Conventional Loans vs. Other Mortgages: Choosing What’s Best
When you’re ready to buy a home, the type of mortgage you choose matters. Among the most popular are conventional loans, but you’ll also encounter FHA, VA, and USDA loans. Each comes with advantages, requirements, and caveats. Here’s a detailed look at how they compare, so you can select the best path based on your situation and homeownership goals.
comparison between conventional loans and other popular mortgage types like FHA, VA, and USDA loans. It explains each loan’s pros and cons, eligibility requirements, credit score expectations, down payment needs, and insurance rules. The guide helps buyers decide which option suits their financial profile and long-term goals.
1. What Is a Conventional Loan?
A conventional loan is a mortgage issued by private lenders like banks, credit unions, and mortgage companies—not backed by government agencies. Most conform to guidelines from Fannie Mae and Freddie Mac. They typically…
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Offer better interest rates for borrowers with strong credit
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Allow down payments below 20% (with programs offering 3–5% down)
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Let you cancel private mortgage insurance (PMI) once you have ≥20% equity
2. Conventional vs. FHA Loan
FHA Loans are insured by the Federal Housing Administration. They’re often easier to qualify for, but come with trade-offs.
| Feature | Conventional | FHA Loan |
|---|---|---|
| Minimum Down Payment | 3–5% (0%? with piggyback) | 3.5% |
| Credit Score | 620+ (740+ ideal) | 580+ (500–579 with higher down) |
| Mortgage Insurance | PMI (<20% down, can cancel) | Upfront AND annual FHA MIP, ends after ~11 years |
| Loan Limits | Up to $726,200 (2024), varies by area | Up to high-balance limits in high-cost regions |
| Property Types | Primary, second home, investment | Mostly primary residence only |
When conventional wins:
You have good credit and can make a larger down payment. You want to remove PMI later.
When FHA wins:
You need flexibility with lower credit and smaller down payment.
3. Conventional vs. VA Loan
VA Loans are backed by the U.S. Department of Veterans Affairs for qualified veterans, active-duty service members, and surviving spouses.
| Feature | Conventional | VA Loan |
|---|---|---|
| Minimum Down Payment | 3–5% | 0% (for qualified borrowers) |
| Credit Score | 620+ | No minimum mandated, though 620+ is ideal |
| Mortgage Insurance | PMI if <20% down | None (but a one-time VA funding fee) |
| Loan Limits | Varies by county | No loan limits for most eligible veterans |
| Property Types | Primary, second home, investment | Primary residence |
When conventional wins:
You don’t qualify for VA or want to use your VA benefit in the future.
When VA wins:
You qualify as a veteran or spouse. Zero down and no mortgage insurance are ideal.
4. Conventional vs. USDA Loan
USDA Loans are offered by the U.S. Department of Agriculture for low- to moderate-income borrowers in designated rural areas.
| Feature | Conventional | USDA Loan |
|---|---|---|
| Minimum Down Payment | 3–5% | 0% |
| Credit Score | 620+ | 640+ (some lenders may accept lower scores) |
| Mortgage Insurance | PMI if <20% down | Upfront & annual guarantee fees |
| Loan Limits | Varies | None—loan limit tied to area limit |
| Property Types | Any eligible | Primary residence in eligible rural zones |
| Geographic Area | N/A | Must be in USDA-designated areas |
When conventional wins:
You’re outside USDA zones or want a specific property type not eligible for USDA.
When USDA wins:
You qualify based on income and area. Zero down is a great entry.
5. Summary Table
| Loan Type | Down Payment | Credit Score Req. | Mortgage Insurance | Property Types |
|---|---|---|---|---|
| Conventional | 3–20% | 620+ (best rate 740+) | PMI (cancel when ≥20% equity) | All |
| FHA | 3.5% | 580+ | Upfront MIP + annual MIP | Primary residence only |
| VA | 0% | 620+ (varies) | None (funding fee applies) | Primary residence for veterans |
| USDA | 0% | 640+ (varies) | Upfront + annual fees | Primary residence in eligible rural areas |
6. Choosing the Right Mortgage
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Credit score and down payment are the biggest deciding factors. Strong credit and sizable savings point toward conventional or VA loans.
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Residency plans matter: only conforming loans cover second homes or rentals.
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Current and future costs: consider mortgage insurance and possible removal.
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Loan limits and location: make sure your target home fits the loan’s scale and geography.
7. Side-by-Side Comparison: Typical Borrower Scenarios
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Young couple with 620 credit, no military service: FHA may be the easiest, but with savings and credit boosts, conventional may be best in a year.
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Veteran with collective savings: VA is hard to beat—no down payment and no PMI.
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Buyer in rural area with moderate income: USDA offers zero down if the home qualifies.
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Professional with solid credit/some savings: Conventional offers lower rates and flexible terms.
- comparison between conventional loans and other popular mortgage types like FHA, VA, and USDA loans. It explains each loan’s pros and cons, eligibility requirements, credit score expectations, down payment needs, and insurance rules. The guide helps buyers decide which option suits their financial profile and long-term goals.
8. Final Thoughts
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Pick conventional if you have good credit, savings, and an eye on future PMI removal.
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Choose FHA when credit or savings are limited, and you’re focused on buying now.
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Leverage VA if you qualify—no down payment, no PMI, great rates.
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Opt for USDA when location and income fit the program, and you want a zero-down option.
Each mortgage type has its place. Evaluate your credit, savings, and goals—then choose the loan that best aligns with your path to successful homeownership.
