Home Loan Types Explained: Conventional, FHA, VA, & USDA

Applying for your first mortgage feels like learning a new language. FHA, VA, USDA, conventional — the acronyms alone are overwhelming, and each loan type has different qualification criteria.

Here's the truth: there's no single "best" loan type. The right mortgage depends entirely on your financial situation, military status, location, and homeownership goals. This guide breaks down the four main loan types and how they work..

Key Takeaways

Conventional Loans Are Most Common:

Many lenders require a credit score of 620+ and 3% down on conventional loans, but offer the most flexibility and best rates to strong borrowers.

FHA Loans Accept Lower Credit:

The FHA loan program allows a minimum credit score of 580 with a 3.5% down payment. This often makes FHA loans ideal for first-time buyers or those rebuilding credit.

VA Loans Are Competitive Option  for Veterans:

The VA program allows veterans to purchase a home with 0% down and doesn’t require mortgage insurance, while offering competitive rates. If you are eligible, VA loans are a cost-effective option for many borrowers.

USDA Loans Offer 0% Down in Rural Areas:

The USDA program makes homeownership possible for low-income borrowers who wish to live in a rural area according to USDA standards. Income limits apply, but eligible buyers can purchase a home with 0% down and qualify for low rates in qualifying locations.

💡 Pro Tip: A lower down payment may not always be as financially beneficial as you think. If it means higher mortgage insurance costs, the payment may be less affordable. Compare the loan’s total monthly cost and lifetime cost to ensure you choose the right loan.

The Four Main Loan Types 🏡

Conventional Loans: The Flexible Standard

Conventional loans aren't backed by the government and follow guidelines set by Fannie Mae and Freddie Mac, government-sponsored enterprises that buy mortgages from lenders, helping them lend more money to borrowers. They require a credit score of 620+ and a down payment of 3-20% of the purchase price. If you put down less than 20%, they require  Private Mortgage Insurance, which increases your monthly costs.

The advantage: You can cancel PMI once you reach 20% equity, making conventional loans cheaper in the long term for borrowers with strong credit.

FHA Loans: The First-Time Buyer Favorite

FHA loans are backed by the Federal Housing Administration and accept credit scores as low as 580 with a 3.5% down payment. The catch: you pay both upfront mortgage insurance (1.75% of the loan amount) and annual premiums (which vary based on loan amount, loan term, and down payment). If you put down less than 10%, mortgage insurance stays in place for the life of the loan.

The advantage: FHA loans are an excellent way to get into homeownership quickly. They are often best for buyers with credit scores of 580-680 who need flexible approval.

VA Loans: The Military Advantage

VA loans are guaranteed by the Department of Veterans Affairs and available to veterans, active-duty service members, and eligible surviving spouses. The benefits are incredible: 0% down payment, no monthly mortgage insurance, competitive rates, and reusable benefits. However, you do pay a one-time funding fee (1.4-3.6% of the loan amount) that can be rolled into the loan.

The advantage: Most lenders require a credit score of 620+, but VA lenders are more flexible than conventional lenders. If you qualify for a VA loan, be sure to include it in your comparisons to ensure you get the most attractive loan.

USDA Loans: The Rural Opportunity

USDA loans are backed by the USDA to encourage homeownership in rural and suburban areas. They offer loans with 0% down payment and low mortgage insurance requirements(1% of the loan amount upfront, 0.35% annually). However, the property must be in a USDA-eligible area (many suburbs qualify), and household income must be at or below 115% of the area's median income. Many lenders require a credit score of 640 or higher to qualify, although this varies by lender, as the program does not have a minimum credit score requirement.

The advantage: USDA loans help borrowers who otherwise would not qualify for financing purchase their first home, as long as they meet the location requirements and income qualifications.

💡 Pro Tip: Once you know which loan type fits your situation, don't settle for the first rate you're offered. Upload your Loan Estimate to Fincast and let vetted lenders compete to beat your rate --- no extra credit pulls, no spam.

Which Loan Type Should You Choose? 🤔

Choose Conventional if: You have good credit (680+ scores), can put 5-20% down, and want the lowest long-term costs with flexibility.

Choose FHA if: Your credit is 580-680, you have 3.5% to put down, and you plan to refinance within 3-5 years once your credit improves.

Choose VA if: You're a veteran, active military, or a surviving spouse of a veteran with 620+ credit and want 0% down without PMI.

Choose USDA if: You're buying in a qualifying rural/suburban area, meet income limits, and want 0% down with low fees.

How Fincast Helps You Get the Best Terms 🚀

Once you know which loan type fits your situation, secure the best possible rate. Rates and fees vary significantly between lenders—even for the same loan type.

Here's how Fincast works:

• Complete a loan application and receive your Loan Estimate

• Upload your Loan Estimate to Fincast --- secure platform, no hassle

• Lenders compete for your business — vetted lenders may offer improved pricing to win your business

• Save thousands — compare offers and choose the option that saves you the most money

There are no hard credit pulls by Fincast (your chosen lender may need to pull your credit later), and you don’t have to worry about spam. Whether you choose an FHA, VA, USDA, or conventional loan, Fincast helps you secure the best terms for your situation.

FAQs

1. Can I get pre-approved for multiple loan types at once?

Yes. Many lenders pre-approve you for several loan types simultaneously using one credit pull so that you can compare options.

2. Is it easier to get approved for an FHA or a conventional loan?

FHA loans can be easier to qualify for with lower credit scores (580-680) and lower down payments (3.5%). If you have better credit scores and at least 3% to put down, a conventional loan may be a better option, especially if you can make a larger down payment and avoid mortgage insurance.

3. Do VA loans really have no closing costs?

VA loans have closing costs, but sellers can pay all of them, and you can roll the funding fee into your loan, making 0% out-of-pocket possible.

4. Can I refinance from FHA to conventional later?

Yes. Once you build equity in the home and your credit improves to 620+, refinancing to conventional may be a feasible option.

5. How do I know if my area qualifies for USDA?

Check the USDA eligibility map online. Many suburban areas qualify — not just rural farmland.

Bottom Line

There's no one-size-fits-all mortgage. The right loan depends on your credit, down payment, military status, location, and long-term goals.

You're ready to choose your loan type when:

• You know your credit score and what it qualifies you for

• You've calculated how much you can put down

• You've researched VA and USDA eligibility (if applicable)

• You understand the total monthly cost, not just the down payment

• You've compared total costs over time, not just upfront expenses

Once you've identified the right loan type, apply for the loan and upload your Loan Estimate to Fincast to ensure you're getting competitive terms.

Pro Tips (Save These!)

• Don't assume FHA is your only option with lower credit --- check conventional too

• VA benefits are reusable — don't waste them if you qualify

• Many suburban areas qualify for USDA — check before ruling it out

• Conventional loans can become cheaper than FHA after 5-7 years due to mortgage insurance

• Upload your Loan Estimate to Fincast to compare lenders

• Get pre-approved for multiple loan types to see all options

• Calculate total 30-year costs, not just monthly payments

👉 Ready to get the best rate for your loan type? Apply for a loan, upload your Loan Estimate to Fincast, and let lenders compete for your business.