Choosing the wrong loan type is one of the most expensive mistakes a first-time buyer can make. The difference between an FHA loan and a conventional loan can mean thousands of dollars in extra fees over the life of your mortgage. This guide breaks down the four main government-backed and conventional options so you can pick the right fit for your situation.
Not sure which loan you qualify for? Compare offers from multiple lenders on LendingTree to see which loan types you are eligible for and what rates you can get.
Quick Comparison Table
| Feature | Conventional | FHA | VA | USDA |
|---|---|---|---|---|
| Government backing | None (Fannie/Freddie) | FHA (HUD) | Department of Veterans Affairs | Dept. of Agriculture |
| Min. credit score | 620 | 580 (3.5% down) / 500 (10% down) | No VA minimum (lenders set 580–620) | 640 (most lenders) |
| Min. down payment | 3% | 3.5% | 0% | 0% |
| Mortgage insurance | PMI (removable at 20% equity) | MIP (life of loan if <10% down) | None | Annual fee (0.35% of loan balance) |
| Property location | Any | Any | Any | Rural/suburban eligible areas only |
| Who qualifies | Most buyers | Most buyers | Veterans/active military/surviving spouses | Low-to-moderate income in eligible areas |
Conventional Loans
How They Work
Conventional loans are not backed by the federal government. They are originated by private lenders and sold to Fannie Mae or Freddie Mac, which sets the guidelines. Because there is no government guarantee, lenders require higher credit standards than FHA loans.
Requirements
- Credit score: 620 minimum, though better rates come with 740+
- Down payment: As low as 3% through Freddie Mac’s Home Possible or Fannie Mae’s HomeReady programs
- DTI: 43% max, 36% preferred
- Loan limits (2025): $766,550 for most areas; higher in high-cost markets
Mortgage Insurance
If you put down less than 20%, you pay private mortgage insurance (PMI). Unlike FHA mortgage insurance premiums, PMI automatically cancels when your loan balance reaches 80% of the original appraised value, or you can request removal at 80% LTV. This makes conventional loans cheaper long-term for buyers who can afford a modest down payment.
Best For
Buyers with credit scores of 700 or higher, those who can put down 10–20%, and buyers purchasing more expensive properties near or above FHA loan limits.
FHA Loans
How They Work
FHA loans are insured by the Federal Housing Administration. The government guarantee reduces lender risk, which is why FHA loans accept lower credit scores and down payments. The tradeoff is mandatory mortgage insurance premiums (MIP) that cost more over time.
Requirements
- Credit score: 580 for 3.5% down; 500–579 for 10% down
- Down payment: 3.5% with a 580+ score
- DTI: Up to 57% in some cases with compensating factors
- Loan limits (2025): $498,257 in most areas; higher in high-cost areas
- Property condition: FHA has stricter appraisal standards — the home must meet HUD minimum property requirements
Mortgage Insurance Premiums (MIP)
FHA loans require two types of MIP:
- Upfront MIP: 1.75% of the loan amount, financed into the loan
- Annual MIP: 0.55% per year for most loans (paid monthly), for the life of the loan if you put down less than 10%
If you put down 10% or more, MIP falls off after 11 years. Otherwise, the only way to remove FHA MIP is to refinance into a conventional loan once you reach 20% equity. See our detailed breakdown: FHA Loan Requirements for First-Time Buyers.
Best For
Buyers with credit scores below 680, those with limited down payment savings, and buyers who have had past credit challenges but have stabilized their finances.
VA Loans
How They Work
VA loans are guaranteed by the U.S. Department of Veterans Affairs and available to eligible veterans, active-duty service members, National Guard and Reserve members, and surviving spouses. They are widely considered the best loan product on the market for those who qualify.
Requirements
- Eligibility: You must have a valid Certificate of Eligibility (COE). Active-duty members qualify after 90 days of service. Veterans qualify after 181 days of peacetime or 90 days of wartime service. National Guard and Reservists qualify after 6 years of service.
- Credit score: The VA does not set a minimum, but most lenders require 580–620
- Down payment: 0% in most cases
- DTI: 41% preferred, though lenders may approve higher with strong residual income
VA Funding Fee
VA loans do not require PMI, but most borrowers pay a one-time funding fee that is financed into the loan. For first-time VA borrowers with no down payment, the funding fee is 2.15% of the loan amount (as of 2025 rates — confirm current rates at VA.gov). Surviving spouses and veterans with service-connected disabilities are often exempt.
Best For
Any eligible veteran or active-duty service member buying a primary residence. The combination of no down payment and no PMI is hard to beat. See our full guide: VA Loans for First-Time Military Buyers.
USDA Loans
How They Work
USDA loans are backed by the U.S. Department of Agriculture and designed to encourage homeownership in eligible rural and suburban areas. They offer 0% down payment for qualifying buyers, but income and location restrictions apply.
Requirements
- Location: Property must be in a USDA-eligible area. You can check eligibility at the USDA eligibility map tool. Many suburban areas outside major metros qualify.
- Income: Household income must not exceed 115% of the area median income (AMI). Limits vary by location and family size.
- Credit score: 640 for automated approval; lower scores may qualify with manual underwriting
- DTI: 29% (housing) / 41% (total) preferred
USDA Fees
- Upfront guarantee fee: 1% of the loan amount (financed into the loan)
- Annual fee: 0.35% of the outstanding loan balance per year
Best For
Low-to-moderate income buyers purchasing homes in eligible rural or suburban areas. The zero down payment combined with low annual fees makes this an excellent option for qualifying buyers. Full details: USDA Loans for First-Time Buyers.
FHA vs. Conventional: A Head-to-Head
The FHA-vs-conventional choice is the most common decision first-time buyers face.
| Scenario | Better Choice | Why |
|---|---|---|
| Credit score 580–619 | FHA | Conventional is not available below 620 |
| Credit score 620–679 | FHA (often) | FHA MIP may be cheaper than conventional PMI at lower scores |
| Credit score 680+ | Conventional | PMI rates improve; MIP removal advantage kicks in |
| Down payment 3–5% | Compare both | Run numbers on MIP vs PMI over your expected holding period |
| Down payment 10%+ | Conventional | PMI cost drops significantly; MIP on FHA stays flat |
For a deeper analysis of this comparison, see: FHA vs. Conventional Loan for First-Time Buyers.
Which Lenders Offer All Four Loan Types?
| Lender | Est. Rate Range | Min Credit Score | Min Down Payment | Best For |
|---|---|---|---|---|
| LendingTree | Varies by lender | 580 (FHA) / 620 (conv.) | 3.5% (FHA) / 3% (conv.) | Comparing multiple offers at once |
| Rocket Mortgage | Competitive market rates | 580 (FHA) / 620 (conv.) | 3.5% (FHA) / 1% (ONE+ program) | Fast digital approval process |
| Better.com | Competitive market rates | 620 | 3% | Low-fee online experience |
| New American Funding | Competitive market rates | 500 (FHA) / 620 (conv.) | 3.5% (FHA) / 3% (conv.) | Buyers with lower credit scores |
The fastest way to compare your loan options is to run a single application through a marketplace. LendingTree connects you with multiple lenders and shows you which loan types you qualify for across FHA, conventional, VA, and USDA programs — with actual rate quotes, not estimates.
Bottom Line
Pick your loan type based on your credit score, savings, military status, and location — not based on which loan your lender defaults to suggesting. VA and USDA loans are significantly better deals for qualifying buyers than most people realize. FHA loans are the right move for buyers with lower credit scores. Conventional loans win on long-term cost for buyers with strong credit and at least a 10% down payment.
Compare loan options across multiple lenders on LendingTree and see what you actually qualify for today.