Introduction

Choosing between FHA, VA, and Conventional mortgages is one of the first and most important decisions a first-time buyer faces. Each program affects how much you must save for a down payment, the credit score lenders will accept, and the recurring costs you’ll pay after closing. In my 15 years advising homebuyers, I’ve seen the wrong mortgage choice slow a client’s path to financial stability; the right one can open a realistic, affordable route into homeownership.

Key differences at a glance

  • Backing and oversight: FHA loans are insured by the Federal Housing Administration (HUD); VA loans are guaranteed by the U.S. Department of Veterans Affairs; Conventional loans are issued by private lenders and often sold to Fannie Mae or Freddie Mac.
  • Typical down payment: FHA—3.5% (with credit score ≥580); VA—often $0 for eligible borrowers; Conventional—typically 5%–20% depending on program and lender.
  • Mortgage insurance: FHA requires upfront and annual mortgage insurance premiums (MIP). VA has a one-time funding fee (which can be financed or waived for some disabled veterans). Conventional loans require private mortgage insurance (PMI) when down payment is under 20%.

Authoritative resources: HUD’s FHA guidance and the VA Home Loan program explain rules and eligibility clearly (HUD and VA). The Consumer Financial Protection Bureau (CFPB) is a good neutral resource on comparing mortgage types (CFPB).

Eligibility and basic rules

FHA

  • Who benefits: Buyers with limited savings or lower credit scores, first-time and repeat buyers alike.
  • Credit scores: HUD allows a 3.5% down payment with a credit score of at least 580; borrowers with scores 500–579 may qualify with 10% down. Lenders can impose higher minimums.
  • Down payment and costs: FHA charges an upfront mortgage insurance premium (UFMIP; typically 1.75% of loan amount) and an annual MIP that varies by loan term and LTV. These costs are laid out by HUD (hud.gov).
  • Property standards: FHA-insured properties must meet HUD’s minimum property standards, which can make fixer-uppers harder to finance.

VA

  • Who benefits: Eligible veterans, active-duty service members, certain National Guard and Reserve members, and some surviving spouses.
  • Down payment and fees: VA loans often require no down payment. Instead of PMI, the VA charges a funding fee that varies (0.5%–3.6% depending on service status, down payment, and whether it’s a first use). The VA funding fee may be financed into the loan unless the veteran is exempt (benefits.va.gov).
  • Credit and underwriting: VA doesn’t set a minimum credit score, but lenders commonly require a mid-600s score for best terms. VA loans have lenient debt-to-income considerations for qualifying residual income.
  • Property eligibility: The home must be the borrower’s primary residence and meet VA appraisal and condition standards.

Conventional

  • Who benefits: Buyers with stronger credit scores and enough savings for a larger down payment, or those who want to avoid program-specific rules.
  • Credit and down payment: Typical minimum credit score is around 620, but the best rates are for scores 740+. Down payments range from 3% for some first-time programs up to 20% to avoid PMI.
  • Mortgage insurance: If the down payment is below 20%, lenders require PMI. PMI costs vary widely (roughly 0.3%–1.5% of loan balance annually, depending on credit and LTV).
  • Flexibility: Conventional underwriting often allows more property types and fewer repair requirements than FHA.

Costs that matter after closing

  • Monthly mortgage insurance: FHA’s MIP lasts for many borrowers for the life of the loan unless you meet criteria to remove it; conventional PMI can often be canceled once you hit 20% equity (automatic at 22% LTV per federal rules for many loans). See HUD and CFPB guidance for exact rules.
  • Interest rates: VA and FHA rates are often competitive, but the market and your credit determine your rate. Conventional borrowers with excellent credit typically access the lowest rates.
  • Closing costs and fees: Expect lender charges, appraisal, title, escrow, and pre-paid taxes/insurance. VA loans have unique entitlement and funding fee paperwork.

Real-world examples (typical scenarios I’ve seen)

1) Limited savings, moderate credit: A teacher with a 600 credit score and $10,000 savings used an FHA loan with 3.5% down and paid the UFMIP upfront or financed it. The FHA route allowed purchase sooner, but the teacher paid MIP until refinancing or reaching required equity.

2) Veteran with limited cash: A veteran bought with a VA loan and financed a small funding fee into the loan. The soldier avoided a down payment and PMI, making monthly payments lower despite a slightly higher interest rate in one case.

3) Strong credit, planning to stay long-term: A buyer with a 760 score put 20% down on a conventional loan, avoided PMI, and secured the lowest available interest rate. Over time they saved more vs. an FHA borrower who paid MIP.

Pros and cons — quick guide

FHA

  • Pros: Lower credit and down payment requirements; easier qualification for some buyers.
  • Cons: Upfront and annual MIP can make long-term costs higher; stricter property condition rules.

VA

  • Pros: Low/no down payment, no monthly PMI, competitive rates; supportive underwriting for veterans.
  • Cons: Funding fee (sometimes waived); limited to eligible borrowers; property must be owner-occupied.

Conventional

  • Pros: Lowest rates for strong-credit borrowers; PMI can be canceled; more flexible property rules.
  • Cons: Higher down payment and stricter credit requirements for best pricing.

How to choose: a practical checklist I use with clients

  1. Check your credit and correct errors. Improving your score by even 20–40 points can reduce your rate and expand options.
  2. Calculate upfront costs: down payment + closing + mortgage insurance or funding fee. Don’t forget UFMIP for FHA or potential VA funding fee.
  3. Estimate monthly payments and compare: principal, interest, taxes, insurance, and any mortgage insurance.
  4. Think long term: If you expect to move or refinance within a few years, an FHA loan can make sense even with MIP; if you plan to stay long, avoiding long-term mortgage insurance (PMI or MIP) may be cheaper.
  5. Shop lenders and get pre-approvals. Rates and overlays differ across lenders; get written loan estimates and compare APRs, not just rates.
  6. Ask about lender-specific programs: some conventional first-time buyer loans allow 3% down with lender-paid mortgage insurance or other incentives.

Related issues worth reading next

Common mistakes and misconceptions

  • Thinking a VA loan is “free”: It can eliminate down payment and PMI, but the funding fee or seller concessions can change the cost picture.
  • Assuming FHA is always cheaper: FHA lowers upfront barriers but its MIP can make it more expensive over time than a conventional loan if you can avoid PMI.
  • Not checking lender overlays: Even if program rules allow a lower score or specific debt ratios, individual lenders have overlays that can tighten eligibility.

FAQs (targeted)

  • Which loan is best if I have poor credit? FHA often gives a path forward, but shop lenders and improve credit if possible.
  • Can I refinance later? Yes. Many borrowers use FHA or VA to buy and refinance into a conventional loan later to drop mortgage insurance when they have equity and better credit.
  • Will my mortgage insurance go away? For conventional loans, yes (typically at 78–80% LTV depending on rules). For FHA, MIP removal depends on when the loan was originated and other factors—check HUD guidance.

Final recommendation and next steps

Start by getting a copy of your credit report and a few pre-approvals from lenders experienced with FHA and VA programs. Compare full loan estimates, not just interest rates. In my practice, the best outcomes come when a buyer understands both the immediate affordability and the long-term cost path of their chosen loan.

Professional disclaimer

This article is educational and not personalized financial or legal advice. Rules, fees, and lender overlays change; consult a mortgage professional or housing counselor and review HUD and VA program pages for current program specifics (hud.gov and benefits.va.gov).