FHA vs. Conventional vs. USDA vs. VA: What’s the Difference?
Updated: Oct 25
One of the most common questions I get from buyers is: “Which type of mortgage should I use?” FHA? Conventional? USDA? VA?
And if you’ve spent any time Googling, you’ve probably found a chart somewhere telling you one loan is better than another. That’s not really how this works. The best loan is the one that makes the most sense for your finances, the house you’re buying and your long-term plans.
So let’s make this simple.
First, None of These Are “First-Time Homebuyer Loans”
I want to clear this up before we go any further. FHA is constantly advertised as a “first-time homebuyer loan.” That’s marketing.
You do not have to be a first-time homebuyer to use FHA. And really, you don't have to be a first-time homebuyer to use conventional, USDA or VA financing either. Each program has its own eligibility requirements, but simply owning a home before does not automatically disqualify you from any of these four loan types.
So if someone told you that you already used your “first-time homebuyer loan,” we probably need to have a conversation.
Conventional Loans
Conventional loans aren’t backed by a government agency like FHA, USDA or VA. They’re also probably more flexible than a lot of buyers realize.
How Much Do You Need Down?
Depending on the program and your qualifications, some conventional buyers may be able to purchase with as little as 3% to 5% down. You do not automatically need 20%. If you put less than 20% down, you may have private mortgage insurance, commonly called PMI.
One nice thing about conventional PMI is that it isn’t necessarily permanent. Depending on your loan and equity, there may eventually be opportunities to remove it.
When Does Conventional Make Sense?
Conventional can be a great option, especially for buyers with stronger credit profiles. But I don't automatically put someone into conventional just because they have good credit. Sometimes conventional wins.
Sometimes it absolutely does not. I want to run the numbers instead of deciding based on a rule of thumb.
FHA Loans
FHA loans are insured by the Federal Housing Administration. And again, FHA is not a first-time homebuyer loan. You can be a first-time buyer. You can have owned three houses before. Being a first-time buyer is not what makes you eligible for FHA financing.
How Much Do You Need Down?
For qualified borrowers, the minimum down payment can be 3.5%.
Why Would Someone Choose FHA?
FHA can sometimes be more forgiving when it comes to certain credit profiles or debt-to-income situations. That does not mean FHA is a “bad credit loan.” It just means the guidelines are different.
FHA also has mortgage insurance requirements, so we need to look at the entire payment and not just the interest rate or down payment. If FHA and conventional are both realistic options for you, I can run both. Then we look at the actual numbers.
USDA Loans
USDA is probably the loan buyers are most surprised by. USDA can provide 100% financing, meaning no down payment, for qualified borrowers purchasing eligible properties. And no, USDA doesn't mean you have to buy a farm in the middle of nowhere.
There are USDA-eligible areas throughout Arkansas, including areas around Northwest Arkansas and Central Arkansas that buyers don't always realize may qualify.
So What's the Catch?
USDA has property-location requirements and household-income limits. Basically, we need to answer two questions: Does the house qualify?
Does your household qualify? USDA financing is generally for a primary residence, and the income calculation is a little different because we're looking at household income for program eligibility. But if the buyer and property qualify, USDA can be a really good option.
VA Loans
This one is obviously near and dear to me. I'm a Veteran Mortgage Advisor, and as a military spouse, I've spent a lot of time learning the details of VA lending because I think Veterans deserve someone who actually understands the benefit they're using. If you're an eligible Veteran, active-duty service member or qualifying surviving spouse, I absolutely want VA included in the conversation.
VA loans can offer 100% financing, meaning no required down payment in many situations. They also do not have monthly private mortgage insurance. That's a big deal.
But Aren't VA Loans Harder?
There are so many myths surrounding VA loans. No, a VA loan isn't a weak offer. No, the Veteran isn't prohibited from paying all closing costs.
No, every tiny cosmetic issue doesn't automatically kill a VA appraisal. And no, using your VA benefit once doesn't necessarily mean you're done with it forever. VA financing has its own rules, just like every other loan program.
The difference is that VA loans are misunderstood a LOT. I've spent a lot of time learning the details of VA lending because Veterans deserve more than someone who just knows how to select “VA” from a dropdown menu. If you have earned the benefit, I want you to actually understand what it can do for you before deciding whether or not to use it.
Okay, So Which One Requires the Least Money Down?
Here's the quick version: Conventional: Some options start around 3% down, with 5% also common depending on the scenario. FHA: As little as 3.5% down for qualified borrowers.
USDA: 0% down for qualified borrowers purchasing eligible properties. VA: 0% down in many situations for eligible borrowers. But please don't pick your mortgage based on that list alone.
The smallest down payment doesn't automatically mean the lowest payment. And putting the most money down doesn't automatically mean you're making the smartest financial decision. We need to look at the whole picture.
What About Mortgage Insurance?
This is one of the bigger differences between the programs. With conventional financing, buyers putting less than 20% down will commonly have PMI, although it may eventually be removable depending on the loan and equity. FHA has its own mortgage insurance requirements.
USDA has program fees associated with its guarantee. VA doesn't have monthly mortgage insurance, although many VA borrowers have a VA funding fee unless they're exempt. This is exactly why comparing interest rates alone doesn't tell you which loan is cheaper.
I want to compare the actual payment and overall cost.
What About Credit Scores?
This is where generic internet charts start driving me a little crazy. Your credit score matters. But it is not the only thing that determines which loan makes sense.
We're also looking at things like: • Your overall credit profile • Debt-to-income ratio • Income • Assets • Down payment • Property location • Military eligibility • Monthly payment • Mortgage insurance • Interest rate and pricing • How long you expect to own the home You might qualify for three different loan programs. That doesn't mean those three loans are equally good for you.
Can the Seller Pay My Closing Costs?
Potentially, yes. Conventional, FHA, USDA and VA financing all have ways for sellers to contribute toward allowable buyer costs, although the rules and limits are different for each program. And this is especially important in the market we're in right now.
I've had a lot of clients getting most, and sometimes all, of their allowable closing costs covered by the seller. I've even had buyers bring $0 to closing when the financing, seller concessions and other credits all lined up. Can I promise you're going to bring $0?
Of course not. But can we look at the house, your financing and the offer you're writing and figure out how to structure it strategically? Absolutely.
Sometimes negotiating closing costs can help you more upfront than negotiating that same dollar amount off the sales price. That's why I want to be involved before the offer gets written.
What If I Qualify for More Than One?
Good. Then we compare them. Seriously, that's one of my favorite parts of my job.
If FHA and conventional both work, let's run both. If the property is USDA eligible, let's see if USDA makes sense too. If you're VA eligible and someone told you conventional would be “better,” let's actually put the numbers next to each other and see.
I want you to know: How much do I need upfront? What's my estimated monthly payment?
What mortgage insurance or program fees am I paying? What does each option cost me over time? Which one makes sense for the actual house I'm buying?
Then you can make a decision based on your numbers instead of something you heard on TikTok or a generic mortgage chart.
There Isn't One Best Mortgage
That's really the point of this entire article. FHA isn't automatically worse than conventional. Conventional isn't automatically better because you have good credit.
USDA isn't just for farms. VA isn't a weak offer. And none of these are exclusively “first-time homebuyer loans.”
They're tools. My job is to understand the tools well enough to help you figure out which one actually makes sense for you. If you're buying a home in Arkansas and have no idea which type of financing you should use, that's completely fine.
You don't need to figure that out before you call me. That's literally what I'm here for. I'm Kayla Moore, a Veteran Mortgage Advisor serving buyers throughout Northwest Arkansas, Central Arkansas and beyond. I'm also licensed to help buyers in Oklahoma and Missouri.
Let's run the numbers and figure out what actually makes sense for you. Know Moore. Worry Less.
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