Demystifying Mortgage Types: Conventional, FHA, VA, and USDA

Choosing the right mortgage program can save you tens of thousands of dollars over the life of your loan. Each of the four major loan types—Conventional, FHA, VA, and USDA—has distinct advantages and trade-offs. Understanding these differences is the first step toward making an informed decision.

Conventional Loans

Conventional loans are not backed by a government agency. They're offered by private lenders and typically follow guidelines set by Fannie Mae and Freddie Mac.

Key Features

Down Payment: As low as 3% for first-time buyers; 5% is common
Credit Score: Typically 620+, but 740+ gets the best rates
PMI: Required if down payment < 20%; automatically drops at 22% equity
Loan Limits: Conforming limit is $766,550 in most areas (2024); higher in expensive markets

Best for: Borrowers with good credit (700+), stable income, and at least 5% down. Ideal if you can reach 20% down to avoid PMI entirely.

Jumbo Loans

Need to borrow more than the conforming limit? You'll need a jumbo loan. These require higher credit scores (often 700+), larger down payments (10-20%), and stricter income verification.

FHA Loans

FHA loans are insured by the Federal Housing Administration, making them easier to qualify for than conventional loans.

Key Features

Down Payment: 3.5% with 580+ credit score; 10% with 500-579 score
Credit Score: As low as 500 (with higher down payment)
Mortgage Insurance: Upfront MIP (1.75% of loan) + annual MIP (0.55% for most loans)
Loan Limits: Varies by county; lower than conventional limits in many areas

The Catch: If your down payment is less than 10%, MIP lasts for the life of the loan. The only way to remove it is to refinance into a conventional loan once you have 20% equity.

VA Loans

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

Key Features

Down Payment: 0% (no down payment required)
Credit Score: No official minimum; most lenders want 620+
Mortgage Insurance: None! Instead, a one-time VA funding fee (1.25% - 3.3% depending on service and down payment)
Loan Limits: No limit for borrowers with full entitlement

Pro Tip: The VA funding fee can be rolled into the loan. Disabled veterans and surviving spouses receiving DIC benefits are exempt from the fee entirely.

USDA Loans

USDA loans are backed by the U.S. Department of Agriculture and designed for low-to-moderate income buyers in rural and suburban areas.

Key Features

Down Payment: 0% (no down payment required)
Credit Score: Typically 640+
Mortgage Insurance: Upfront guarantee fee (1%) + annual fee (0.35%)
Income Limits: Household income must be ≤ 115% of area median income
Location: Property must be in USDA-eligible rural area (check eligibility map)

Don't let "rural" fool you—many suburban areas qualify. The USDA eligibility map includes areas you might not expect.

Mortgage Programs Comparison

Program	Min Down	Credit (Typical)	Mortgage Insurance	Best For	Key Catch
Conventional	3-5%	620+	PMI until 22% equity	Good credit, 5%+ down	Higher credit needed for best rates
FHA	3.5%	580+	MIP for life (if ≤10% down)	Lower credit, limited savings	Permanent MIP without refi
VA	0%	620+	None (funding fee instead)	Veterans, active military	Eligibility required
USDA	0%	640+	Low annual fee (0.35%)	Rural/suburban, income-limited	Location + income restrictions

Which Program Fits You?

Use this quick decision guide:

Military service? → VA loan is almost always the best choice
Rural/suburban area + moderate income? → Check USDA eligibility
Credit score below 620? → FHA may be your only option
20%+ down payment + excellent credit? → Conventional wins
First-time buyer with 3-5% down? → Compare FHA vs. conventional with PMI

Pro Tip: Don't assume one program is best—get quotes for multiple loan types. The difference in monthly payments and total cost can be surprising.

Educational purposes only. Not financial advice.