Conventional, FHA, VA, and USDA Loans Side by Side

Why Loan Type Matters Before You Shop

Most homebuyers focus on interest rates and monthly payments — but the loan program you use shapes nearly every other term attached to your mortgage. It determines your minimum down payment, how mortgage insurance works, which properties qualify, and what credit score you need to be approved. Understanding these distinctions early in the process gives you a clearer picture of what you can realistically afford and what paperwork lies ahead.

This comparison covers the four major loan categories available to American buyers: conventional, FHA, VA, and USDA. Each is backed or regulated differently, and each targets a specific borrower situation. For a broader view of how loans fit into the homebuying journey, see The Homebuying Process, Start to Finish.

Conventional Loans: Flexibility With Higher Standards

Conventional loans are not backed by a federal agency — they follow guidelines set by Fannie Mae and Freddie Mac, the government-sponsored enterprises that purchase most mortgages from lenders. Because there is no government guarantee, lenders take on more risk and typically set stricter requirements.

Most conventional loans require a minimum credit score around 620, though better rates generally go to borrowers at 740 or above. Down payments can be as low as 3% for first-time buyers under certain programs, but anything below 20% triggers private mortgage insurance (PMI) — an added monthly cost that protects the lender, not the borrower. PMI can be canceled once you reach 20% equity, which is a meaningful advantage over FHA insurance structures.

Conventional loans also have conforming loan limits set annually. Loans above those limits — called jumbo loans — carry their own, often stricter, requirements. Many buyers overlook that a 20% down payment is not actually required for a conventional loan.

FHA Loans: A Lower Bar to Entry

Insured by the Federal Housing Administration, FHA loans are designed to make homeownership accessible to buyers who may not yet qualify for conventional financing. The minimum credit score requirement is 580 for a 3.5% down payment; borrowers with scores between 500 and 579 may still qualify with a 10% down payment, though individual lenders may impose higher thresholds.

The trade-off is mortgage insurance that works differently than PMI. FHA loans require an upfront mortgage insurance premium (UFMIP) — typically 1.75% of the loan amount — plus an annual premium paid monthly. For most FHA borrowers, this insurance cannot be canceled unless the loan is refinanced into a non-FHA product or the original down payment was at least 10% (in which case it falls off after 11 years).

FHA loans are also limited to primary residences and have loan limits that vary by county. They are a strong tool for first-time buyers, but the long-term cost of mortgage insurance deserves careful consideration relative to a conventional option if your credit profile improves.

VA Loans: A Benefit Earned Through Service

VA loans are guaranteed by the U.S. Department of Veterans Affairs and are available to eligible active-duty service members, veterans, and certain surviving spouses. They consistently rank among the most favorable mortgage terms available in the U.S. market — and for good reason.

Qualified borrowers can purchase a home with no down payment and no ongoing mortgage insurance requirement, which can result in substantially lower monthly costs compared to FHA or low-down-payment conventional loans. The VA does charge a one-time funding fee that varies based on service history and whether the borrower has used the benefit before — but this fee can be financed into the loan.

The VA does not set a minimum credit score, though most lenders apply their own standards, often around 620. VA loans apply only to primary residences and require a property to meet the VA's minimum property requirements. Understanding rate structure is equally important — see Fixed-Rate vs. Adjustable-Rate Mortgages to evaluate which rate type pairs best with a VA loan.

USDA Loans: Geography-Based Eligibility

USDA loans are backed by the U.S. Department of Agriculture and are aimed at buyers purchasing in eligible rural and certain suburban areas. Like VA loans, they offer a zero-down-payment option — but the qualifying criteria center on location and household income rather than military service.

To qualify, the property must fall within a USDA-designated eligible area (the USDA maintains an online map for this), and the borrower's household income generally cannot exceed 115% of the area's median income. Credit score minimums vary by lender but often fall around 640 for streamlined processing.

USDA loans carry both an upfront guarantee fee and an annual fee, which function similarly to mortgage insurance. These are generally lower than FHA insurance costs, making USDA loans cost-competitive for those who qualify. As with other government-backed programs, USDA loans are restricted to primary residences.

This article provides general educational information about mortgage loan programs and is not financial, legal, or personalized lending advice. Loan requirements vary by lender and change over time. Consult a licensed mortgage professional or HUD-approved housing counselor to evaluate your specific situation.