FHA vs Conventional vs VA Loans: Complete Comparison

TL;DR — The three workhorse U.S. mortgage programs serve different borrowers. Conventional loans are the default for borrowers with 620+ credit, 3–20% down, and stable income — they offer the broadest pricing and let you remove PMI once you reach 20% equity. FHA loans (Federal Housing Administration insurance) are designed for lower-credit and lower-down-payment borrowers: 3.5% down with a 580 FICO, or 10% down with a 500–579 FICO. The trade-off is MIP (mortgage insurance premium) for the life of the loan if you put down less than 10%. VA loans are available only to active military, veterans, and qualifying spouses — they offer 0% down, no monthly mortgage insurance, and competitive rates, in exchange for a one-time funding fee (1.25–3.3% of loan amount). For a $400,000 home, the 5-year total cost differs by roughly $25,000 across the three programs in some borrower profiles. Use our Mortgage Payment Calculator to compare your specific scenario, and read on for the exact qualification rules, monthly cost differences, and the four questions that decide which program is right for you.

The wrong program adds tens of thousands of dollars to your total housing cost. The right one can make a home affordable that otherwise wasn't. Here's the head-to-head on every variable that matters.

Quick Comparison Table

Conventional Loans — The Default

Conventional loans are mortgages not insured by a federal agency. They are originated by banks, credit unions, and mortgage lenders, and most are sold to Fannie Mae or Freddie Mac (the GSEs — Government-Sponsored Enterprises) under standardized guidelines.

Two flavors of conventional:

• Conforming: meets Fannie/Freddie limits ($806,500 in most counties for 2026, higher in 70+ high-cost counties up to $1,209,750). Cheapest pricing because the loan can be securitized.
• Non-conforming / Jumbo: above conforming limit. Held on lender's balance sheet or sold to private investors. Slightly higher rate (0.10–0.25%), stricter underwriting.

Down payment ladder:

• 3% down — available on Fannie Mae HomeReady and Freddie Mac Home Possible programs for first-time buyers (and some repeat buyers under income limits)
• 5% down — standard conventional minimum
• 10% down — modest PMI reduction
• 15% down — meaningful PMI reduction
• 20% down — no PMI required from the start
• 25%+ down — best pricing tier, slight rate reduction

PMI (Private Mortgage Insurance): Required if you put less than 20% down. Costs roughly 0.30–1.50% of loan amount per year, paid monthly. PMI rates depend on credit score, LTV, and loan type. A borrower with 740 FICO putting 5% down on a $400,000 loan pays roughly $150/month in PMI; a 660 FICO borrower in the same scenario pays roughly $260/month.

PMI removal: This is conventional's structural advantage. By federal law (Homeowners Protection Act, 1998), PMI automatically terminates at 78% LTV (based on original purchase price), and you can request cancellation at 80% LTV. With normal amortization, you typically reach 80% LTV around year 8–11 on a 30-year loan. If your home appreciates, you can request a re-appraisal and remove PMI earlier — sometimes within 2–3 years in a strong market.

Credit score impact on rate: Conventional pricing is heavily score-sensitive. Fannie Mae's Loan-Level Price Adjustments (LLPAs) add fees that range from 0% (760+ FICO, low LTV) to 4.75% (640 FICO, 95% LTV). LLPAs are typically built into the rate, so a 740 borrower might get 6.50% while a 660 borrower gets 7.50% on the same loan.

FHA Loans — Designed for Lower Barriers

FHA loans are mortgages insured by the Federal Housing Administration (a HUD agency). The lender originates the loan; FHA insures it against default. This insurance shifts risk off the lender, allowing them to approve borrowers with weaker credit and smaller down payments than conventional pricing supports.

Qualification:

• Credit score: 580 minimum for 3.5% down. 500–579 allowed with 10% down (rare in practice — many lenders set their own 580 floor).
• DTI: 43% standard; up to 50% with compensating factors (large reserves, residual income); up to 57% with automated approval and strong file.
• Income: Steady employment, 2-year history (gaps explained)
• Property: Primary residence only. 1–4 unit properties allowed if owner-occupied.
• Bankruptcy/foreclosure waits: 2 years from Chapter 7 discharge (with re-established credit); 3 years from foreclosure.

Mortgage insurance is where FHA differs structurally from conventional:

UFMIP (Upfront Mortgage Insurance Premium): 1.75% of the loan amount, financed into the loan at closing. On a $300,000 FHA loan, that's $5,250 added to the balance.

Annual MIP: 0.55% of loan amount per year, paid monthly. On a $300,000 loan, that's $137.50/month. (Earlier FHA loans had higher MIP rates; 0.55% is the current rate for 30-year loans with LTV >95%, in effect since March 2023.)

MIP duration: This is FHA's structural weakness for borrowers with limited down payment.

• <10% down: MIP is for the life of the loan. The only way to remove it is to refinance into a conventional loan once you have 20% equity.
• ≥10% down: MIP cancels after 11 years.

FHA loan limits are lower than conventional. 2026 single-family limits range from $524,225 (floor, most counties) to $1,209,750 (high-cost counties like SF, NYC, parts of HI). If your purchase exceeds the limit, FHA isn't an option for that loan.

Property requirements: FHA appraisers apply HUD's Minimum Property Standards. Cosmetic issues are fine, but structural defects, missing handrails, peeling paint on pre-1978 homes (lead paint risk), broken HVAC, or unsafe wiring trigger required repairs before closing. This is the biggest practical hurdle in fixer-upper purchases with FHA.

FHA 203(k) rolls renovation costs into the purchase loan. Useful for buying fixer-uppers, but adds underwriting time and contractor approval steps.

VA Loans — A Benefit Earned by Service

VA loans are guaranteed (not insured) by the Department of Veterans Affairs. Available to:

• Active-duty military (90+ days of continuous service during wartime; 181+ days during peacetime)
• National Guard and Reserve members (6+ years of service, or 90+ days under Title 10 activation)
• Veterans with qualifying discharge (other than dishonorable)
• Surviving spouses of veterans who died in service or from service-connected disability (some restrictions)

To use a VA loan, the borrower needs a Certificate of Eligibility (COE). Most lenders pull this electronically in minutes; some borrowers can also pull it via VA.gov directly.

Down payment: 0% is the headline. You can put down more if you choose (lowering the funding fee), but you do not have to.

Funding fee: One-time charge that funds the program's lender protection. Varies by:

• First-time vs subsequent use of VA loan benefits
• Down payment
• Service category (regular military, Guard/Reserve)

Funding fee is financed into the loan in most cases. Exempt borrowers (10%+ service-connected disability rating, certain Purple Heart recipients, surviving spouses) pay no funding fee at all — a substantial savings.

No monthly mortgage insurance. This is VA's biggest structural advantage. Compared to a 3.5%-down FHA loan at 0.55% MIP, a 0%-down VA loan saves the borrower hundreds per month for the life of the loan.

Credit score: VA itself sets no minimum; lenders typically require 580–620 depending on overlay policies. Approvals at 580 are real but less common; 620+ unlocks competitive pricing.

DTI: 41% is the benchmark, but VA uses residual income (income left after all debts and basic living costs) as a compensating factor. A high-DTI borrower with strong residual income can be approved at 50%+ DTI.

Loan limits: Eliminated for borrowers with full VA entitlement in 2020. A first-time-use buyer with no remaining liability on a prior VA loan can buy a $2 million home in a high-cost county with 0% down (subject to lender approval and the borrower's qualifying income).

Property: Must be primary residence. 1–4 unit OK if owner-occupied. Includes manufactured homes on permanent foundations.

Appraisal: Most rigorous of the three. The VA appraiser checks the home against "Minimum Property Requirements" (MPRs) and assigns the property's value. If the appraised value comes in below the purchase price, the seller must either drop price or the buyer makes up the difference in cash. VA appraisals are scheduled by the VA system, not by the lender.

Worked Example: $400,000 Home

Comparing all three on the same property, with appropriate down payments per program.

Setup: $400,000 single-family home, primary residence, 30-year fixed, borrower has 720 FICO.

VA wins on monthly cost and cash-to-close for an eligible borrower. FHA wins on lowest cash-to-close among non-VA options but accrues more lifetime MIP. Conventional gives you the cheapest long-term cost once PMI cancels around year 8–11.

The PMI cancellation effect: After year 11 (when MIP starts cancelling on FHA if 10%+ down, but on a 3.5%-down loan it never does), the conventional borrower drops $190/month. Their 30-year total cost ends up lowest of the three for borrowers who put down enough to remove PMI early. For 3.5%-down FHA borrowers, the lifetime MIP is the gotcha.

Refinance Options

Each program has a streamlined refinance for existing borrowers:

Conventional: standard rate-and-term refinance. Re-qualify on income, credit, and appraisal. If you reach 20% equity, you can refinance into a conventional loan to drop PMI early.

FHA Streamline Refinance: refinance an FHA loan to a new FHA loan with no appraisal, no income verification, minimal credit check if certain conditions are met (on-time payments, net tangible benefit). Useful when rates drop. Does not let you escape MIP — that requires refinancing into conventional.

VA IRRRL (Interest Rate Reduction Refinance Loan): VA's streamlined refi. No appraisal required, no income verification, minimal credit pull. Funding fee is reduced to 0.50% (vs 2.15% on a purchase). Loan must be VA-to-VA — you can't IRRRL out of conventional or FHA into VA.

VA Cash-Out Refinance: lets eligible borrowers pull cash out up to 100% LTV (some lenders cap at 90%). Useful for debt consolidation if you have substantial equity. Requires full appraisal and underwriting.

When Each Program Wins

Use conventional if:

• You have 5%+ down payment and 680+ credit
• You plan to stay in the home long enough to remove PMI (3-10 years)
• The home is above FHA loan limits in your county
• You're buying an investment property or second home (FHA and VA don't allow this)
• You want flexibility on property condition (FHA/VA appraisals are stricter)

Use FHA if:

• Your credit is 580–660 and you can't qualify for competitive conventional pricing
• You have only 3.5% down (and not enough for 5% conventional)
• You had a recent bankruptcy or foreclosure (FHA waits are shorter than conventional)
• You want to buy a fixer-upper using FHA 203(k) renovation loan
• You're buying a multi-unit (2–4 unit) home you'll occupy

Use VA if:

• You are eligible (military service/spouse) — don't leave this on the table
• You have limited down payment cash
• You want to avoid monthly mortgage insurance
• You're buying in a high-cost county above conventional limits but want competitive pricing

Use USDA (we didn't cover above): if your home is in a USDA-eligible rural area, household income is under 115% of area median, and you want 0% down. USDA loans have a 1% upfront guarantee fee and 0.35% annual fee — cheaper than FHA MIP but with rural-area eligibility constraints. Use the USDA property eligibility map at eligibility.sc.egov.usda.gov.

Special Considerations

Refinancing FHA to Conventional to drop MIP. If you took an FHA loan with <10% down (MIP for life), the standard playbook is to refinance into conventional once you reach 20% equity. With 3.5% down on a $300,000 home, that's typically year 9–12 with normal amortization, or year 3–5 if your home appreciates 4–5%/year. A conventional refi at 20% equity drops PMI immediately, often saving $150–$200/month.

VA entitlement carry-over. You can have multiple VA loans simultaneously under certain conditions (PCS move, divorce settlement where you keep both homes). Your "remaining entitlement" determines how much of a new loan can be backed without down payment. This gets complex; lean on a VA-experienced lender.

Gift funds. All three programs accept gift funds for down payment, but with paperwork rules. The gift giver writes a gift letter, the funds must be traced, and (on FHA) there's no minimum borrower contribution requirement. Conventional 3% down programs (HomeReady, Home Possible) also allow 100% gift funds in some cases.

First-time homebuyer assistance. State and local Down Payment Assistance (DPA) programs often layer on top of FHA loans. We cover this in our First-Time Homebuyer Programs guide.

Asset reserves. Conventional typically wants 2 months of mortgage payments in reserves; FHA is more lenient (often no reserve requirement). VA uses residual-income tests instead of reserves.

Buyer-Profile Decision Tree

Profile 1: 720 FICO, $40k savings, $100k income, buying $350k home. Conventional with 5% down ($17,500) saves $1,500 cash up front vs 20% down and gets PMI ~$130/month. PMI gone in 8–10 years. Lowest 30-year total cost.

Profile 2: 600 FICO, $15k savings, $65k income, buying $250k home. FHA is the obvious play. 3.5% down ($8,750) leaves cash for closing costs and reserves. Plan to refinance into conventional in 4–6 years when score recovers above 680 and you have 20% equity.

Profile 3: Active-duty military, 680 FICO, $10k savings, $75k income, buying $325k home. VA, 0% down, no PMI. Funding fee 2.15% rolled in. Lowest monthly payment of all three options. Use the IRRRL if rates drop later.

Profile 4: 750 FICO, $80k savings, $150k income, buying $700k home in expensive county. Conventional. The home is above FHA's local limit and the borrower has strong credit; conventional pricing wins. Either 20% down (no PMI) or 10% down (PMI for 5–8 years).

Profile 5: 660 FICO, $25k savings, $80k income, buying $375k fixer-upper. FHA 203(k) — rolls $50k of renovation into the purchase loan. Conventional doesn't have an equivalent for typical fixer-upper scope.

Frequently Asked Questions

Q: Which program has the lowest interest rate? VA usually has the lowest rate (often 0.25–0.50% below conventional for similar credit). FHA is next, conventional is third for high-credit borrowers. But rate isn't the whole story — PMI/MIP, funding fees, and loan limits matter too.

Q: Can I switch from FHA to conventional later? Yes. After 6–12 months of on-time FHA payments and reaching 20% equity (via amortization, appreciation, or extra principal payments), refinance to a conventional loan to drop MIP. This is the standard FHA exit plan.

Q: How long does the VA funding fee stay financed? The funding fee is added to the loan amount and amortized over the loan's full term. It is not separately payable like PMI. You pay it as part of P&I each month.

Q: Is FHA always worse than conventional? No. For borrowers with credit below 660 or down payment below 5%, FHA is usually cheaper than conventional (because conventional LLPAs penalize low-credit/high-LTV loans more than FHA's flat MIP rate). For borrowers above 700 FICO with 5%+ down, conventional usually wins.

Q: Can I use a VA loan more than once? Yes. You can use VA loan benefits multiple times. Subsequent-use funding fee is higher (3.30% vs 2.15% for first time), but the program is reusable. You can also have multiple VA loans at once in certain situations.

Q: What if I'm self-employed? All three programs accept self-employment income, but require 2 years of tax returns showing consistent earnings. Schedule C net income (after deductions) is what they count, not gross revenue. If your tax-deduction-optimized net is low, you may not qualify even with strong cash flow.

Q: Do FHA loans have prepayment penalties? No. None of the three programs allow prepayment penalties on owner-occupied 1-4 family loans (federal regulation).

Q: Are FHA loans only for first-time buyers? No. FHA is open to repeat buyers as long as it's a primary residence. The misconception comes from down-payment-assistance programs that layer on FHA and are sometimes restricted to first-timers.

Q: Can I rent out an FHA or VA home? Both require primary residence occupancy at closing — you have to live in it. After 12 months, you can move out and rent it (and even buy another home), as long as you genuinely intended to live there at purchase. Renting it out from day 1 violates the loan terms.

Q: What credit score should I aim for to maximize savings? For conventional, 740+ unlocks the best PMI rates and LLPA tier. For FHA, the cliff is at 580 (3.5% down threshold) and another at 620 (most lenders' practical floor). For VA, 620+ gets you competitive pricing; 700+ matches conventional pricing.

Glossary

• COE (Certificate of Eligibility) — VA document confirming eligibility for the VA loan program. Required to apply.
• Conforming Loan — Conventional loan within Fannie/Freddie limits. Cheapest pricing.
• DPA (Down Payment Assistance) — State/local programs offering grants or low-interest second mortgages to help buyers with down payment. Often layers on FHA.
• Entitlement — VA's loan guarantee amount available to a veteran. Full entitlement means no loan limit applies.
• Fannie Mae / Freddie Mac — Government-Sponsored Enterprises (GSEs) that buy conforming conventional mortgages, setting underwriting standards.
• FHA (Federal Housing Administration) — HUD agency that insures lenders against losses on qualifying low-down-payment mortgages.
• Funding Fee — One-time VA fee that funds the loan guarantee program. Replaces monthly mortgage insurance.
• HomeReady / Home Possible — Fannie Mae and Freddie Mac 3%-down conventional programs for moderate-income buyers.
• IRRRL (Interest Rate Reduction Refinance Loan) — VA's streamlined refinance program. No appraisal, minimal documentation.
• Jumbo Loan — Conventional loan above conforming limit. Held by lender or sold to private investors.
• LLPA (Loan-Level Price Adjustment) — Fannie/Freddie risk-based fees added to conventional pricing. Heaviest on low-credit, high-LTV loans.
• LTV (Loan-to-Value) — Loan amount ÷ home value. PMI required above 80% on conventional.
• MIP (Mortgage Insurance Premium) — FHA's mortgage insurance. Has upfront (1.75%) and annual (0.55%) components.
• MPR (Minimum Property Requirements) — VA's property condition standards. Stricter than conventional appraisals.
• PMI (Private Mortgage Insurance) — Conventional mortgage insurance for <20% down loans. Removable at 80% LTV.
• UFMIP (Upfront Mortgage Insurance Premium) — FHA's 1.75% upfront fee, financed into the loan.
• USDA Rural Development Loan — 0%-down loan for rural-area properties, income-limited.
• VA Loan — Department of Veterans Affairs guaranteed mortgage for military borrowers.

Bottom Line

Pick the program that matches your profile: VA if you're eligible (it's usually the best deal), conventional if you have 5%+ down and 680+ credit (best long-term cost once PMI cancels), FHA if you have lower credit or smaller down payment (best near-term affordability, with a refi escape plan to dump MIP later). The "wrong" choice can cost you $20,000+ over the life of the loan, while the right choice can unlock a home that wasn't otherwise possible.

Model your numbers with our Mortgage Payment Calculator, and read our Complete Guide to Mortgages 2026 for the broader mortgage process context.