FHA loans are government-backed with low down-payment and credit-score requirements; VA loans are for eligible veterans and active-duty service members and require no down payment or PMI; conventional loans are not government-insured, require higher credit scores, but allow PMI cancellation once you reach 20% equity.
Three loan types dominate the U.S. mortgage market. FHA and VA loans are government-backed — the federal government insures the lender against default. Conventional loans are not government-insured; they follow guidelines set by Fannie Mae and Freddie Mac and are underwritten entirely by private lenders.
An FHA loan, insured by the Federal Housing Administration, accepts credit scores as low as 580 with 3.5% down (or 500–579 with 10% down). The tradeoff is mortgage insurance: an upfront premium of 1.75% of the loan amount plus an annual MIP that typically runs 0.55%–0.75% of the loan balance. For loans with less than 10% down, MIP lasts for the life of the loan — it doesn't cancel automatically the way conventional PMI does.
A VA loan, guaranteed by the U.S. Department of Veterans Affairs, is available to eligible veterans, active-duty service members, and certain surviving spouses. Key advantages: no down payment required, no private mortgage insurance, and competitive rates. VA loans do charge a one-time funding fee (1.25%–3.3% of the loan amount, varying by down payment and usage), which can be rolled into the loan. Disabled veterans may be exempt from the funding fee.
Conventional loans follow Fannie Mae and Freddie Mac guidelines. They typically require a 620+ credit score and down payments starting at 3% (for some programs). Private mortgage insurance is required below 20% down, but under the Homeowners Protection Act, you can request PMI cancellation once you reach 20% equity, and lenders must automatically cancel at 22%. Conventional loans have no upfront insurance premium.
VA loans are the most favorable economically for eligible borrowers — no down payment and no ongoing PMI. FHA is the accessible path for buyers with limited credit history or smaller savings. Conventional is optimal for borrowers with 620+ credit who want PMI cancellability or are buying above FHA limits. All three require lender qualification — which loan a specific borrower qualifies for depends on their full financial profile.
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