable closing. A bank that doesn't originate VA loans won't mention them. A lender who primarily does FHA will make FHA sound inevitable.

This is exactly why comparing offers across loan types on paper matters. When you put the down payment, funding fee or MIP cost, monthly payment, and break-even timeline side by side for each option available to you, the right choice becomes obvious rather than something a lender decides for you.

The Mortgage Worksheet at firsthometoolkit.com walks you through that comparison for every loan type available in your situation — with dedicated sections for FHA MIP calculations, VA funding fee scenarios, and USDA fee math — so you can make the call with numbers rather than gut feeling.