Most buyers choose among four loan programs: conventional, FHA, VA, and USDA. They differ in minimum down payment, credit requirements, insurance costs, and who is eligible. Picking the right program can mean the difference between qualifying and being denied, or between a manageable payment and an expensive one.

Conventional loans

Conventional loans are not backed by a government agency and are the most common option, typically following Fannie Mae and Freddie Mac guidelines when they fall within conforming limits. They usually require a credit score around 620 or higher and allow down payments as low as 3% for some first-time buyer programs. If you put down less than 20%, you pay private mortgage insurance, but PMI can be canceled once you reach 80% loan-to-value. Strong-credit borrowers often get the best long-run cost with a conventional loan because the insurance is removable.

FHA loans

FHA loans are insured by the Federal Housing Administration and are designed for buyers with lower credit or smaller down payments. You can qualify with a score as low as 580 with 3.5% down, or 500 to 579 with 10% down. The catch is mortgage insurance: an upfront premium plus an annual premium that, on most current FHA loans with minimal down payment, lasts the life of the loan and can only be removed by refinancing. FHA is often the path for buyers who cannot yet qualify for conventional financing.

VA and USDA loans

VA loans, guaranteed by the Department of Veterans Affairs, are available to eligible veterans, active-duty service members, and some surviving spouses, and they allow 0% down with no monthly mortgage insurance. Instead of insurance, VA loans charge a one-time funding fee that can be financed, and some borrowers are exempt. USDA loans support moderate-income buyers in eligible rural and some suburban areas, also with 0% down, but they carry income limits and a guarantee fee. Both programs can dramatically lower the cash needed to close for those who qualify.

Choosing the right program

Start with eligibility: VA and USDA are only open to specific borrowers and areas, so check those first because they often cost the least. If you have strong credit and can reach or approach 20% down, a conventional loan usually wins because PMI is cancelable. If your credit is thinner or your down payment is small, FHA may be the only way in, accepting that its insurance may stick for the life of the loan. Compare total cost, not just the down payment, and consider refinancing out of FHA once your credit and equity improve.

On a $300,000 home, a conventional loan at 5% down needs $15,000 upfront plus cancelable PMI, while FHA at 3.5% down needs $10,500 but adds lasting mortgage insurance. A qualifying veteran could use a VA loan with $0 down and no monthly insurance, paying only a financeable funding fee. The best choice depends on eligibility, credit, and how long the insurance would linger.

Key takeaways

  • Conventional loans allow removable PMI and reward strong credit with the best long-run cost.
  • FHA loans accept lower scores and 3.5% down but often carry mortgage insurance for the life of the loan.
  • VA loans offer 0% down and no monthly mortgage insurance for eligible service members and veterans.
  • USDA loans provide 0% down for moderate-income buyers in eligible rural areas, with income limits.
  • Check VA and USDA eligibility first, since they are frequently the cheapest options.

Common mistakes

FAQ

Can I switch from an FHA loan to a conventional one later?

Yes. Many borrowers use FHA to buy, then refinance into a conventional loan once their credit and equity improve to shed the FHA mortgage insurance. That refinance has its own closing costs to weigh.

Do VA loans really require nothing down?

For most eligible borrowers, yes, VA loans allow 100% financing with no monthly mortgage insurance. You still pay a one-time funding fee unless you are exempt, and it can usually be rolled into the loan.