Conventional vs FHA vs VA Loan: Which Mortgage Type Fits Your Situation

Bottom line: Three loan programs cover nearly every American mortgage. A VA loan is the cheapest option if you qualify — no down payment, no monthly mortgage insurance, lower rates. A conventional loan with 20% down is cheapest for everyone else over a long holding period. FHA loans are the right answer when you have a smaller down payment or lower credit score and need to enter the market — with the plan to refinance to conventional once you reach 20% equity.

The mortgage market is large, but the loan programs are not numerous. More than 90% of US home purchases use one of three programs: a conventional loan, an FHA loan, or a VA loan. Jumbo loans, USDA loans, and specialty products cover the rest.

The decision between these three has enormous downstream consequences. The wrong choice can add $50,000 or more in interest and insurance costs over the life of a 30-year loan. The right choice depends on three variables: how much you can put down, what your credit score is, and whether you have military service.

This guide explains how each loan works, when each one is the right answer, and the math that determines which is cheapest for your specific situation.

What Each Loan Actually Is

Conventional Loan

A conventional loan is any mortgage not insured or guaranteed by a federal program. Most conventional loans conform to the standards set by Fannie Mae and Freddie Mac, which makes them eligible for resale on the secondary market and keeps rates competitive.

Key features:

• Down payment: 3% to 20%+, with 20% required to avoid private mortgage insurance (PMI)
• Credit score: 620 minimum at most lenders; best rates at 740+
• Mortgage insurance: PMI required if down payment is below 20%; cancels at 22% equity
• Loan limit: $806,500 in most counties as of 2026; higher in high-cost areas
• Property: Owner-occupied, second home, or investment property all eligible

Current 30-year rate (mid-2026): Approximately 6.72% for borrowers with 740+ credit.

FHA Loan

An FHA loan is insured by the Federal Housing Administration, an agency within HUD. The government guarantee allows lenders to accept lower down payments and lower credit scores than they would for a conventional loan. Most major lenders offer FHA loans.

Key features:

• Down payment: 3.5% with credit score 580+; 10% with score 500–579
• Credit score: 500 minimum statutorily, but most lenders impose 580–620 overlays
• Mortgage insurance: 1.75% upfront premium (financed into the loan) plus 0.55–0.85% annual MIP, lasting the life of the loan in most cases
• Loan limit: Varies by county; $498,257 in most areas, up to $1,149,825 in high-cost markets
• Property: Owner-occupied only

Current 30-year rate (mid-2026): Approximately 6.72%.

VA Loan

A VA loan is guaranteed by the U.S. Department of Veterans Affairs and available only to active-duty service members, veterans, certain reservists and National Guard members, and some surviving spouses.

Key features:

• Down payment: $0
• Credit score: No statutory minimum; most lenders require 580–620
• Mortgage insurance: None
• Funding fee: One-time, 1.25–3.3% of loan amount (waived for service-connected disability)
• Loan limit: No statutory cap; lenders typically follow conforming limits
• Property: Owner-occupied only

Current 30-year rate (mid-2026): Approximately 6.53%.

The Cost Comparison

Headline rates are not the same as total cost. Mortgage insurance can swing the comparison by hundreds of dollars per month. The table below works out the math for a $400,000 home purchase across the three loan types.

Scenario: $400,000 home, 30-year fixed

Several patterns are worth noting.

The VA loan wins on monthly cost. Despite zero down, the absence of mortgage insurance plus the lower rate produces the lowest monthly payment of the four options (compared to scenarios with similar down payment). The VA funding fee is rolled into the loan, increasing total interest paid but not the monthly cash flow.

A conventional loan with 20% down is the cheapest for non-veterans. No mortgage insurance and the lowest principal balance combine to produce a monthly payment $580 below conventional with 5% down — and $560 below FHA. Over 30 years, this is more than $200,000 in total cost difference.

FHA is slightly cheaper than conventional with the same down payment. With 3.5% versus 5% down, FHA's monthly cost is $20 lower than conventional. The rate advantage (about 25 basis points lower) and the fact that some FHA-eligible buyers cannot get conventional approval at all make FHA a meaningful option for the right situation.

The MIP-for-life problem with FHA. On loans originated after 2013 with less than 10% down, FHA mortgage insurance lasts the life of the loan. Even after you reach 20% or 30% equity, you keep paying MIP. Over 30 years on this example, that is roughly $74,000 in MIP payments — versus $0 for conventional after PMI cancels (typically year 8–10) or $0 for VA.

The realistic path for an FHA borrower is to refinance to conventional once equity reaches 20%. This is the most common reason FHA borrowers refinance — not to lower the rate, but to drop the MIP.

When Each Loan Type Is the Right Answer

Pick a VA loan if...

• You are eligible (active duty, veteran, qualifying reservist, or surviving spouse)
• You qualify on credit and income standards
• This is essentially always the right answer if you qualify

The VA loan is the most consumer-favorable major loan program in the United States. There is no realistic scenario where a VA-eligible borrower is better off in a conventional or FHA loan for a primary residence. The only reasons not to use it: you are buying a non-owner-occupied investment property (not VA-eligible), or you have already used your VA entitlement and are trying to preserve it for a future purchase.

Pick a conventional loan if...

• You can put 20%+ down (eliminates PMI entirely)
• Your credit score is 740+ (gets you the best rates)
• You are not VA-eligible
• You are buying a second home or investment property

A conventional loan with 20% down is the gold standard for non-veteran borrowers. No mortgage insurance ever. The best rates the market offers. Maximum flexibility on property type and loan structure.

If you have 10–19% down, conventional is still usually the right answer over FHA, because conventional PMI cancels automatically at 22% equity while FHA MIP often does not. Even with 5% down, conventional often wins long-term if you can refinance once you build equity — but FHA may be more accessible upfront.

Pick an FHA loan if...

• Your credit score is 580–680 (you may not qualify for the best conventional rates)
• Your down payment is less than 5% of the purchase price
• You have a higher debt-to-income ratio (FHA allows up to 50%+ with compensating factors)
• You need a streamlined approval process — FHA's underwriting standards are more flexible
• You plan to refinance to conventional within 5 years once you have equity

FHA loans are best understood as a temporary on-ramp to homeownership for buyers who cannot yet qualify for the best conventional terms. The MIP-for-life problem makes it a costly long-term home, but the lower entry barrier may be worth that cost if it gets you into a home you would otherwise miss.

The Trap of Comparing Only Rates

The most common mistake in choosing a loan type is comparing the advertised rates and stopping there. The headline rate is one variable in the total cost equation.

On the example $400,000 purchase above:

• A conventional 5%-down loan and an FHA 3.5%-down loan have very similar monthly payments
• But over 30 years, the FHA loan costs roughly $74,000 more in MIP than the conventional loan would in PMI
• The conventional loan's PMI cancels around year 8–10; the FHA loan's MIP persists until you refinance

This is hard to see at the application stage because the early-year cash flows look similar. The long-term picture diverges sharply.

The right comparison is total cost over your expected holding period, including mortgage insurance, funding fees, refinancing costs if you plan to drop MI, and any rate-related opportunity cost. Most online calculators do not do this correctly. The SwitchWize mortgage calculator below can.

The Less-Common Options

Three less-common programs are worth mentioning for completeness:

USDA loans. Available for properties in eligible rural and some suburban areas. Zero down payment, low monthly fees. The geographic eligibility map is broader than most people realize — about 30% of US land area qualifies. If you are buying outside a major metro, check the USDA eligibility map before assuming you need an FHA or conventional loan.

Jumbo loans. Conventional loans above the conforming loan limit ($806,500 in most counties as of 2026, higher in high-cost areas). Jumbo rates are sometimes lower than conforming rates for strong borrowers; sometimes higher; always a separate underwriting process. For purchases above $1 million in most markets, jumbo is the only option.

Doctor loans / professional loans. Some lenders offer specialty programs for physicians, dentists, attorneys, and some other professions with zero down and no PMI. Rates are typically 25–50 basis points above standard conventional. Worth investigating if you are in a qualifying profession early in your career.

The Decision in One Table

What to Do Next

If you are 3–6 months from buying:

1. Check your VA eligibility if there is any military service in your history. The benefit is substantial; do not assume you do not qualify.
2. Pull all three credit scores (FICO 5, 4, 2 — the mortgage-specific versions) to see what tier you are actually in. Many people are surprised by 30–50 point gaps between their consumer FICO and mortgage FICO.
3. Calculate your maximum down payment — the threshold between 5%, 10%, and 20% changes the analysis significantly.
4. Get pre-approved with at least two lenders for the loan type you are leaning toward. Rate quotes vary 25–50 basis points between lenders on identical applications.

If you are further out:

1. Improve credit score. Every 20 points above 700 typically saves 12–25 basis points on the rate. From 700 to 740 is the most consequential improvement.
2. Save toward 20% down if you are aiming for conventional. The PMI savings alone often exceed the opportunity cost of the larger down payment.
3. Track current rates via the SwitchWize mortgage rate page or competitor sites. Rate movements affect when to lock.

The mortgage choice is one of the largest single financial decisions most people make. The difference between the right loan type and the wrong one — on a 30-year horizon, for a typical household — is often larger than a decade of retirement contributions. Worth getting right.

This guide is general information, not personalized advice. Eligibility for specific loan programs depends on your full financial profile and current lender overlays. Get pre-approved with at least two lenders before making a final decision. SwitchWize tracks live rates from major lenders; the mortgage rate database is updated daily.