Most American buyers choose between four mortgage programmes. They differ in who can qualify, how much deposit they need, and — most importantly and least understood — how they charge for mortgage insurance.
That last difference is where the real money is. Two loans with identical interest rates can cost very different amounts over time because of how their insurance is structured. Comparing rates alone will routinely point you at the wrong loan.
Conventional
The mainstream product: any mortgage not backed by a government programme. Most conventional loans are conforming, meaning they meet the standards that let Fannie Mae or Freddie Mac buy them — including a maximum loan size that varies by county. Above that limit you're into jumbo territory, covered in our conforming vs jumbo guide.
Who it suits: buyers with reasonable credit, particularly anyone who can reach or approach 20% down.
The insurance advantage: conventional loans carry PMI only while your equity is below 20%, and PMI is cancellable. It terminates automatically at 78% loan-to-value and can be cancelled on request at 80%. That makes it a temporary cost with a defined end — see when does PMI go away.
Low-down-payment conventional options do exist, so "conventional means 20% down" is a myth. But pricing is more credit-sensitive than the government programmes, so a weaker credit file is penalised harder here.
FHA
Insured by the Federal Housing Administration and designed for buyers who struggle to qualify conventionally — lower credit scores, thinner files, higher debt ratios. Not restricted to first-time buyers, despite the common belief.
Who it suits: buyers whose credit or debt-to-income ratio makes conventional approval difficult or expensive.
The insurance catch — read this carefully. FHA loans carry MIP, which comes in two parts: an upfront premium usually financed into the loan, and an annual premium paid monthly. On most modern FHA loans with a low down payment, the annual premium lasts the life of the loan. It does not cancel at 78% or 80% the way PMI does. With a larger down payment it may end after a set number of years instead.
This is the decisive difference. An FHA borrower who builds substantial equity keeps paying mortgage insurance indefinitely, and the standard exit is refinancing into a conventional loan — a real transaction with real closing costs. FHA rates often look attractive; the lifetime insurance is what you're paying for them with.
FHA also applies property standards. Homes needing significant repair can fail appraisal, which matters if you're shopping fixer-uppers.
VA
Guaranteed by the Department of Veterans Affairs for eligible service members, veterans, and certain surviving spouses. For those who qualify it is usually the strongest programme available in the United States.
Who it suits: anyone eligible. It is rarely beaten.
Why it wins: no down payment requirement in most cases, and — decisively — no monthly mortgage insurance at all. Not cancellable insurance; none. Instead there's a one-time funding fee, which can be financed and is waived for veterans receiving compensation for a service-connected disability. VA loans also typically carry competitive rates and more forgiving underwriting.
Eligibility runs on a certificate of eligibility and the entitlement can be reused. If you're eligible and a lender steers you toward a conventional loan, ask them to justify it in writing — the absence of monthly insurance is difficult to beat.
USDA
Backed by the Department of Agriculture for buyers in designated rural and many suburban areas, subject to household income limits.
Who it suits: moderate-income buyers purchasing inside an eligible area.
What it offers: no down payment requirement, and guarantee fees that are typically lower than FHA's insurance. The constraints are geography and income — both are hard eligibility rules, not preferences.
The common mistake is assuming "rural" means remote farmland. Eligible areas frequently include small towns and the outer edges of metropolitan areas. If you're buying outside a city centre it costs nothing to check the property address against the eligibility map.
The comparison that actually matters
Here is the framework worth using. Rather than comparing interest rates, compare:
- Cash needed at closing — down payment plus closing costs, minus any credits.
- Total monthly payment — principal, interest, taxes, insurance, and mortgage insurance.
- Whether the mortgage insurance ever ends, and if so when.
- Total cost over the period you'll realistically hold the loan.
Point three is where FHA and conventional genuinely diverge. A borrower choosing FHA for a slightly better rate, planning to stay a decade, may pay considerably more in total than the same borrower on a conventional loan whose PMI falls away in year five.
The reverse is also true: a borrower whose credit prices badly conventionally may find FHA cheaper even with lifetime insurance. There is no universal answer — which is exactly why the comparison has to be run on your numbers.
You're not locked in
A useful reframing for buyers agonising over this. The loan you start with need not be the loan you keep. An FHA borrower who improves their credit and builds equity can refinance to conventional and shed the insurance. Someone who takes a higher rate today can refinance if rates fall.
What you generally cannot undo is overpaying for the house, or draining your reserves to close. Get the purchase right and treat the financing as revisable — while remembering that refinancing has costs of its own, covered in when to refinance.
Also worth asking about
Beyond the four programmes, most states run a housing finance agency offering down payment assistance, below-market rates, or tax credits for eligible buyers — frequently with income limits and a homebuyer education requirement. These are chronically underused because buyers don't know they exist. Search for your state's housing finance agency by name before you settle on a loan.
The bottom line
VA is usually best if you're eligible, because it has no monthly mortgage insurance. USDA is excellent if the address and your income qualify. Conventional wins for most buyers with decent credit, mainly because PMI is temporary and cancellable. FHA is the route when credit or debt ratios rule out the others — but go in knowing the insurance likely lasts the life of the loan.
Compare cash to close, full monthly payment including insurance, and total cost over your realistic holding period. Run each option through a calculator with the mortgage insurance included, because the headline rate is the least informative number in the comparison.