Mortgage loan types: FHA, conventional, VA and USDA

A mortgagemortgageA mortgage is an agreement between you and a lender (a bank, a credit union or a mortgage company) that gives the lender the right to take your property if you do not repay the money it lent you, plus interest. Mortgage loans are used to buy a home or to borrow money against the value of a home you already own. You repay it in monthly payments that cover the principal (the money borrowed) and the interest, and often the property taxes and insurance as well. In Spanish, "hipoteca" and "préstamo hipotecario" mean the same thing.See the full definitionClose is a loan with the home as collateral. What changes from one “type” to another is who backs the loan, how much it asks for up front, how much insurance it charges and whom it accepts. This guide compares the four main types using the rules their own agencies publish, without recommending one: the decision depends on your credit, your savings, the home and your area.

FHA minimum down payment, with a score of 580 or higher

3.5%⁵

Down payment a conventional loan can start at, in programs such as HomeReady

3%⁸

Down payment with VA and USDA, if you qualify⁴

0%¹⁵

Of the home's original value, where a conventional loan's PMI ends on its own if you are current

78%¹²

The four types in one table

The CFPB explains that each loan type is designed for different situations. Conventional loans are the majority of loans and typically cost less than FHA loans, though they can be harder to get; FHA loans have a low down payment and accept lower scores; VA loans are for veterans, servicemembers and surviving spouses; and USDA loans are for low- to middle-income borrowers in rural areas.¹

Type	Who backs it	Minimum down payment	Insurance or fee	Who it is for
FHAFHA loanAn FHA loan is a mortgage made by a private lender and insured by the Federal Housing Administration (FHA), an agency of the U.S. government. That insurance protects the lender if you stop paying, which is why the lender can accept a lower down payment and a less-than-perfect credit history than on a conventional loan. Federal law sets the minimum cash investment at 3.5% of the property's value and caps the loan amount at the FHA limit, which changes by county. In exchange for the insurance you pay a mortgage insurance premium.See the full definitionClose	A private lender makes it and FHA insures it2	3.5% with a score of 580 or higher5	Upfront premium of 1.75% of the loan plus an annual premium6	Citizens, permanent residents and a few other cases7
Conventionalconventional loanA conventional loan is any mortgage that is not insured or guaranteed by the federal government: it is not FHA, VA or USDA. The lender, or the companies that buy the loans (Fannie Mae and Freddie Mac), carry the risk. When the amount is within the conforming loan limit the loan is called "conforming"; above it, it is a "jumbo" loan. It usually asks for a higher credit score than an FHA loan and, if your down payment is less than 20% of the price, you are normally required to buy private mortgage insurance (PMI) until you build enough equity in the home.See the full definitionClose	No government program; many follow Fannie Mae or Freddie Mac rules3	From 3% in programs such as HomeReady8	PMI if the loan is above 80% of the value; it ends by law1112	Score from 620 if underwritten by hand9
VAVA loanA VA loan is a mortgage program offered by the U.S. Department of Veterans Affairs (VA) to help servicemembers, veterans and some surviving spouses buy a home. The VA does not lend the money: it guarantees part of a loan made by a private lender, and with that guarantee the lender can offer terms other loans do not have, such as buying with no down payment. Only people who meet the VA's service requirements can use it; the lender will ask for your certificate of eligibility.See the full definitionClose	A private lender makes it and VA guarantees it4	0% if the price does not exceed the appraisal15	No monthly insurance; one-time funding fee with exemptions16	Veterans, servicemembers and some surviving spouses17
USDAUSDA loanA USDA loan is a mortgage from the Rural Housing Service, part of the U.S. Department of Agriculture (USDA). It is meant for low- and moderate-income families buying a home in an area the USDA considers rural, and it can be offered with no down payment. There are two paths: the USDA guarantees a loan made by a private lender, or it lends directly to very-low-income families. To qualify, your income must be within the limit for your area and the home must be in an eligible area, which you can check on the USDA's map.See the full definitionClose	A Department of Agriculture program similar to FHA and VA4	0%4	Upfront guarantee fee and annual fee22	Eligible rural areas and households under the income limit18

The table sums up what each agency publishes; every program has more income, property and credit requirements that the lender reviews in your case. If several types fit, the CFPB suggests asking lenders for several quotes to see which comes out best overall.¹

FHA: low down payment, insurance that lasts

According to the CFPB, an FHA loan comes from a private lender, and the Federal Housing Administration (FHA) regulates and insures it: it does not lend the money directly. It accepts lower scores than most conventional loans, has a maximum loan amount that varies by county and always carries mortgage insurance.² Each county’s FHA limit is on our data pages.

HUD’s rules say how much you have to put in. The minimum investment is 3.5% of the home’s value when your score is 580 or higher. With a score of 500 to 579, the loan cannot exceed 90% of the value, so you put down at least 10%. Below 500 you are not eligible. If you have no traditional credit history, you can still get maximum financing, but your loan is underwritten by hand.⁵

The price of that flexibility is FHA’s mortgage insurancemortgage insuranceMortgage insurance protects the lender, not you, if you fall behind on your loan payments. You pay for it, as part of the monthly payment and sometimes also as an upfront charge. It exists because it lets the lender accept a lower down payment. On an FHA loan it is called the mortgage insurance premium (MIP) and is charged by the FHA; on a conventional loan with a small down payment it is called private mortgage insurance (PMI) and comes from a private insurer. The rules for when you can stop paying it differ in each case.See the full definitionClose, called MIPFHA mortgage insurance premium (MIP)The FHA mortgage insurance premium (MIP) is what you pay for the insurance the FHA requires on all of its loans. That insurance protects the lender, not you, if you fall behind. It has two parts: an upfront premium (upfront MIP or UFMIP), paid with your closing costs or added to the loan, and an annual premium collected in your monthly payment. Federal law authorizes HUD to charge both and caps them. According to the CFPB, it costs the same no matter your credit score. If you add the upfront premium to the loan, the loan amount and the total cost go up.See the full definitionClose. It has two parts: an upfront premium of 1.75% of the base loan amount, which can be added to the loan,⁵ and an annual premium collected in your monthly payment. On a loan longer than 15 years, if you borrow 90% of the value or less, the annual premium lasts 11 years; if you borrow more than 90%, it lasts the life of the loan.⁶

Example with real numbers

FHA insurance on a typical home

With the typical US home value, the FHA minimum down payment and the average 30-year rate of 7.18% (November 5, 2026).

Home price (typical US value)

$332,700

Minimum down payment (3.5%)⁵

$11,645

Base loan

$321,056

Upfront premium (1.75% of the base loan), added to the loan⁶

$5,618

Monthly share of the annual premium, in your payment

$147

Loan including the upfront premium

$326,674

This is an example with national numbers. With less than 10% down, the annual premium lasts the life of the loan.⁶ The calculator runs it with your price and your rate.

Run it with your numbersMortgage calculator

Conventional: no government program

“Conventional” just means the loan is not part of a government program. According to the CFPB, conventional loans typically cost less than FHA loans but can be harder to get. “Conforming” loans have maximum amounts set by the government, and their other rules come from Fannie Mae or Freddie Mac.³

Down payment from 3%. Fannie Mae’s HomeReady is a conventional loan for people who meet certain income limits. On a purchase it can finance up to 97% of the value, with a fixed rate for up to 30 years, on a one-unit home you will live in. Your income cannot exceed 80% of the area median incomearea median income (AMI)The area median income (AMI) is the median family income of an area, which HUD computes every year for each metropolitan area and county. Housing programs use it as the yardstick: under the federal rule, a family is low-income when it earns no more than 80% of its area's median income and very low-income when it earns no more than 50%, adjusted for family size. State down payment assistance programs and Section 8 vouchers publish their limits as a percentage of AMI, so the same salary can qualify in one county and not in the next.See the full definitionClose. If everyone who will live in the home is a first-time buyer, a homebuyer education coursehomebuyer education courseA homebuyer education course is a class with a set curriculum that covers the homebuying process, how to maintain a home, budgeting and why good credit matters. It can be in a group, in person, online or by phone. It is not the same as housing counseling, which is one-on-one help with an action plan for your situation. Some loans and some down payment assistance programs require you to finish a course before closing, especially first-time homebuyers. When you finish, you get a certificate.See the full definitionClose is required.⁸

Credit score. If the loan is underwritten by hand, Fannie Mae requires at least 620 with a fixed rate and 640 with an adjustable rate. With its automated system (DU) there is no fixed minimum: the system assesses your risk.⁹

Private mortgage insurance (PMI). If the loan is above 80% of the value, that is, if you put down less than 20%, it carries private mortgage insurance (PMI)private mortgage insurance (PMI)Private mortgage insurance (PMI) is a type of mortgage insurance you might be required to buy on a conventional loan when your down payment is less than 20% of the purchase price. It protects the lender, not you, if you stop making payments. It is normally paid monthly as part of your payment, and the cost depends on your credit score and how much you put down. Unlike FHA insurance, PMI can be canceled once your balance falls far enough relative to the home's value; the lender must explain the rules to you.See the full definitionClose. For a purchase, the value is the lower of the price and the appraisal.¹¹ The difference from FHA is that PMI ends by law. It ends automatically when your balance, based on the original payment schedule, reaches 78% of the original value, if you are current.¹² And you can ask in writing to cancel it once the balance reaches 80%, if you have a good payment history and the home has not lost value.¹³

Conforming limit. By law, Fannie Mae and Freddie Mac only buy loans below a certain amount, the conforming loan limitconforming loan limitThe conforming loan limit is the maximum mortgage amount Fannie Mae and Freddie Mac may buy from lenders. Those two companies back most conventional loans, so a loan within the limit ("conforming") usually gets better terms than a larger one ("jumbo"). The Federal Housing Finance Agency (FHFA) sets it every year using the formula in the HERA law, and high-cost areas have a higher limit. Each county's FHA loan limit is computed from this number.See the full definitionClose. Above it, the loan is a jumbojumbo loanA jumbo loan is a mortgage whose amount is above the conforming loan limit. That limit is the most that Fannie Mae and Freddie Mac (the two companies that buy mortgages from lenders) are allowed by law to purchase. It is set every year with their regulator, the Federal Housing Finance Agency (FHFA), and it is higher in high-cost counties. A loan may go over the limit, but then it is called a jumbo loan. The CFPB notes that a jumbo loan may cost more to get than a conforming loan, and it must meet special requirements to count as a Qualified Mortgage (QM).See the full definitionClose.¹⁴ With jumbo loans each lender sets its own rules, and they usually require good credit and a high down payment.³ Each county’s conforming limit is on our data pages.

Residency. Fannie Mae buys loans made to non-citizens who are lawful permanent or non-permanent residents, under the same terms as citizens. The lender decides which documents to ask for.¹⁰

FHA and conventional, side by side

Insured by FHA

FHA

• From 3.5% down with a score of 580 or higher; from 500 to 579, at least 10%.⁵
• Upfront premium of 1.75% plus an annual premium; with less than 10% down, the annual one lasts the life of the loan.⁶
• Does not accept non-permanent residents.⁷
• With a lower score or a small down payment, it is often the cheapest option.²

No government program

Conventional

• From 3% down with HomeReady, with an income limit.⁸
• Score from 620 with a fixed rate if underwritten by hand; with DU, the system assesses risk.⁹
• PMI if you put down less than 20%; it ends by law at 78% of the original value.¹¹¹²
• With good credit and a medium down payment, it usually costs less than FHA.²

There is no hard-and-fast rule: get quotes for both options and compare total costs.²

VA: no down payment for those who served

The VA loan is for eligible veterans, current servicemembers and surviving spouses. A private lender makes it and the Department of Veterans Affairs (VA) guarantees it. It charges no monthly mortgage insurance premiums, but usually an upfront fee at closing. The CFPB warns that if you have significant down payment funds and good credit, it may cost more than a conventional loan.⁴

According to VA, the loan often lets you put no money down as long as the price does not exceed the appraised value, and borrow up to the conforming limit with no down payment in most areas. It also charges no PMI or MIP, and no penalty if you pay the loan off early. You have to live in the home and meet VA’s and your lender’s credit and income requirements.¹⁵

The funding fee is a one-time payment. You can add it to the loan or pay it in full at closing, and the amount depends on the loan, your down payment and whether you have used the benefit before. Among others, it is not paid by those receiving VA compensation for a service-connected disability and by surviving spouses receiving Dependency and Indemnity Compensation (DIC).¹⁶

To start you need your Certificate of Eligibility (COE), which shows the lender you qualify based on your service. A service member who has served at least 90 continuous days meets the minimum; for veterans, the minimum depends on when they served. You request it online, or your lender can request it for you.¹⁷

USDA: no down payment in rural areas

The guaranteed program of USDA, the Department of Agriculture, is similar to FHA and VA, but for low- and moderate-income families in rural areas. According to the CFPB, it requires no down payment and is usually cheaper than FHA; in exchange, you pay an upfront fee and ongoing premiums to USDA.⁴ For fiscal year 2027, those fees are 1% up front and 0.35% a year.²²

The regulation sets several conditions. Your household’s adjusted income cannot exceed the moderate income limit. You have to show you are a citizen, a non-citizen national or a qualified alien. The home has to be your principal residence, and it must be modest, decent, safe and sanitary.¹⁸ The moderate income limit is the highest of 115% of the US median family income and two other figures that depend on your state and your area. And the definition of “rural area” is in a federal law, the Housing Act of 1949.¹⁹

A USDA loan always has a fixed rate, with a term of up to 30 years; there are no adjustable-rate versions.²⁰ If you are not sure whether your area counts as rural, USDA has an eligibility site where you check whether an address is in an eligible area and whether your income might qualify. To apply, USDA refers you to its approved lenders.²¹

VA and USDA, side by side

For your service

VA

• No down payment if the price does not exceed the appraised value.¹⁵
• No monthly insurance; a one-time funding fee, with exemptions.¹⁶
• You need your Certificate of Eligibility (COE).¹⁷

For your area and income

USDA

• No down payment in eligible rural areas.⁴
• Upfront fee of 1% and annual fee of 0.35%.²²
• Fixed rate only, with a term of up to 30 years.²⁰

If you qualify, these programs can cost less than a conventional or FHA loan; compare the Loan Estimates.⁴

Fixed or adjustable rate, and the term

Separately from the loan type, you choose how the rate behaves. With a fixed-ratefixed-rate mortgageA fixed-rate mortgage is a home loan whose interest rate is set when you take out the loan and does not change over its whole life. The part of your payment that covers principal and interest is therefore the same every month, from the first payment to the last; what can change is what you pay for taxes and insurance if they ride in the same payment. It is the most common choice in the United States and the one almost every state assistance program uses. The most common terms are thirty and fifteen years.See the full definitionClose mortgage, the rate is set when you take out the loan and does not change. With an adjustable-rate mortgage (ARM)adjustable-rate mortgage (ARM)An adjustable-rate mortgage (ARM) is a loan whose interest rate can change, usually in step with a market index. It often starts with a fixed rate for an initial period (for example, the first few years) and then adjusts at set intervals, so your payment can go up or down. The contract sets caps on how much the rate can rise at each adjustment and in total. Before accepting one, check on the Loan Estimate how high your payment could reach and whether you could afford it.See the full definitionClose, it can go up or down: many start lower than fixed rates, but when the introductory period ends the rate changes at regular intervals and the payment is likely to go up.²³

The CFPB describes a fixed rate as lower risk with no surprises, although your total payment can still change if taxes or insurance go up. With an adjustable rate, the principal and interest payment could go up a lot, even double. It might make sense if you plan to move before the initial fixed period ends, but if you stay longer you could pay a lot more.¹

The term is the other decision. Shorter terms save money overall, because you pay interest for less time and the rate is usually lower, but the monthly payment is higher; 30-year terms have lower payments and, typically, higher rates.¹

Rate, APR and points: how to compare offers

Two numbers that look alike and are not. The interest rateinterest rateThe interest rate on a mortgage is what you pay each year to borrow the money, expressed as a percentage of the loan balance. It does not include fees or other charges; that is what the annual percentage rate (APR) is for. On a fixed-rate loan the rate never changes over the life of the loan; on an adjustable-rate loan it can go up or down after an initial period. The rate you are offered depends on your credit score, your down payment, the loan type and the market, and you see it on the first page of the Loan Estimate.See the full definitionClose is what you pay each year to borrow, as a percentage, without fees. The APRannual percentage rate (APR)The annual percentage rate (APR) is a broader measure of the cost of borrowing money than the interest rate. Besides the interest, it includes certain loan charges, such as discount points and some lender fees, spread over the life of the loan and expressed as a yearly percentage. That is why the APR is almost always a little higher than the interest rate. It is useful for comparing offers: if two loans have the same interest rate but a different APR, the one with the higher APR charges more in fees.See the full definitionClose is a broader measure: it adds the rate, points, broker fees and other charges, so it is usually higher. On the Loan Estimate, the rate is on page 1 and the APR on page 3. But with an adjustable rate the APR does not reflect the maximum rate, and the CFPB advises not to look at the APR alone.²⁴

Discount pointsdiscount pointsDiscount points are a payment you make to the lender at closing in exchange for a lower interest rate over the life of the loan. Each point costs a percentage of the loan amount. The opposite is lender credits: the bank lowers your closing costs today in exchange for a higher rate. Buying points only pays off if you keep the loan long enough for the monthly savings to exceed what you paid. Points appear on the Loan Estimate, in section A of the closing costs.See the full definitionClose lower the rate in exchange for paying more at closing; lender credits do the opposite: they lower closing costs in exchange for a higher rate.²⁵ Neither is free.

Which one fits you

No loan type is best for everyone. These are the rules that matter most depending on your situation; for your own case, a HUD-approved housing counselorHUD-approved housing counselorA HUD-approved housing counselor works at an agency HUD has approved to provide housing counseling: independent, expert advice customized to your situation about buying a home, renting, a missed mortgage payment, a foreclosure or credit problems. The agencies usually charge little or nothing; many serve in Spanish and offer the homebuyer education course several assistance programs require. They are not lenders or real estate agents and sell you nothing. Your county page lists the official agencies with phone numbers.See the full definitionClose gives independent advice, often free or at low cost.²⁶

If this is you

You are a veteran, servicemember or surviving spouse

Request your COE online or through your lender.¹⁷ If you receive compensation for a service-connected disability, you do not pay the funding fee.¹⁶

You are buying for the first time

Many state and local programs help with the down payment and can be used with an FHA or conventional loan.⁴ See the down payment assistance guide.

You have an ITIN or are not a permanent resident

FHA does not accept non-permanent residents,⁷ and USDA requires being a citizen, non-citizen national or qualified alien.¹⁸ The ITIN mortgage guide explains the options.

Your income is low or moderate

USDA and HomeReady have income limits.¹⁸⁸ Also check the debt-to-income ratio guide: each program measures your debts its own way.

Common mistakes

• Mistake: Comparing offers by interest rate alone.

  Instead: Also look at the APR, which adds points and fees, though not on its own.²⁴

• Mistake: Comparing an adjustable-rate APR as if it were fixed.

  Instead: With an adjustable rate, the APR does not reflect the maximum rate it can reach.²⁴

• Mistake: Assuming FHA insurance comes off like PMI.

  Instead: With less than 10% down, the FHA annual premium lasts the life of the loan.⁶

• Mistake: Assuming your area is not rural for USDA.

  Instead: Check the address on USDA's eligibility site.²¹

• Mistake: Choosing an adjustable rate counting on selling or refinancing before it rises.

  Instead: The CFPB warns that your home's value can fall or your situation can change.²³

• Mistake: Deciding before you have the Loan Estimates.

  Instead: Compare the official offers from several lenders before you choose.¹

What to do this week

1. Mark in the table the types that could fit you: military service, rural area, score, savings and status.¹
2. Look up your county’s FHA limit and conforming limit.¹⁴
3. If you are a veteran, request your COE; if you are looking outside the city, check the address on USDA’s site.¹⁷²¹
4. Run the mortgage calculator with two loan types and compare the payment and the total cost.
5. Ask several lenders for Loan Estimates and compare them side by side.¹
6. If something does not add up, take it to a HUD-approved housing counselor before you sign.²⁶