What Sets These Four Loan Types Apart
Most US home purchases are financed through one of four mortgage categories: conventional, FHA, VA, or USDA. The first is a private-market product with no government guarantee; the other three are backed by federal agencies — the Federal Housing Administration, the Department of Veterans Affairs, and the US Department of Agriculture, respectively. That backing changes everything from who qualifies to how much mortgage insurance costs.
Before diving into specifics, it helps to understand that government-backed loans reduce lender risk, which is why they can offer more lenient terms. The trade-off is eligibility constraints and, in some cases, ongoing insurance fees. For a plain-language explanation of terms like loan-to-value ratio, amortization, and points, see our mortgage terminology reference.
| Conventional | FHA | VA | USDA | |
|---|---|---|---|---|
| Government backing | None | Federal Housing Administration | Dept. of Veterans Affairs | US Dept. of Agriculture |
| Minimum down payment | 3% (first-time); often 5–20% | 3.5% (580+ score) | 0% | 0% |
| Typical minimum credit score | 620 | 580 (500 with 10% down) | ~580–620 (lender-set) | ~640 (varies by lender) |
| Mortgage insurance | PMI until 20% equity | Upfront + annual MIP (often life of loan) | No PMI; funding fee at closing | Upfront + annual guarantee fee |
| Eligibility restrictions | None beyond credit/income | None beyond credit/income | Military service required | Income limits + eligible area |
| Property requirement | Must meet appraisal standards | Must meet FHA minimum standards | Primary residence; VA appraisal | Primary residence; USDA-eligible area |
| Loan limits (2024 baseline) | $766,550 (conforming) | $498,257 floor | No limit (full entitlement) | Varies by county income data |
Eligibility and Borrower Requirements
Conventional loans are not restricted by service history or geography, but lenders typically require a minimum credit score around 620. Borrowers with scores above 740 generally access the most competitive rates. Debt-to-income (DTI) ratios are scrutinized closely — most lenders prefer a back-end DTI below 45%.
FHA loans accept credit scores as low as 580 with a 3.5% down payment, or as low as 500 with 10% down. They are especially common among first-time buyers. DTI flexibility is slightly broader than conventional guidelines. Our in-depth look at FHA loan trade-offs covers the full picture of costs and benefits.
VA loans require a Certificate of Eligibility (COE) showing qualifying military service. There is no official minimum credit score set by the VA, though individual lenders typically apply their own floors — commonly 580–620. There is no DTI hard cap, but lenders assess a residual income requirement unique to this program.
USDA loans require the property to sit within a USDA-designated eligible area and the borrower's household income must fall at or below 115% of the area median income (AMI). Credit standards are similar to FHA, and the USDA looks at total household income, not just the applicant's.
Check Your USDA and VA Eligibility Early
Many buyers overlook VA and USDA programs simply because they assume they won't qualify. If you have any military service history, request your Certificate of Eligibility through the VA before ruling out the program. For USDA, run your target property address through the USDA's official eligibility map — suburban addresses sometimes qualify. Identifying your eligible programs early gives you more options to compare.
Down Payment and Mortgage Insurance
Down payment requirements differ sharply across loan types and directly affect upfront cash needs.
- Conventional: As low as 3% for qualified first-time buyers, though 20% eliminates private mortgage insurance (PMI). PMI typically runs 0.5%–1.5% of the loan annually until the borrower reaches 20% equity.
- FHA: 3.5% minimum (580+ score). Requires an upfront mortgage insurance premium (UFMIP) of 1.75% of the loan amount, plus an annual MIP that persists for the life of the loan if the down payment is under 10%.
- VA: No down payment required for most eligible borrowers. No ongoing PMI. However, a one-time VA funding fee — ranging roughly from 1.25% to 3.3% of the loan amount depending on service type, down payment, and whether it's a first use — is charged at closing (it can be rolled into the loan). Certain veterans with service-connected disabilities are exempt.
- USDA: No down payment required. Includes a 1% upfront guarantee fee and an annual fee of 0.35% of the outstanding balance — both lower than FHA's MIP structure.
Understanding all lender evaluation criteria — beyond just credit — is essential. Our article on what mortgage lenders look for covers income documentation, asset reserves, and property type considerations.
Loan Limits and Property Rules
Each loan type also comes with limits and property conditions worth understanding before you make an offer.
Conventional conforming loans must stay within limits set annually by the Federal Housing Finance Agency (FHFA). In 2024, the baseline limit for single-family homes is $766,550 in most of the US, with higher caps in designated high-cost areas. Jumbo loans exceed these limits but carry stricter requirements.
FHA loans have their own annual loan limits, which vary by county and generally align with local home prices. For 2024, the floor is $498,257 and the ceiling in high-cost areas is $1,149,825 for a single-family property.
VA loans technically have no loan limit for borrowers with full VA entitlement, though lenders still apply their own internal guidelines and the property must be the borrower's primary residence.
USDA loans are limited to primary residences in USDA-eligible areas — broadly rural communities and some smaller suburban markets. The USDA's online eligibility map is the definitive resource for verifying whether a specific address qualifies.
For a full overview of how these programs fit within the broader lending landscape, see our comprehensive guide to the US mortgage system. Once you have loan offers in hand, comparing them accurately is the next critical step.
FHA Mortgage Insurance Can Be Costly Long-Term
Unlike conventional PMI — which can be canceled once you reach 20% equity — FHA annual MIP typically remains for the life of the loan if your down payment was less than 10%. Over a 30-year mortgage, this can add tens of thousands of dollars in total cost. Buyers who start with FHA sometimes refinance into a conventional loan once they've built sufficient equity to eliminate the ongoing premium, though refinancing involves its own costs and considerations.
This article is for general informational and educational purposes only and does not constitute personalized financial or mortgage advice. Loan terms, eligibility rules, and limits change over time. Consult a licensed mortgage professional or HUD-approved housing counselor for guidance specific to your situation.
