Loan types compared: conventional, FHA, VA, USDA
Most U.S. homebuyers use one of four loan families. They differ in who backs them, how much down payment they need, and how forgiving they are about credit history. Here is the plain-English version. (Program details change over time — treat this as a map, not the territory.)
| Conventional | FHA | VA | USDA | |
|---|---|---|---|---|
| Backed by | Private lenders; often sold to Fannie Mae / Freddie Mac | Federal Housing Administration (insures the loan) | U.S. Dept. of Veterans Affairs (guarantees the loan) | U.S. Dept. of Agriculture |
| Who it's for | Borrowers with solid credit and stable income | First-time buyers, smaller down payments, imperfect credit | Eligible veterans, active-duty service members, some spouses | Buyers in eligible rural and suburban areas with modest income |
| Typical minimum down payment | 3–5% (20% avoids mortgage insurance) | 3.5% | 0% for most eligible borrowers | 0% |
| Credit posture | Generally the strictest of the four | More forgiving; lower scores can qualify | No official minimum, but lenders set their own | Generally flexible; income limits apply |
| Mortgage insurance | Private mortgage insurance (PMI), removable at 20% equity in most cases | Upfront + annual mortgage insurance premium (MIP); annual MIP often lasts the life of the loan | No monthly mortgage insurance; a one-time funding fee instead | Upfront + annual guarantee fees |
| Property rules | Primary, second homes, and investment properties possible | Primary residence; must meet safety standards | Primary residence | Primary residence in eligible areas; income caps |
Conventional loans
The default choice for buyers with good credit. You can put down as little as 3% through some programs, but 20% is the magic number that lets you skip mortgage insurance entirely. If you put down less, you'll pay PMI until you reach 20% equity — and you can usually request its removal at that point. Conventional loans tend to have the fewest property-condition hurdles, which can matter in competitive markets.
FHA loans
The federal government doesn't lend you the money — it insures the lender against loss, which lets lenders accept lower credit scores and 3.5% down payments. The trade-off is mortgage insurance: an upfront premium plus an annual premium that, on most FHA loans originated in recent years, stays for the life of the loan. Many buyers later refinance into a conventional loan to drop it once they have enough equity.
VA loans
An earned benefit for eligible veterans, active-duty service members, and some surviving spouses: usually no down payment, no monthly mortgage insurance, and competitive terms. There's a one-time VA funding fee (waived for some disabled veterans), which can be rolled into the loan. If you've earned eligibility, it's worth understanding before looking at anything else.
USDA loans
Designed for rural and eligible suburban areas — and "rural" covers more of the map than most people expect, including many suburbs and small towns. Zero down payment for qualifying incomes, with guarantee fees instead of traditional mortgage insurance. Income limits apply and vary by county, so eligibility is genuinely location-specific.
Which one fits? A starting framework
- Eligible for VA or USDA? Check those first — the terms are hard to beat if you qualify.
- Credit needs work or down payment is small? FHA is the classic on-ramp; plan the refinance path out of its lifetime mortgage insurance.
- Strong credit and 20% down? Conventional usually wins on total cost.
- Strong credit but less than 20% down? Compare conventional-with-PMI against FHA — PMI drops off; FHA's annual premium often doesn't.