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

Choosing the right mortgage can save you tens of thousands of dollars over the life of your loan. For most borrowers, the decision comes down to three options: conventional, FHA, and VA loans. Each has distinct rules around down payments, credit scores, mortgage insurance, and eligibility — and picking the wrong one can mean paying thousands more in unnecessary fees every year.

This guide breaks down all three loan types with real dollar amounts, walks you through a side-by-side comparison on a $350,000 home, and gives you a clear decision framework. Use our Mortgage Calculator to run numbers for your specific situation as you read.

Conventional Loans at a Glance

A conventional mortgage is any loan that is notbacked by a government agency. Most conventional loans conform to guidelines set by Fannie Mae and Freddie Mac, which is why you will sometimes hear them called “conforming loans.” In 2024, the conforming loan limit is $766,550 in most of the country (up to $1,149,825 in high-cost areas like San Francisco and New York City).

Key Requirements

• Minimum down payment: 3% for first-time buyers through Fannie Mae HomeReady or Freddie Mac Home Possible; 5% is the standard minimum for most borrowers.
• Credit score: 620 minimum to qualify, but you will need 740 or higher to lock in the best interest rates. Borrowers in the 680-739 range typically see rates 0.25-0.50% higher.
• Private mortgage insurance (PMI): Required when your down payment is less than 20%. PMI typically costs 0.2% to 1.5% of the loan amount annually, depending on your credit score and LTV ratio.
• No upfront fees: Unlike FHA and VA loans, conventional mortgages have no government-mandated upfront insurance or funding fees.
• PMI cancellation: Once you reach 80% LTV (20% equity), you can request PMI removal. It automatically drops off at 78% LTV.

Real Numbers on a $350,000 Home

With 5% down ($17,500), your loan amount is $332,500. At a 7.0% rate on a 30-year term, your principal and interest payment is about $2,212 per month. Add PMI at roughly 0.55% annually ($152/month) and your housing payment before taxes and insurance reaches $2,364. Once you build 20% equity, that $152 PMI payment disappears.

With 20% down ($70,000), your loan drops to $280,000. Principal and interest falls to about $1,863/month with no PMI required at all. That $70,000 down payment saves you over $500 per month compared to the 5% down scenario.

Best For

Conventional loans are ideal for borrowers with good to excellent credit (680+) who can put at least 10% down. If you can stretch to 20%, you avoid mortgage insurance entirely, making conventional the cheapest option in total cost. They are also the best choice for investment properties and second homes, since FHA and VA loans require owner occupancy.

FHA Loans Explained

FHA loans are insured by the Federal Housing Administration, a division of HUD. Because the government guarantees a portion of the loan, lenders can offer more flexible qualification standards. This makes FHA the go-to option for borrowers with lower credit scores or smaller savings. Use our FHA Loan Calculator to see exactly what your monthly payment would look like.

Key Requirements

• Down payment: 3.5% with a credit score of 580 or higher. If your score falls between 500 and 579, you will need 10% down.
• Credit score: 580 minimum for the 3.5% down program; 500 minimum with 10% down. Most lenders set their own overlay at 580.
• Upfront mortgage insurance premium (UFMIP): 1.75% of the loan amount, paid at closing. This can be rolled into the loan balance.
• Annual mortgage insurance premium (MIP): 0.55% per year for most borrowers (those with loan amounts under $726,200 and LTV above 95%). Paid monthly.
• MIP duration: If your down payment is less than 10%, MIP stays for the life of the loan. With 10% or more down, MIP drops off after 11 years.
• Loan limits: $498,257 floor in low-cost areas; $1,149,825 ceiling in high-cost areas (2024).

Real Numbers on a $350,000 Home

With 3.5% down ($12,250), your base loan is $337,750. Add the 1.75% UFMIP ($5,911 rolled into the loan) and your financed amount becomes $343,661. At 6.75% on a 30-year term, principal and interest is about $2,229/month. Annual MIP at 0.55% adds roughly $155/month, bringing your total to about $2,384/month before taxes and insurance.

Here is the catch: that $155/month MIP never goes away if you put less than 10% down. Over 30 years, you will pay approximately $55,800 in MIP alone. This is why many FHA borrowers refinance into a conventional loan once they build enough equity and improve their credit.

Best For

FHA loans work best for borrowers with credit scores between 580 and 679or those who can only afford a small down payment. First-time buyers often start with FHA, but the loan is available to repeat buyers too — a common myth is that FHA is “only for first-time buyers,” which is not true.

VA Loans: The Military Advantage

VA loans, guaranteed by the Department of Veterans Affairs, offer what many consider the best mortgage terms available anywhere. If you are an eligible veteran, active-duty service member, or qualifying surviving spouse, the VA loan should be your starting point. Run your numbers with our VA Loan Calculator to see the full picture.

Key Requirements

• Down payment: $0 required. VA loans offer 100% financing with no down payment.
• Credit score: The VA does not set a minimum score, but most lenders require 620. Some lenders go as low as 580.
• Mortgage insurance: None. VA loans never require PMI or MIP, regardless of your down payment.
• VA funding fee: 2.15% for first-time use with no down payment; 3.3% for subsequent use. Putting 5% down reduces it to 1.5% (first use) or 1.5% (subsequent). With 10%+ down, the fee drops to 1.25%. Veterans with service-connected disabilities are exempt.
• Debt-to-income ratio: No hard maximum. Instead of a strict DTI cap, VA lenders use a residual income test that measures how much money you have left after all obligations.
• Eligibility: Requires a Certificate of Eligibility (COE) based on service history. Generally 90 days of active wartime service, 181 days of peacetime service, or 6 years in the Guard/Reserves.

Real Numbers on a $350,000 Home

With $0 down, your loan amount is $350,000. The VA funding fee at 2.15% adds $7,525, which most borrowers roll into the loan for a financed total of $357,525. At 6.5% on a 30-year term (VA rates tend to run about 0.25% lower than conventional), principal and interest is roughly $2,260/month.

With no monthly mortgage insurance of any kind, that $2,260 is your full housing payment before taxes and insurance. Compare that to the FHA borrower paying $2,384 who also had to bring $12,250 to closing. The VA borrower pays less per month and brings nothing to the table for a down payment.

For a veteran with a service-connected disability, the funding fee is waived entirely. The loan amount stays at $350,000, and P&I at 6.5% drops to about $2,212/month— the lowest cost option by far.

Best For

VA loans are the best option for any eligible veteran or active-duty service member, period. The combination of zero down, no mortgage insurance, competitive rates, and flexible DTI requirements makes it nearly impossible to beat. Even borrowers with 20% available for a down payment often choose VA because the overall cost is lower.

Side-by-Side Comparison Table

Here is how the three loan types stack up on every major factor. All dollar amounts assume a $350,000 purchase price.

The table makes the VA advantage clear: the lowest monthly payment with the least cash required at closing. For non-veterans, the choice between FHA and conventional depends primarily on your credit score and how much you can put down. Use our Down Payment Calculator to figure out exactly how much you need to save for each scenario.

How to Choose the Right Loan

With three solid options on the table, here is a straightforward decision framework. Work through these questions in order:

Step 1: Are You Eligible for a VA Loan?

If you are a veteran, active-duty service member, or qualifying surviving spouse, start with a VA loan. Zero down payment, no mortgage insurance, and typically the lowest rates make VA extremely hard to beat. Even if you have 20% saved for a down payment, compare the VA option before defaulting to conventional. The only scenario where conventional might win is if you plan to keep the home as an investment property later and want to preserve your VA entitlement.

Step 2: What Is Your Credit Score?

If your score is below 620, FHA is likely your only option. Conventional loans require at least 620, and most lenders apply the same floor to VA loans.

If your score is 620-679, FHA will typically offer better terms. You will qualify for conventional, but your rate will be significantly higher, and PMI costs will be steep. Run both scenarios through our Mortgage Calculator to compare total costs.

If your score is 680 or above, conventional becomes competitive. At 740+, conventional will almost certainly be your cheapest option because PMI rates drop substantially and you avoid FHA's lifetime MIP and upfront premium.

Step 3: How Much Can You Put Down?

With less than 5%: FHA (3.5%) is your conventional alternative, though some conventional programs allow 3% for first-time buyers.

With 5-19%: Either FHA or conventional could work. The tipping point depends on your credit score. Higher credit favors conventional because PMI is cheaper. Lower credit favors FHA because the rate difference outweighs the MIP costs.

With 20% or more: Conventional wins almost every time. You avoid all mortgage insurance, and there is no upfront premium to finance. At 20% down on a $350,000 home, you save $70,000 in equity from day one and keep your monthly payment at its lowest possible level.

The Quick Decision Tree

• Eligible veteran? → VA loan (almost always the best deal)
• Credit score under 620? → FHA loan (the only realistic option)
• Credit 620-679, less than 10% down? → FHA loan (better rates at this credit tier)
• Credit 680+, less than 20% down? → Compare FHA vs conventional (run both in a calculator)
• Credit 680+, 20% or more down? → Conventional (no PMI, no upfront fees)

Common Myths Debunked

Misinformation about loan types is everywhere. Here are the most persistent myths and the truth behind them.

Myth: FHA Loans Are Only for First-Time Buyers

False. There is no first-time buyer requirement for FHA loans. You can use FHA financing whether it is your first home or your fifth. The program does require the home to be your primary residence, which rules out investment properties, but repeat buyers are fully eligible. This myth likely persists because so many first-time buyers use FHA, but correlation is not causation.

Myth: VA Loans Are Harder to Close

Mostly false. This myth comes from the VA appraisal process, which includes Minimum Property Requirements (MPRs) that conventional appraisals do not check. Items like peeling paint, broken windows, or safety hazards can cause issues. However, modern VA appraisals typically take the same 10-14 business days as conventional ones, and closing timelines are comparable at 30-45 days. Some sellers still resist VA offers, but educated listing agents know the process has improved significantly.

Myth: Conventional Loans Always Have Higher Interest Rates

Not necessarily. While VA loans typically offer the lowest rates (about 0.25-0.50% below conventional), FHA and conventional rates are often very close. In some market conditions, a borrower with a 760+ credit score can actually get a lower conventional rate than the published FHA rate. The difference depends on your specific credit profile, loan amount, and current market conditions. Always get quotes for every loan type you qualify for.

Myth: You Can Never Get Rid of FHA Mortgage Insurance

Partially true, but there is a workaround. If you put less than 10% down on an FHA loan, MIP does indeed last for the life of the loan. You cannot cancel it the way you can with conventional PMI. However, you can refinance into a conventional loan once you reach 20% equity. If your credit has improved since purchase, you may also qualify for a better rate. The refinance costs money (typically $3,000-$8,000 in closing costs), so run the numbers to make sure you break even within a reasonable timeframe.

Myth: VA Loans Have a Maximum Loan Amount

Outdated.Before 2020, VA loans were capped at the conforming loan limit. The Blue Water Navy Vietnam Veterans Act removed loan limits for borrowers with full entitlement. Today, if you have never used your VA loan benefit (or have had your entitlement fully restored), you can borrow as much as a lender is willing to approve — though jumbo VA loans above $766,550 may require stronger credit and income documentation.

The Bottom Line

There is no single “best” mortgage for everyone. VA loans dominate for eligible veterans. FHA provides a critical path to homeownership for borrowers still building their credit. Conventional loans reward strong financial profiles with lower long-term costs. The smartest move is to get pre-approved for every loan type you qualify for and compare the total cost over the time you plan to stay in the home — not just the monthly payment.

Start by running your specific scenario through our FHA Loan Calculator and VA Loan Calculator to see real monthly payments and total interest costs. The right choice could save you $20,000 or more over the life of your loan.