Choosing a mortgage isn't just about the interest rate. The type of loan you pick determines how much cash you need at closing, whether you'll pay mortgage insurance, what credit score you need to qualify, and how much your monthly payment will be for years to come. For most U.S. buyers, the decision comes down to three options: an FHA loan, a conventional loan, or a VA loan.
Each one was built for a different kind of borrower. FHA loans help buyers with lower credit or smaller savings. Conventional loans reward strong credit and bigger down payments. VA loans offer an unbeatable deal — zero down, no monthly mortgage insurance — but only to those who've served. This guide breaks down exactly how the three compare, with a side-by-side table and a worked example, so you can figure out which one fits your situation.
The Three Loan Types at a Glance
Before we go deep, here's the short version of what makes each loan distinct:
- FHA loans are government-insured mortgages designed for buyers with lower credit scores or limited down-payment savings. You can put down as little as 3.5%, but you'll pay an upfront fee plus mortgage insurance that often lasts the life of the loan.
- Conventional loans are not backed by the government and follow guidelines set by Fannie Mae and Freddie Mac. They require stronger credit, but their mortgage insurance is removable once you build 20% equity — which can save you thousands.
- VA loans are guaranteed by the Department of Veterans Affairs and reserved for eligible veterans, active-duty service members, and certain surviving spouses. They require no down payment and charge no monthly mortgage insurance, making them the cheapest option for those who qualify.
Down Payment: How Much Cash You Need
The down payment is the most visible difference between these loans, and it's where many buyers feel the squeeze.
- FHA: Minimum 3.5% down with a credit score of 580 or higher. If your score is between 500 and 579, you'll need 10% down. On a $350,000 home, 3.5% is $12,250 — a far more reachable target than a full 20%.
- Conventional: As little as 3% down for first-time buyers using certain programs, though 5% is more common. Putting down a full 20% lets you skip mortgage insurance entirely.
- VA: 0% down. Eligible borrowers can finance 100% of the purchase price. This is the single biggest reason VA loans are so valuable — there's no need to spend years saving a down payment.
To compare how different down payments change your loan amount, monthly cost, and the cash you'll need at closing, run the numbers through our Down Payment Calculator. Even a few percentage points can swing your monthly payment meaningfully.
Mortgage Insurance: The Hidden Long-Term Cost
This is where the loans diverge most over time, and where a low down payment can quietly cost you for years.
FHA loans carry two layers of mortgage insurance. First is the Upfront Mortgage Insurance Premium (UFMIP), currently 1.75% of the loan amount, which is usually rolled into the loan balance. Second is the annual Mortgage Insurance Premium (MIP), typically around 0.55% of the balance per year, split into monthly payments. The catch: on most modern FHA loans with the minimum down payment, MIP lasts the entire life of the loan. The only way to escape it is to refinance into a conventional mortgage once you have enough equity. The FHA Loan Calculator can estimate both your UFMIP and monthly MIP so there are no surprises.
Conventional loans charge Private Mortgage Insurance (PMI) only if you put down less than 20%. The big advantage: PMI is removable. You can request cancellation once your loan balance hits 80% of the home's original value, and your lender must cancel it automatically at 78% loan-to-value. That removability is the key reason many buyers with solid credit prefer conventional financing.
VA loans charge no monthly mortgage insurance at all — ever. Instead, there's a one-time VA funding fee (often 2.15% for first-time use with no down payment, less for subsequent guidelines or with a down payment), which can be rolled into the loan. Many disabled veterans are exempt from the funding fee entirely. Estimate yours with the VA Loan Calculator.
Credit Score and Qualifying Requirements
Your credit score is the gatekeeper that often decides which loans are even on the table.
- FHA: The most forgiving. A score of 580+ qualifies for the 3.5%-down option, and scores as low as 500 can work with 10% down. FHA also allows higher debt-to-income ratios, which helps buyers carrying student loans or car payments.
- Conventional: Typically requires a score of 620 or higher, and the best rates and lowest PMI go to borrowers above 740. Lenders also look for lower debt-to-income ratios and a clean credit history.
- VA: The VA itself sets no minimum credit score, but most lenders look for around 620. The defining requirement is military service eligibility, not credit alone.
Side-by-Side Comparison
Here's how the three loans stack up across the factors that matter most:
| Feature | FHA Loan | Conventional Loan | VA Loan |
|---|---|---|---|
| Minimum down payment | 3.5% (580+ score) | 3%-5% | 0% |
| Minimum credit score | 580 (or 500 w/ 10% down) | 620 | ~620 (lender-set) |
| Upfront fee | 1.75% UFMIP | None | Funding fee (often 2.15%) |
| Monthly mortgage insurance | Yes (~0.55%/yr) | PMI if <20% down | None |
| Can insurance be removed? | Usually no (life of loan) | Yes, at 80% LTV | N/A — no PMI |
| Who qualifies | Most buyers | Buyers with good credit | Veterans & service members |
| Best for | Lower credit / small savings | Strong credit, 20% down | Eligible military buyers |
Worked Example: A $350,000 Home, Three Ways
Numbers make the trade-offs concrete. Let's look at the same $350,000 home financed three different ways, focusing on the cash needed up front and the mortgage insurance over time.
| Scenario | FHA (3.5% down) | Conventional (10% down) | VA (0% down) |
|---|---|---|---|
| Down payment | $12,250 | $35,000 | $0 |
| Base loan amount | $337,750 | $315,000 | $350,000 |
| Upfront fee (financed) | $5,911 (1.75%) | $0 | $7,525 (2.15%) |
| Total financed | ~$343,661 | $315,000 | ~$357,525 |
| Est. monthly insurance | ~$155 (MIP) | ~$160 (PMI) | $0 |
| Insurance ends? | Life of loan | At 80% LTV | Never charged |
The story the table tells: the VA borrower needs no cash down and pays no monthly insurance — by far the cheapest to carry. The FHA borrower gets in with the least cash but pays MIP indefinitely. The conventional borrower needs more cash up front, but their PMI disappears once they reach 20% equity, lowering the payment for the rest of the loan. Plug your own price and down payment into the FHA Loan Calculator, VA Loan Calculator, and Down Payment Calculator to see your real figures.
Which Loan Fits Your Situation?
There's no universally "best" mortgage — only the best fit for your credit, savings, and eligibility. Here's a quick way to narrow it down:
- Choose a VA loan if you're an eligible veteran, active-duty service member, or qualifying surviving spouse. With zero down and no monthly insurance, it's almost always the lowest-cost path. There's rarely a reason to pick anything else if you qualify.
- Choose an FHA loan if your credit score is on the lower side (580–660) or your down-payment savings are thin. It gets you into a home sooner, with a plan to refinance into a conventional loan later to shed the MIP once your credit and equity improve.
- Choose a conventional loan if you have a credit score of 700+ and can put down a meaningful amount — ideally 20% to skip PMI entirely, or at least enough to cancel it quickly. Over a 30-year horizon, removable insurance and competitive rates usually make it the cheapest non-VA option.
One more factor: property condition. FHA and VA loans require the home to meet minimum property standards through an appraisal inspection, which can complicate buying a fixer-upper. Conventional loans are generally more flexible on property condition, an edge worth weighing if you're eyeing a place that needs work.
Common Mistakes to Avoid
- Assuming a low down payment is always cheapest. Putting down less means borrowing more and paying insurance longer. The lowest cash-to-close isn't the lowest lifetime cost.
- Forgetting FHA MIP usually never goes away. Buyers often treat FHA insurance like conventional PMI and assume it'll drop off. On most FHA loans it doesn't — refinancing is the exit.
- Skipping the VA loan when eligible. Some veterans default to FHA or conventional out of habit and leave a zero-down, no-insurance benefit on the table.
- Ignoring the upfront fees. Both FHA UFMIP and the VA funding fee add to your loan balance and the interest you'll pay. Factor them in, not just the monthly payment.
The Bottom Line
This article is for general informational purposes only and is not financial, mortgage, or tax advice. Loan terms, insurance rates, fees, and qualifying rules change and vary by lender and by your individual situation. Confirm the specifics with a licensed loan officer before making a decision.
FHA, conventional, and VA loans each solve a different problem. FHA opens the door for buyers with lower credit or smaller savings. Conventional rewards strong credit with removable insurance and competitive rates. VA delivers the best deal in housing — zero down, no monthly insurance — to those who've earned it through service. Match the loan to your credit, your cash, and your eligibility, then run your exact numbers through our FHA Loan Calculator, VA Loan Calculator, and Down Payment Calculator to confirm which one truly fits.
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