What's the Difference Between a Conventional, FHA, and VA Loan?

Trying to choose between a conventional vs. FHA vs. VA mortgage loan? Learn the difference between a conventional, FHA-insured, and VA-guaranteed loan.

By , Attorney University of Denver Sturm College of Law
Updated 5/21/2024

Conventional, FHA-insured, and VA-guaranteed mortgages are similar in that they're all issued by banks and other approved lenders. But these types of loans are different. Which type of loan you should get depends on your needs and circumstances.

  • Who should get an FHA loan. If you have a low credit score and a small down payment, you might want to consider an FHA-insured loan because other loans typically aren't available to those with bad credit.
  • Who should get a conventional loan. You might benefit more from a cheaper conventional loan if you have good to excellent credit.
  • Who should get a VA loan. If you're a current or former military servicemember, you should investigate getting a VA-guaranteed loan, which might be the least expensive of all three loan types.

In this article, you'll learn what you need to know about conventional, FHA-insured, and VA-guaranteed loans as of 2024.

Summary of Conventional vs. FHA vs. VA Loans

When you apply for a home loan, you can try for a government-backed loan, like an FHA-insured or VA-guaranteed loan, or a conventional loan that the federal government doesn't insure or guarantee.

Here's a summary of the difference between conventional, FHA, and VA loans, with more details below.

Conventional Home Loans

FHA-Insured Loans

VA-Guaranteed Loans

FICO credit score/history

Good credit required. Fannie Mae requires 620 or 640, and Freddie Mac requires 620 or 660, depending on the situation. Lenders may have stricter requirements.

Credit score as low as 500 might be eligible. To qualify for the lowest down payment, 580 or higher.

Lenders set requirements, not VA. Typically, 620 or higher.

Maximum debt-to-income ratio

As a guideline, for conventional conforming loans, should not be greater than 33% to 36%. But up to 45% permitted in some cases.

Generally, 43%, but perhaps higher with compensating factors (like having a fair amount of residual income at the end of the month or lots of overtime income or reliable bonuses).

Generally, 41%.

Minimum down payment

Usually 5% of purchase price, but as little as 3%. However, if less than 20% down, will have to pay for private mortgage insurance (PMI).

Credit score of at least 580, then 3.5% of the purchase price. Credit score between 500 and 579, then 10%.

As low as 0% down. But a funding fee, a one-time charge between around 1.25% and 3.6% of the loan amount, is required.

Mortgage insurance

Again, if less than 20% down, must pay for PMI until you reach a loan-to-value ratio of 80%.

Mortgage insurance premium (MIP) required. Upfront MIP of 1.75% of the loan amount and monthly MIP amounts are usually required. (As of March 20, 2023, most borrowers pay an annual MIP of 0.55%.)

No PMI requirement.

Refinance options

Many options, conventional and other alternatives. Must qualify to refinance.

FHA offers refinance options, such as a streamline refinance. Or you could refinance into another type of loan. To refinance, you must qualify for either the FHA-insured loan or other loan type.

VA offers refinance options, like an interest rate reduction refinance loan (IRRRL). Or you could refinance into another type of loan. To refinance, you must qualify for either the VA-guaranteed loan or other loan type.

What Is a Conventional Home Loan?

You can get a conventional loan to buy a home to live in or for an investment property or a second home. Unlike federally insured loans, conventional loans carry no guarantees for the lender if you fail to repay the loan.

What Are the Down Payment Requirements for Conventional Loans?

Because conventional loans aren't government-insured, if you make less than a 20% down payment on the property, you'll probably have to pay for private mortgage insurance (PMI) when you get a conventional loan. If you default on the loan, the mortgage insurance company ensures the lender is paid in full.

What Are Conforming and Nonconforming Conventional Loans?

Conventional mortgages fall into one of two categories: conforming or nonconforming loans.

Conventional Conforming Mortgage Loans (Fannie Mae and Freddie Mac Loans)

"Conventional conforming" mortgage loans adhere to guidelines that the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) set. These loans are eligible for sale to Fannie Mae and Freddie Mac.

Conventional conforming loans are available to everyone. But they're more difficult to qualify for than VA-guaranteed and FHA-insured loans. Because conventional loans don't have government insurance, these loans pose a higher risk for lenders.

So, credit and income requirements are stricter for conventional conforming mortgage loans than FHA-insured and VA-guaranteed mortgages.

Eligibility requirements for a conventional conforming loan. Generally, you can get a conventional conforming loan if you:

  • have good credit
  • have a steady income, and
  • can afford the down payment (though a conventional loan might require as little as 3% down).

What are the credit score requirements for conforming conventional mortgage loans? As of 2024, depending on the situation, Fannie Mae generally requires borrowers to have a Classic FICO credit score of 620 or 640. Depending on the circumstances, Freddie Mac requires a score of 620 or 660 for a single-family primary residence. Lenders may also have stricter requirements.

What are the loan limits for conventional loans? These loans are subject to amount limitations.

Nonconforming Conventional Mortgage Loans

Other types of conventional loans, which aren't conforming, include:

  • jumbo loans (those that exceed the limits for conventional conforming loans)
  • portfolio loans (loans the lender originates and keeps, rather than selling), and
  • subprime loans (mortgages with looser credit score requirements).

What Are FHA-Insured Loans?

As the name implies, an FHA-insured mortgage loan is a loan that the Federal Housing Administration (FHA) insures. If you default on the payments and your house isn't worth enough to fully repay the debt through a foreclosure sale, the FHA will compensate the lender for the loss.

What Are the Loan Limits for FHA Loans?

FHA-insured loans have a maximum loan limit that varies depending on the average cost of housing in a given region. To learn more about FHA loan limits, visit the U.S. Department of Housing and Urban Development (HUD) website.

FHA-insured loans can only be used to finance primary residences, not investment or vacation properties.

What Are the Down Payment Requirements for FHA Loans?

Because the loan is insured, the lender can offer you good terms, including a low down payment—as low as 3.5% of the purchase price.

What Are the Credit Score Requirements for an FHA-Insured Loan?

This type of loan is often easier to qualify for than a conventional conforming mortgage, and anyone can apply. Borrowers with a FICO credit score as low as 500 might be eligible for an FHA-insured loan. Your score must be 580 or higher to qualify for the lowest down payment.

What Are the Mortgage Insurance Requirements for FHA Loans?

You'll have to pay a mortgage insurance premium (MIP) as part of an FHA-insured loan. (Conventional mortgages have PMI, and FHA loans have MIP.)

MIP will only be canceled once the mortgage is paid in full or you refinance unless you made a down payment of at least 10%. In that case, MIP generally goes away after 11 years.

The premiums that borrowers pay go to the Mutual Mortgage Insurance Fund. FHA draws from this fund to pay lenders' claims when borrowers default.

Positive Rent Payments Can Help You Qualify for an FHA-Insured Mortgage

FHA allows the inclusion of a first-time homebuyer's positive rental payment history as an additional factor in the credit assessment performed to determine eligibility for an FHA-insured mortgage. (A "first-time homebuyer" is someone who hasn't had an ownership interest in another property in the three years before the case number is assigned. If you're divorced or legally separated and had no ownership interest in a principal residence, other than a joint ownership interest with a spouse, during the three years before a case number assignment, you're considered a first-time homebuyer for the purposes of this policy.)

For rental payments to count toward a mortgage application:

  • the transaction must be a purchase transaction
  • at least one borrower must be a first-time homebuyer
  • the minimum decision credit score must be at least 620 (the "minimum decision credit score" is based on HUD criteria and is used to determine eligibility for an FHA-insured mortgage), and
  • at least one borrower has a documented positive rental payment history with on-time monthly payments of $300 or more for the prior 12 months. Rental payments made in the month they were due are considered "on time."

This FHA policy can help first-time homebuyers improve their chances of approval when applying for a mortgage. (Similarly, Fannie Mae considers an applicant's positive rental payment history when completing credit risk assessments Also, Fannie Mae launched a rent payment reporting program to help renters build their credit history.)

What Are VA Loans?

A VA-guaranteed loan is a loan that the U.S. Department of Veterans Affairs (VA) guarantees. This type of loan is only available to certain borrowers through VA-approved lenders. The guarantee means the lender is protected against loss if the borrower fails to repay the loan. (VA also offers a direct loan program, where the VA is the lender.)

Eligibility Requirements for a VA-Guaranteed Loan

To get a VA-guaranteed loan, you must be:

  • a current member of the U.S. armed forces
  • a veteran
  • a reservist/national guard member, or
  • an eligible surviving spouse.

Go to the VA website to learn the specific eligibility requirements for a VA-guaranteed loan.

What Are the Down Payment Requirements for VA Loans?

These mortgage loans can be guaranteed with no money down or PMI requirement. However, borrowers usually have to pay a funding fee—a one-time charge between around 1.25% and 3.6% of the loan amount.

To learn more about VA-guaranteed loans, see the VA's Home Loan website.

What Are the Credit Score Requirements for VA Loans?

The VA doesn't have minimum credit score requirements to get a loan; lenders set the criteria. Usually, you'll have to have scores of 620 or higher.

How to Choose the Best Mortgage for You

Weigh your options carefully when considering which kind of mortgage loan is right for you. Conventional, FHA, and VA loans each have their own unique set of advantages and disadvantages.

Conventional Loan Upsides and Downsides

A conventional mortgage loan might be appropriate if you have good credit scores and a substantial down payment of at least 20%. With a conventional mortgage, you can avoid certain fees, including an upfront mortgage insurance premium, which is required for an FHA loan, or a funding fee for a VA loan.

FHA Loan Upsides and Downsides

On the other hand, an FHA loan could be a viable option if you want a loan with a lower down payment and more lenient credit requirements. However, remember that one downside to an FHA-insured loan is that you might have to pay MIP throughout the life of the loan, which can increase your overall costs.

VA Loan Upsides and Downsides

Consider a VA loan if you're an active-duty servicemember or veteran. The many upsides of VA loans include not having to make a down payment, competitive interest rates, and no PMI requirement. However, you'll have to meet specific eligibility criteria.

To select the best mortgage for your situation, evaluate your creditworthiness, financial resources, and eligibility, and consult with a qualified mortgage lender or broker for more information.

What Are the Refinancing Options for Conventional, FHA, and VA Mortgages?

Conventional, FHA, and VA loans have different refinancing possibilities. When looking at refinancing alternatives, consider your current loan type, eligibility criteria, and objectives (such as lowering your interest rate) to determine which option is best for you.

Conventional Loan Refinancing

If you get a conventional loan and later want to refinance it, your options potentially include a rate-and-term refinance or a cash-out refinance. People generally do a rate-and-term refinance to lower their interest rate or change the loan term. A cash-out refinance provides cash at closing based on your home's equity. On the downside, the eligibility criteria and documentation for conventional refinancing can be more strict than for other types of loans.

FHA Loan Refinancing

If you want to refinance an FHA-insured loan, you might be eligible for an FHA Streamline Refinance. This kind of refinance is usually fairly quick because it requires less paperwork than a conventional loan refinance. Other options might also be available.

VA Loan Refinancing

One option for a VA-guaranteed loan is to refinance with a VA Interest Rate Reduction Refinance Loan (IRRRL) to lower your interest rate or convert an adjustable-rate mortgage to a fixed rate. An IRRRL requires little documentation, and the underwriting requirements are minimal.

Talk to a mortgage professional for further advice and details about these and other options.

Get Help With Your Conventional, FHA, or VA Loan

Picking the right mortgage for your situation can be daunting. If you're having trouble figuring out what type of loan is best for your circumstances or need other home-buying advice, consider contacting a HUD-approved housing counselor, a mortgage lender, or a real estate attorney.

Get Nolo's Essential Guide to Buying Your First Home by Ilona Bray, J.D., Attorney Ann O'Connell, and Marcia Stewart to learn more about different aspects of homeownership in general.

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