Mortgage Loan Types Explained: Conventional, FHA, VA, and USDA

"What kind of loan should I get?" is one of the first real questions a buyer faces, and the answer shapes your down payment, your monthly cost, and even which homes you can buy. Here are the four main loan types, what sets them apart, and who each one fits.

Conventional loans

A conventional loan is any mortgage not backed by a government program. It is the most common type and is offered by nearly every lender.

• Down payment: as little as 3% for many first-time buyers, though more is common.
• Credit: typically needs a score around 620 or higher; the best rates go to scores in the 740s and up.
• Mortgage insurance: if you put down less than 20%, you pay private mortgage insurance (PMI) — but unlike some government loans, you can cancel PMI once you reach about 20% equity.
• Best for: buyers with solid credit who want flexibility and a path to dropping mortgage insurance.

FHA loans

An FHA loan is insured by the Federal Housing Administration. It is designed to make homeownership reachable for buyers with lower credit or smaller savings.

• Down payment: as low as 3.5% with a credit score of 580+ (10% if your score is between 500 and 579).
• Credit: more forgiving of lower scores and past credit bumps than conventional loans.
• Mortgage insurance: you pay an upfront premium plus an annual one. On most modern FHA loans this mortgage insurance lasts the life of the loan unless you refinance, which is the key trade-off.
• Best for: buyers with limited down payment or credit who can refinance into a conventional loan later.

VA loans

A VA loan is guaranteed by the Department of Veterans Affairs and is available to eligible veterans, active-duty service members, and certain surviving spouses. For those who qualify, it is often the best deal available.

• Down payment: none required in most cases.
• Mortgage insurance: none — there is no monthly PMI, which is a major monthly savings.
• Funding fee: a one-time fee (which can be financed into the loan) replaces ongoing insurance; some veterans with service-connected disabilities are exempt.
• Best for: any eligible service member or veteran. If you qualify, compare it carefully against everything else — it usually wins.

USDA loans

A USDA loan is backed by the U.S. Department of Agriculture and is meant to encourage homeownership in rural and many suburban areas.

• Down payment: none required.
• Eligibility: the home must be in a USDA-eligible area, and your household income must fall under a limit for the county. A surprising number of small towns and outlying suburbs qualify — including many across south Louisiana.
• Mortgage insurance: a guarantee fee that is lower than FHA's premiums.
• Best for: moderate-income buyers purchasing outside major metro cores who want a zero-down option.

A quick comparison

Fixed vs. adjustable rate

Separate from the loan type is the rate structure. A fixed-rate mortgage keeps the same interest rate for the entire term — predictable and the most popular choice. An adjustable-rate mortgage (ARM) starts lower but can change after an initial fixed period, which adds risk if rates rise. Most buyers planning to stay put for years prefer the certainty of a fixed rate.

How to choose

Start with eligibility: if you are a veteran, the VA loan is almost always worth a hard look. If you are buying in a rural or outlying area with moderate income, price out USDA. Otherwise the real decision is usually conventional vs. FHA — conventional if your credit and savings support it (so you can shed mortgage insurance), FHA if a lower score or smaller down payment is the barrier today.

The best move is to get quotes for more than one loan type from your lender and compare the total monthly payment and the long-term insurance cost, not just the interest rate. Two loans with the same rate can cost very different amounts once mortgage insurance is factored in.