FHA vs VA vs Conventional Loans: Which Is Right for You?

Three Loan Types, Three Different Borrowers

Choosing the right mortgage type can save you tens of thousands of dollars over the life of your loan. FHA, VA, and conventional loans each serve different borrower profiles. Here’s how they compare on every dimension that matters.

Quick Comparison

Feature	FHA	VA	Conventional
Min. down payment	3.5%	0%	3-5% (20% to avoid PMI)
Credit score minimum	580 (3.5% down) or 500 (10% down)	No VA minimum (lenders typically want 620+)	620-680+
Mortgage insurance	MIP (upfront + annual, for life of loan if under 10% down)	VA funding fee (one-time)	PMI (removable at 20% equity)
Who’s eligible	Anyone who qualifies	Veterans, active military, eligible spouses	Anyone who qualifies
Loan limits (2024)	$498,257 (floor) to $1,149,825 (high-cost)	No limit for eligible borrowers with full entitlement	$766,550 (conforming) to $1,149,825 (high-cost)
Interest rates	Competitive (government-backed)	Typically lowest	Varies with credit score
Property requirements	Strict (must meet FHA standards)	Must meet VA appraisal standards	Standard appraisal

FHA Loans: Best for Lower Credit Scores and Smaller Down Payments

How It Works

FHA loans are insured by the Federal Housing Administration. The government doesn’t lend you money - it guarantees the loan, which reduces risk for lenders and allows them to offer favorable terms to borrowers who might not qualify for conventional financing.

Down Payment

3.5% with a credit score of 580 or higher
10% with a credit score of 500-579
Down payment can come from gifts, grants, or down payment assistance programs

On a $300,000 home, the minimum FHA down payment is $10,500 - compared to $60,000 for 20% on a conventional loan.

Mortgage Insurance Premium (MIP)

This is the biggest drawback of FHA loans. MIP has two components:

Upfront MIP: 1.75% of the loan amount, paid at closing (can be rolled into the loan)
Annual MIP: 0.55% of the loan balance (for most borrowers), paid monthly

On a $290,000 loan (after 3.5% down on a $300,000 home):

Upfront MIP: $5,075
Annual MIP: ~$1,595/year ($133/month)

Critical detail: If you put less than 10% down, MIP lasts for the entire life of the loan. It never goes away unless you refinance into a conventional loan. If you put 10% or more down, MIP drops off after 11 years.

Who Should Choose FHA

First-time buyers with credit scores between 580-680
Buyers who can only manage a 3.5% down payment
Buyers with higher debt-to-income ratios (FHA allows up to 57% DTI in some cases)
Buyers planning to refinance to conventional once they build equity and improve credit

VA Loans: Best for Veterans and Military

How It Works

VA loans are guaranteed by the Department of Veterans Affairs and are available to:

Veterans with qualifying service (generally 90+ days active duty during wartime, 181+ days during peacetime)
Active-duty service members
National Guard and Reserve members (after 6+ years of service or 90 days of active duty)
Surviving spouses of service members who died in the line of duty or from service-connected disability

The Headline: No Down Payment

VA loans offer 0% down payment - the only mainstream mortgage product with this feature. On a $400,000 home, you can finance the entire purchase price.

No Monthly Mortgage Insurance

Unlike FHA (MIP) and conventional (PMI), VA loans have no monthly mortgage insurance payment. This is a massive financial advantage.

VA Funding Fee

Instead of monthly insurance, VA loans have a one-time funding fee paid at closing (or rolled into the loan):

Down Payment	First Use	Subsequent Use
0%	2.15%	3.3%
5-9.99%	1.5%	1.5%
10%+	1.25%	1.25%

On a $400,000 loan with 0% down (first use): funding fee = $8,600.

Exemptions: Veterans receiving VA disability compensation, Purple Heart recipients, and surviving spouses are exempt from the funding fee entirely - making the VA loan effectively cost-free to obtain.

Interest Rates

VA loans consistently offer the lowest interest rates of any loan type - typically 0.25-0.5% below conventional rates. On a $400,000 30-year mortgage, a 0.25% rate reduction saves approximately $20,000 in interest over the life of the loan.

Who Should Choose VA

Any eligible veteran or service member buying a home. Period. The combination of zero down payment, no monthly mortgage insurance, and lower rates makes this the best mortgage product available in the U.S. market.
The only reasons to consider alternatives: if you’re buying an investment property (VA requires owner-occupancy) or a property that doesn’t meet VA appraisal standards.

Conventional Loans: Best for Strong Credit and Larger Down Payments

How It Works

Conventional loans are not government-backed. They’re originated and held (or sold to Fannie Mae/Freddie Mac) by private lenders. Because there’s no government guarantee, lenders assume more risk and set stricter qualification standards.

Down Payment

Minimum: 3% (Fannie Mae HomeReady, Freddie Mac Home Possible) to 5% (standard conventional)
To avoid PMI: 20%
The sweet spot for many buyers is 10-15% down, which reduces PMI costs while preserving cash

Private Mortgage Insurance (PMI)

If you put less than 20% down, you’ll pay PMI. Unlike FHA’s MIP, conventional PMI has two huge advantages:

It’s removable: Once you reach 20% equity (based on original purchase price), you can request PMI removal. At 22%, it’s removed automatically.
It’s often cheaper: PMI rates range from 0.2-1.5% of the loan balance annually, depending on credit score, down payment, and loan amount. Borrowers with 740+ credit scores pay significantly less.

Example: On a $285,000 loan (5% down on $300,000), PMI for a borrower with a 740 credit score might be 0.3% = $855/year ($71/month). A 660 credit score borrower might pay 0.9% = $2,565/year ($214/month).

Credit Score Impact

Conventional loans reward strong credit more than any other loan type:

Credit Score	Typical Rate Premium vs Best Rate	PMI Impact
760+	Baseline (best rate)	Lowest PMI
720-759	+0.125-0.25%	Low PMI
680-719	+0.25-0.5%	Moderate PMI
640-679	+0.5-1.0%	High PMI
620-639	+1.0-1.5%	Very high PMI

Who Should Choose Conventional

Buyers with 700+ credit scores
Buyers putting 10-20%+ down
Anyone who wants PMI to be temporary (vs FHA’s permanent MIP)
Buyers of investment properties or second homes (FHA and VA require primary residence)
Higher-income buyers who exceed FHA loan limits

Scenario Comparisons

Scenario 1: First-Time Buyer, 650 Credit Score, $15,000 Saved

Best option: FHA

3.5% down on a $250,000 home = $8,750 down
Monthly MIP is unavoidable, but you get in the door with less cash and a lower credit threshold
Plan to refinance to conventional once credit improves and equity builds

Scenario 2: Veteran, 720 Credit Score, No Savings

Best option: VA

0% down, no monthly insurance
Even with the funding fee, monthly costs are lower than FHA or conventional with PMI
If disability-rated, the funding fee is waived - this becomes the cheapest mortgage possible

Scenario 3: Strong Buyer, 750 Credit Score, 15% Down Payment

Best option: Conventional

Low PMI rate (will be removed in a few years)
Best rate for this credit score
No upfront mortgage insurance premium
Most flexibility on property types

Scenario 4: Repeat Buyer, 680 Credit, 20% Down

Best option: Conventional

20% down eliminates PMI entirely
Even with a moderate credit score, no mortgage insurance makes conventional the clear winner
VA is competitive if eligible, but conventional with 20% down is hard to beat for anyone

Cost Comparison: $350,000 Home, 30-Year Fixed

	FHA (3.5% down)	VA (0% down)	Conv. (5% down)	Conv. (20% down)
Loan amount	$337,750	$350,000	$332,500	$280,000
Interest rate	6.5%	6.25%	6.75%	6.5%
Monthly P&I	$2,135	$2,155	$2,157	$1,770
Monthly MI/MIP	$155	$0	$116 (PMI)	$0
Upfront fees	$5,911 (MIP)	$7,525 (funding fee)	$0	$0
Total monthly	$2,290	$2,155	$2,273	$1,770
Cash needed at closing	~$18,000	~$7,525	~$22,500	~$75,000

Rates are illustrative. Actual rates vary by lender, credit score, and market conditions.

The Decision Flowchart

Are you VA-eligible? → Strongly consider VA first. It’s almost always the best deal.
Do you have 20% down and 700+ credit? → Conventional without PMI.
Do you have 5-19% down and 700+ credit? → Conventional with PMI (it’ll be cheap and temporary).
Is your credit below 680? → FHA is likely your best path. Work on credit to refinance later.
Is your credit between 680-700? → Compare FHA and conventional quotes side by side. The winner depends on your specific numbers.

Get pre-approved for multiple loan types simultaneously. Many lenders can quote FHA, VA, and conventional in a single application. Compare the total cost over your expected time in the home - not just the monthly payment.