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

Most comparisons of mortgage types lead with down payment and credit score, which makes FHA look like the obvious choice for anyone without 20% saved.

That framing misses the thing that actually costs the most money. The four loan types differ most in how their mortgage insurance works — whether it exists, how much it costs, and critically, whether it ever goes away. A loan that's cheaper to get into can easily be more expensive to own, and the difference runs to tens of thousands of dollars.

This guide compares all four on the same $400,000 home, with real computed payments.

A note before you start: this is general education, not financial advice. Payment figures use a $400,000 home at 6.65% over 30 years (Freddie Mac PMMS, week of August 20, 2026) with Ohio's average property tax and insurance, computed with the engine behind this site's calculators. FHA and VA program fees use current published rates — these are set by the agencies and change periodically, so confirm current figures with a lender. Nothing here is a quote.

1. The four, in one paragraph each

Conventional — not government-insured, following Fannie Mae/Freddie Mac guidelines. Down payments from 3%, generally needs a 620+ score. The defining advantage: PMI cancels once you reach 78–80% equity, so its mortgage insurance is temporary.

FHA — insured by the Federal Housing Administration. Down payments from 3.5% at a 580 score, or 10% at 500. Built for buyers conventional underwriting turns away. The defining drawback: mortgage insurance is usually permanent.

VA — guaranteed by the Department of Veterans Affairs, for eligible veterans, active-duty service members, and some surviving spouses. No down payment, no ongoing mortgage insurance. Comfortably the strongest terms available to anyone who qualifies.

USDA — guaranteed by the Department of Agriculture for eligible properties in rural and many suburban areas, subject to income limits. No down payment. The "rural" label is misleading — a large share of the country's land area qualifies, including many outer suburbs.

2. The same house, four ways

A $400,000 home in Ohio, 30-year fixed at 6.65%, with property tax of $453.33 and insurance of $173.33 monthly in every case:

The FHA and VA loan amounts exceed the purchase price because both finance an upfront fee into the loan: FHA's 1.75% upfront mortgage insurance premium, and VA's funding fee (2.15% for a first-use, zero-down borrower — reduced for subsequent use and waived entirely for veterans with a service-connected disability).

Three things worth pulling out of that table.

VA at 0% down is cheaper monthly than FHA at 3.5% down. $3,249.73 against $3,328.02 — despite borrowing $15,845 more. No mortgage insurance is worth more than a small down payment. If you're eligible for VA, it is almost always the answer.

Conventional at 5% down and FHA at 3.5% down cost nearly the same monthly — $3,303.63 versus $3,328.02, a $24 difference. The choice between them isn't really about the monthly payment; it's about credit qualification and, decisively, what happens to the insurance later.

Putting 20% down saves $622.68 a month against the 5% conventional option — the combined effect of a smaller loan and no PMI.

3. Mortgage insurance: the difference that compounds

Conventional PMI is priced on your credit score and down payment, commonly 0.5%–1.0% of the loan annually. Crucially, it ends: your servicer must cancel automatically at 78% loan-to-value, and you can request cancellation at 80%. Our PMI guide works out that on a typical loan the request threshold arrives around month 97.

FHA mortgage insurance has two parts: the 1.75% upfront premium (usually financed) and an annual premium charged monthly. For most FHA loans written today with less than 10% down, that annual premium lasts the entire life of the loan. With 10% or more down it drops off after 11 years.

The long-run consequence is large. In the table above, FHA's $180.01 a month never stops. Over 30 years that's roughly $64,800 — and unlike conventional PMI, no amount of equity ends it. The only exit is refinancing into a conventional loan once you have 20% equity, which means paying a second set of closing costs (see our refinance guide).

One genuine advantage of FHA insurance: it isn't credit-priced. A 600-score borrower pays the same MIP rate as a 720-score borrower. Since conventional PMI gets expensive at lower scores, FHA can be cheaper in the low-600s despite being permanent — which is exactly why this comparison has to be run rather than assumed.

VA and USDA charge a one-time fee (VA funding fee, USDA guarantee fee) rather than credit-priced monthly insurance. USDA does carry a small annual fee; VA carries none at all.

4. Choosing between them

Choose VA if you're eligible. No down payment, no mortgage insurance, competitive rates, and the funding fee is waived for veterans with a service-connected disability. There is rarely a reason to look further. Eligibility also isn't one-time — the benefit can be reused.

Choose USDA if the property qualifies and your income is within limits. Zero down with a smaller ongoing fee than FHA. Check the address on the USDA eligibility map before assuming it doesn't qualify — the qualifying areas are far broader than "rural" suggests.

Choose conventional if your credit is reasonable (roughly 660+) and you can put down at least 5%. Even below 20%, cancellable PMI usually makes it the cheaper long-run option. At 20% down it's clearly the cheapest structure available to a non-veteran.

Choose FHA if conventional isn't realistic — a score in the 500s or low 600s, a recent credit event, or a higher debt-to-income ratio than conventional will allow. FHA exists precisely for this, and buying with FHA now and refinancing to conventional later once credit and equity improve is a completely legitimate strategy. Just go in knowing the insurance is permanent until you do.

Two further considerations:

Property condition. FHA, VA, and USDA all impose minimum property standards. A fixer-upper that a conventional lender would finance may fail those inspections — occasionally a decisive factor.

Seller perception. In competitive markets, some sellers prefer conventional offers, believing government loans carry more appraisal and inspection risk. Sometimes overstated, but real.

5. Loan limits and other constraints

Conventional conforming limits are set annually and vary by county, with higher ceilings in high-cost areas. Above the limit you're into jumbo territory, which typically means stricter credit and larger down payments.

FHA limits are also county-based and generally lower than conforming limits, which can rule FHA out in expensive markets.

VA no longer has a loan limit for borrowers with full entitlement, though lenders set their own maximums.

USDA has no loan limit but does impose household income limits, which vary by county and household size.

All four require the home to be your primary residence — none of these programs finances an investment property.

6. Switching later

None of this is permanent. The most common path is FHA now, conventional later: buy with FHA's easier qualification, then refinance to conventional once you have 20% equity and better credit, eliminating the permanent MIP.

The maths has to work — closing costs of 2%–6% have to be recovered, and our refinance guide walks through the break-even. But eliminating $180.01 a month of permanent insurance is a substantial and permanent saving, which makes this refinance easier to justify than a rate-only one.

VA loans have their own streamlined refinance (the IRRRL) with reduced documentation and often no appraisal, and FHA has an FHA Streamline — though the latter keeps you inside FHA, so it doesn't solve the MIP problem.

7. Qualifying differences beyond credit score

Credit gets the attention, but three other requirements differ enough between programs to decide which one you can actually use.

Debt-to-income ratio. Conventional loans generally want back-end DTI at or under 45%, occasionally to 50% with strong compensating factors. FHA is materially more flexible, frequently approving above 50% with good credit or reserves. For a borrower whose constraint is existing debt rather than credit, this — not the credit floor — is often the real reason FHA is the only workable option. Our affordability guide covers how the ratio is calculated.

Cash reserves. Months of payments remaining after closing. Conventional lenders often want two to six months depending on the file; government programs are generally more lenient. Reserves also work as a compensating factor that can offset a weaker ratio elsewhere.

Property standards. This one surprises people. FHA, VA, and USDA all impose minimum property requirements, and the appraiser assesses condition as well as value. Peeling paint on a pre-1978 home, a roof near end of life, missing handrails, exposed wiring, or non-functioning systems can all require repair before closing. Conventional appraisals are concerned with value, not habitability standards.

The practical consequence: a fixer-upper may simply not be financeable with a government loan. If you're bidding on an older property in imperfect condition, that can decide your loan type for you — or push you toward a renovation product like FHA 203(k), which is designed for exactly this.

Occupancy. All four require the home to be your primary residence. None finances an investment property, though all permit multi-unit properties up to four units if you live in one.

8. Loan limits, in practice

Conventional conforming limits are set annually by county, with higher ceilings in designated high-cost areas. Above the limit you're in jumbo territory: stricter credit, larger down payments, more reserves, and pricing that moves independently of conforming rates.

FHA limits are also county-based and generally sit below conforming limits. In expensive metros this frequently rules FHA out entirely regardless of your credit — the loan you need is simply larger than FHA will insure.

VA has no loan limit for borrowers with full entitlement, though individual lenders set their own maximums. Borrowers with partial entitlement — typically those with another active VA loan — face limits tied to the conforming figure.

USDA has no loan limit but does impose household income limits, varying by county and household size, generally set relative to area median income. It's the only one of the four where earning too much disqualifies you.

Because all of these are county-specific and adjust annually, the only reliable move is to check the current figure for the county you're buying in rather than working from a national number.

9. Switching between types later

FHA to conventional is the most common and most valuable move. Once you have roughly 20% equity and qualifying credit, refinancing eliminates permanent FHA mortgage insurance — in our example, $180.01 a month that would otherwise never stop. Because that saving is permanent, this refinance clears its break-even more easily than a rate-only one.

Conventional to conventional to drop PMI is usually unnecessary. PMI cancels on its own at 78% LTV, and you can request it at 80%. Refinancing purely to remove PMI rarely beats simply asking — see our PMI guide.

Into a VA loan if you become eligible, or if you didn't realise you were. VA eligibility doesn't expire, and the benefit is reusable. Veterans carrying FHA or conventional loans are frequently leaving money on the table.

VA to VA via the IRRRL (Interest Rate Reduction Refinance Loan) — streamlined, reduced documentation, often no appraisal, reduced funding fee.

FHA to FHA via FHA Streamline — also simplified, but it keeps you inside FHA, so it does not solve the permanent MIP problem. Useful for a rate improvement, useless as an insurance exit.

The general rule: the loan you start with is a starting point, not a commitment. Buying with the program that gets you in, then refinancing into a cheaper structure once your equity and credit allow, is a legitimate and common strategy — provided you go in knowing that's the plan and you run the break-even when the time comes.

10. Renovation loans: the fifth option

If the property standards in section 7 rule out a house you want, there's a category most buyers never hear about: loans that finance the purchase and the repairs in a single mortgage, based on the home's value after the work.

FHA 203(k) comes in two forms. The Limited version handles cosmetic and minor repairs up to a modest cap with lighter paperwork. The Standard version handles structural work, additions, and major systems, and requires a HUD consultant to oversee the project. Both carry FHA's usual credit flexibility and its permanent mortgage insurance.

Fannie Mae HomeStyle Renovation is the conventional equivalent, generally allowing a wider range of improvements — including luxury items like a pool, which 203(k) excludes — and, crucially, cancellable PMI rather than permanent insurance. It requires better credit than 203(k).

VA renovation loans exist for eligible borrowers, though fewer lenders offer them.

USDA repair loans are available in eligible areas.

Why these matter: a house that fails FHA or VA minimum property requirements isn't necessarily out of reach — it may just need the right product. And a distressed property bought with a renovation loan can be considerably cheaper than a comparable finished home, with the repair cost financed at mortgage rates rather than on a credit card.

The trade-offs are real. Renovation loans involve more paperwork, contractor approval, inspections, and draw schedules, so they close more slowly. Rates typically run slightly above standard products. And you generally can't do the work yourself — licensed contractors are usually required.

A related option worth knowing: temporary rate buydowns (often "2-1 buydowns"), where the seller or builder funds a lower rate for the first year or two. These are common in slower markets and on new construction. The saving is genuine but temporary, so qualify at the full rate rather than the introductory one — and treat it as a discount, not as a reason to stretch.

Frequently asked questions

Which mortgage type is cheapest? For eligible veterans, VA — no down payment and no mortgage insurance. Otherwise conventional with 20% down. Among low-down-payment options, conventional usually beats FHA long-run because its PMI cancels.

Is FHA better than conventional? Only when conventional isn't realistic. FHA has easier credit and DTI requirements, but on most loans written today its mortgage insurance never cancels — roughly $64,800 over 30 years in our example.

Can I put less than 20% down on a conventional loan? Yes, from 3%. You'll pay PMI until you reach 78–80% equity, at which point it cancels. That cancellation is conventional's key structural advantage.

Do VA loans really require no down payment? Yes, for borrowers with full entitlement, and with no ongoing mortgage insurance. There's a one-time funding fee, waived for veterans with a service-connected disability.

Do I have to live in a rural area for USDA? Not as most people picture it. Eligibility is by property address, and a large share of the country — including many outer suburbs — qualifies. Check the USDA map before ruling it out.

Can I switch from FHA to conventional later? Yes, by refinancing once you have around 20% equity and qualifying credit. It's the standard route out of permanent FHA mortgage insurance.

Which is easiest to qualify for? FHA, generally — 580 with 3.5% down (or 500 with 10%), and more flexibility on debt-to-income. VA is also flexible for those eligible.

Does the loan type affect my interest rate? Somewhat, and government-backed loans sometimes carry slightly lower rates. But the mortgage insurance structure usually matters more to total cost than the rate difference.

Can I use more than one loan type over time? Yes, and most people do. Buying with FHA and refinancing to conventional once you have equity and credit is a standard path. VA eligibility never expires and can be reused. The loan you start with is a starting point, not a lifetime commitment.

Do government loans take longer to close? Slightly, historically — mainly because of the property inspections in section 7. In practice the difference is now small, and a well-prepared file closes on a normal 30-45 day timeline. Some sellers still believe otherwise, which is worth knowing when you write an offer.

Can I buy a duplex with these loans? Yes. All four finance two-to-four-unit properties at owner-occupied terms, provided you live in one unit — the same low down payments and rates as a single-family home. Rental income from the other units can often help you qualify. It is one of the most under-used advantages available to a first-time buyer.

What to do next

Run the same home through more than one structure before deciding. Our payment calculator shows the full all-in payment with your state's real tax and insurance, so you can compare down payment scenarios on the number that actually leaves your account.

From there:

• What is PMI and how do you remove it? — the mechanism that most separates conventional from FHA.
• What credit score do you need to buy a house? — which programs your score opens.
• First-time home buyer programs, explained — state assistance pairs with all four types.
• Is refinancing worth it? — the route from FHA to conventional later.

See our methodology page for how every figure on this site is sourced.

This article is general education about mortgage loan types, not financial advice. Payment figures were computed with CalculatorByState's own calculation engine using a $400,000 home, the Freddie Mac PMMS 30-year rate for the week of August 20, 2026, and Ohio's statewide average tax and insurance. FHA and VA program fees, loan limits, and income limits are set by the agencies and change periodically — confirm current figures with a licensed lender.