The differences between FHA, conventional, and VA loans

09 February 2024

Choosing the right mortgage is one of the most important financial decisions you'll make as a homebuyer. On this week's episode of The Housing Hour, we break down the three most common loan types—FHA, conventional, and VA—so you can walk into a lender's office knowing exactly which questions to ask. Here's a practical summary of what we covered and how each loan might fit your situation.

What Is an FHA Loan?

FHA loans are backed by the Federal Housing Administration and are designed to make homeownership accessible to buyers who may not have large savings or perfect credit.

Lower minimum down payments, often as low as 3.5% for qualified borrowers
More flexible credit score requirements than many conventional lenders
Mortgage insurance premiums (MIP) required both upfront and annually
Loan limits set by county, which vary by region

Because the government insures these loans, lenders can take on borrowers who might otherwise be declined. The trade-off is the mortgage insurance, which typically stays on the loan for a long period unless you refinance or put enough money down.

What Is a Conventional Loan?

Conventional loans are not government-backed. They're offered by private lenders and follow guidelines set by entities like Fannie Mae and Freddie Mac. These loans generally reward stronger financial profiles.

When Does a Conventional Loan Make Sense?

A conventional loan is often the best fit if you have solid credit and a down payment of at least 3–5%. Key advantages include:

Private mortgage insurance (PMI) can be canceled once you build enough equity—typically 20%
No upfront funding fee or government insurance premium
Higher loan limits in most markets, with jumbo options for expensive areas
Potentially lower overall costs for borrowers with strong credit

If you plan to stay in a home long-term and can qualify, the ability to drop PMI makes conventional loans a favorite among our podcast guests who are financial planners.

What Is a VA Loan?

VA loans are a benefit earned through military service, guaranteed by the U.S. Department of Veterans Affairs. For eligible service members, veterans, and surviving spouses, they're hard to beat.

No down payment required in most cases
No ongoing monthly mortgage insurance
Competitive interest rates
Limits on certain closing costs lenders can charge

The main cost is a one-time VA funding fee, which varies based on your down payment and whether it's your first use of the benefit. Some veterans are exempt from this fee entirely. If you or a family member has served, this should be the first loan you explore.

How Do You Choose the Right One?

The best loan depends on your down payment, credit profile, and eligibility. A quick way to frame the decision:

Qualify for a VA loan? Start there—the terms are usually the strongest.
Have a lower credit score or small down payment? FHA may be the most accessible path.
Have good credit and at least 3–5% down? Compare conventional offers carefully; you may save on insurance costs over time.

Also consider how long you plan to stay in the home. If you expect to refinance or move within a few years, upfront costs matter more than long-term insurance savings.

Final Thoughts from the Episode

Our guests this week emphasized one point repeatedly: get pre-qualified for more than one loan type before committing. Lenders can run the numbers side by side, and seeing the total monthly cost—not just the rate—often makes the decision clear. Whether you're a first-time buyer using an FHA loan, a veteran using a hard-earned VA benefit, or a borrower with strong credit going conventional, understanding these differences puts you in control of the biggest purchase of your life. Listen to the full episode for real borrower stories and lender Q&A.