FHA vs Conventional vs VA: Real Cost Comparison

Conventional loans are mortgages not insured or guaranteed by the federal government. They are the most common loan type for borrowers with good credit and at least 5 percent down.

• Minimum down payment: 3 percent (Fannie Mae HomeReady or Freddie Mac Home Possible programs); typically 5 percent or 20 percent in practice.
• Minimum credit score: 620 in most cases; better rates start at 740+.
• PMI (Private Mortgage Insurance): required if down payment is below 20 percent. Typically 0.3 to 1.5 percent of loan annually, depending on credit score and LTV. PMI cancels automatically when LTV reaches 78 percent (or you can request cancellation at 80 percent LTV).
• Loan limits (2024): $766,550 in most counties, up to $1,149,825 in high-cost areas.

Conventional wins when you have good credit and at least 10 percent down. The PMI cancellation rule is the killer feature — you only pay PMI for a few years, not for life.

FHA loans are insured by the Federal Housing Administration. They were designed to help first-time and lower-credit borrowers buy homes with minimal down payment.

• Minimum down payment: 3.5 percent for credit scores 580+; 10 percent for credit scores 500–579.
• Minimum credit score: 500.
• Mortgage insurance: FHA charges two mortgage insurance fees: an upfront 1.75 percent of loan (financed) and an annual MIP of 0.55 to 0.85 percent. The annual MIP continues for the entire 30-year loan if you put down less than 10 percent.
• Loan limits (2024): $498,257 in most counties; $1,149,825 in high-cost areas.

The MIP-for-life rule is the FHA's biggest drawback. On a $400,000 loan, that is roughly $200/month for 30 years — about $72,000 in total mortgage insurance, never canceling. The only way to remove FHA MIP is to refinance into a conventional loan once you have 20 percent equity.

FHA wins when your credit score is below 680 (where conventional PMI gets expensive) and you cannot get a conventional approval. For everyone else, conventional usually beats FHA after the first 3 to 5 years.

VA loans are guaranteed by the Department of Veterans Affairs and available to qualifying veterans, active-duty service members, and some surviving spouses.

• Down payment: 0 percent. No down payment required, with no maximum loan amount in most cases (eliminated by Blue Water Navy Vietnam Veterans Act 2019).
• Mortgage insurance: none. No PMI, no MIP, ever.
• Funding fee: 1.4 to 3.6 percent of the loan, financed into the mortgage. Waived for veterans receiving disability compensation.
• Credit score: no official minimum, though most lenders set 620.
• DTI: no hard cap, though 41 percent is the standard ceiling.

The VA loan is the single best mortgage product in the US. No down payment, no monthly mortgage insurance, lower rates than conventional, and lenient underwriting. The funding fee is a one-time cost that stops accumulating after closing — unlike FHA MIP, which continues for life.

If you are a qualifying veteran, the VA loan beats conventional and FHA in almost every situation. The only reason to consider conventional is if you want to avoid the funding fee on a low-LTV refinance.

Assume $20,000 down, $380,000 loan, 30-year term, current rates around 7 percent for conventional, 6.5 percent for FHA, 6.5 percent for VA.

Conventional 95% LTV (5% down):

• Rate: 7.0%
• P&I: about $2,529/month
• PMI: about $190/month for ~10 years
• Total monthly (P&I + PMI): $2,719 initially, drops to $2,529 after PMI cancellation
• Total interest + PMI over 30 years: roughly $632,000

FHA 96.5% LTV (3.5% down):

• Rate: 6.5% (typically lower than conventional)
• Loan: $386,000 financed (UFMIP added)
• P&I: about $2,440/month
• MIP: about $250/month for 30 years
• Total monthly: $2,690 for life of loan
• Total interest + MIP over 30 years: roughly $657,000

VA 100% LTV (0% down):

• Rate: 6.5%
• Loan: $410,000 (funding fee 2.5% added)
• P&I: about $2,591/month
• No mortgage insurance
• Total monthly: $2,591 for life of loan
• Total interest + funding fee over 30 years: roughly $543,000

The VA loan saves about $90,000 over 30 years compared to conventional, and $114,000 compared to FHA, while requiring zero down. The conventional vs FHA comparison shifts in conventional's favor over time as PMI cancels — by year 12, conventional is the cheapest of the two.

• Qualifying veteran: VA loan, almost always.
• Credit score 740+, 10%+ down: conventional wins on total cost over time.
• Credit score 680–739, 5–10% down: conventional usually still wins, but compare lenders carefully.
• Credit score 620–680, 3.5–5% down: compare both. FHA may have lower rate but higher MIP burden long-term.
• Credit score below 620: FHA is often the only option.
• Credit score 580–620, 3.5% down: FHA. Plan to refinance to conventional after credit improves and you build equity.