There are four mortgage programmes most buyers will ever consider: conventional, FHA, VA and USDA. They get compared on interest rate, which is close to the least important thing about them. Rates across the four are broadly similar at any given moment; where they genuinely differ is in three things that cost far more over time: how much you must put down, what mortgage insurance you pay and for how long, and who is even allowed to use them.
Get those three right and the rate takes care of itself. Get them wrong — take an FHA loan when you qualified for conventional, say — and you can pay tens of thousands of dollars for a convenience you did not need.
The four programmes at a glance
Read that table by the two rows that cost the most over thirty years: insurance duration and annual insurance. Conventional insurance is the only one that cancels on its own. VA has none at all. FHA and USDA charge it for the life of the loan.
Conventional: the default, if you qualify
A conventional loan is any loan not backed by a government programme — in practice, one that conforms to Fannie Mae and Freddie Mac's rules. It is the right answer for most buyers with decent credit, for one decisive reason: its mortgage insurance ends.
With less than 20% down you pay private mortgage insurance (PMI), typically 0.3% to 1.5% of the loan a year depending on your credit and down payment. But PMI is temporary by federal law — you can request cancellation at 80% loan-to-value and it terminates automatically at 78%. The full mechanics, including the mistake that wastes it, are in how to actually get PMI removed.
Minimum down payment is 3% for many first-time-buyer programmes, 5% more commonly. Credit requirements are the strictest of the four in practice — roughly 620 and up — and PMI gets more expensive the lower your score. But if you clear the bar, conventional is usually cheapest over any horizon longer than a few years, precisely because you stop paying for insurance once you have real equity.
FHA: low bar to entry, high long-term cost
An FHA loan is insured by the Federal Housing Administration and built to get people into houses who cannot clear the conventional bar. It succeeds at that: 3.5% down with a credit score of 580, or 10% down as low as 500. For a buyer with a thin file or a recent financial setback, it is often the only door open.
The cost of that open door is mortgage insurance that is both larger and longer-lived than PMI. You pay an upfront premium of 1.75% of the loan (usually financed into it), plus an annual premium of 0.55% for most borrowers. And here is the part that catches people: with less than 10% down, that annual premium lasts the life of the loan. It does not cancel at 78%. The only way to shed it is to refinance out of the FHA programme entirely. That trap has its own piece — the FHA mortgage-insurance trap — because it is the single most expensive thing about the loan.
The honest way to think about FHA: it is a bridge, not a destination. Use it to buy when nothing else will let you, then refinance to conventional the moment you have 20% equity.
VA: the best deal in American lending, if you earned it
If you are an eligible veteran, active-duty service member, or qualifying surviving spouse, the VA loan is not merely competitive — it is the best mainstream mortgage in the country, and it is not close.
- Zero down payment, with no loan-to-value penalty.
- No monthly mortgage insurance at all. None. This is the single biggest structural advantage in home lending.
- In place of monthly insurance, a one-time funding fee: 2.15% for first use with nothing down, dropping to 1.5% at 5% down and 1.25% at 10% down, and just 0.5% on a streamline refinance. It can be financed into the loan.
- Veterans receiving disability compensation pay no funding fee whatsoever, along with certain surviving spouses and Purple Heart recipients. On a $400,000 loan that is $8,600 saved at a stroke. Confirm your exemption on your Certificate of Eligibility before closing, because it is frequently missed.
The funding fee replaces mortgage insurance rather than adding to it, and unlike insurance it is paid once. Over any meaningful holding period the VA loan is dramatically cheaper than the alternatives. If you are eligible, the burden of proof is on any other programme to beat it, and it rarely can.
USDA: zero down, if the map agrees
The USDA Rural Development guaranteed loan is the most overlooked programme of the four, and for the right buyer it is superb: zero down payment, and mortgage insurance that is cheaper than FHA's. You do not need to be a veteran. The two catches are geography and income.
- The property must be in a USDA-eligible area. Despite the “rural” framing, roughly 97% of U.S. land qualifies — it is the population centres that are excluded, not the countryside. Many outer suburbs qualify. Check the address on the USDA eligibility map before assuming either way.
- Household income must be at or below 115% of the area median, counting every adult in the home, not just the borrowers. In much of the country that ceiling sits around $112,000–$120,000 for a household of up to four, higher in expensive areas.
The fees are a 1% upfront guarantee fee and a 0.35% annual fee — both lower than FHA. Like FHA, though, the annual fee runs for the life of the loan, so the same refinance-to-conventional exit applies once you have 20% equity. Credit requirements typically start around 640.
The decision, in order
Run the programmes in this sequence and stop at the first “yes”. This ordering reflects lifetime cost, not headline rate.
The one wrinkle: if your credit is strong (say 740+) but you have only 3–5% to put down, run conventional PMI against FHA MIP directly. High scores get cheap PMI that cancels, which usually beats FHA's flat 0.55% that never does — even though FHA's entry bar is lower, you do not need the lower bar. The PMI calculator will price the conventional side for you.
It almost always comes down to the insurance
Strip away the noise and the choice between these four programmes is mostly a choice about mortgage insurance:
- VA has none — a one-time fee and done.
- Conventional has insurance that ends once you have 20% equity.
- FHA and USDA have insurance that, with a low down payment, never ends until you refinance out.
That is the axis that costs real money over the life of a loan, far more than a quarter-point of rate. A buyer who fixates on the rate and ignores the insurance duration is optimising the small number and ignoring the large one. Decide the programme on the insurance, confirm the down payment you can actually make, and let the rate be whatever the market is offering that week.
Frequently asked questions
Which loan type has the lowest monthly payment?
Usually the VA loan, because it carries no monthly mortgage insurance and needs no down payment. For non-veterans, it depends on credit and down payment: a strong-credit borrower often does best on conventional (cheap PMI that cancels), while USDA beats FHA on monthly cost where you qualify geographically and by income.
Is an FHA loan bad?
No — it is the right tool when your credit or down payment will not clear the conventional bar. The problem is using it when you did not need to. Its mortgage insurance lasts the life of the loan with less than 10% down, so treat FHA as a bridge and refinance to conventional once you reach 20% equity. See the FHA mortgage-insurance trap.
Can I use a VA loan more than once?
Yes. The benefit is reusable, though the funding fee rises to 3.3% for subsequent use with nothing down (it drops back to 1.5% or 1.25% with 5% or 10% down). Veterans receiving disability compensation are exempt from the fee entirely, on every use.
Do I have to live in the countryside for a USDA loan?
No. About 97% of U.S. land is USDA-eligible, including many outer suburbs and small towns — it is dense population centres that are excluded. Check your specific address on the USDA eligibility map. You must also be under the household income cap (roughly 115% of area median) and occupy the home as your primary residence.
What credit score do I need for each loan type?
Roughly: conventional 620+, FHA 580+ (or 500 with 10% down), USDA 640+ at most lenders, and VA sets no minimum although lenders typically want around 620. Lower scores also make conventional PMI more expensive, which is part of why FHA can win for thin-file borrowers.
Mortgage Ledger publishes educational information, not personalized financial, legal, tax, lending, or investment advice. The figures here are estimates built on stated assumptions and will not match a lender’s underwriting exactly. Confirm any number that matters against your Loan Estimate and a licensed professional before you act on it.
Sources
- HUD — FHA Single Family Housing Policy Handbook 4000.1
- U.S. Department of Veterans Affairs — VA funding fee and closing costs
- USDA Rural Development — Single Family Housing Guaranteed Loan Program
- Federal Housing Finance Agency — conforming loan limit values for 2026
- Mortgage Ledger — calculation methodology