What is the difference between FHA, USDA, and conventional loans?

Conventional loans are not government-backed and need 3-20% down with a 620+ score, but mortgage insurance drops off once you reach 20% equity. FHA loans are government-backed, accept scores as low as 580 with 3.5% down, but carry mortgage insurance that usually lasts the life of the loan. USDA loans offer 0% down with the lowest mortgage insurance, but only in eligible rural/suburban areas and only under household income limits.

Which loan is cheapest, FHA, USDA, or conventional?

It depends on your situation. If you can put 20% down, conventional is cheapest because you avoid mortgage insurance entirely. If you have little savings and qualify, USDA is usually cheapest out of pocket (zero down, lowest insurance). FHA tends to be the most expensive over time because its mortgage insurance is high and lasts the life of the loan, but it is the easiest to qualify for with lower credit.

Is it better to get an FHA or conventional loan?

If your credit is 680+ and you can put at least 5% down, conventional is usually better because the mortgage insurance is cheaper and disappears at 20% equity. If your credit is in the 500s-low 600s or you have minimal savings, FHA is often the more accessible path. The right answer depends on your credit score, down payment, and how long you plan to keep the loan.

Can I switch from FHA to a conventional loan later?

Yes, and many people do. Once you have around 20% equity and a solid credit score, refinancing from an FHA loan into a conventional loan lets you drop FHA mortgage insurance, which on an FHA loan otherwise lasts the life of the loan. This is a common strategy: use FHA to get in, then refinance to conventional to cut the long-term cost.

What credit score do you need for each loan type?

Conventional loans generally need 620+ (740+ for the best rates), FHA loans accept 580+ with 3.5% down (or 500 with 10% down), and USDA loans typically want 640+ for automated approval. Higher scores lower your interest rate on every loan type, so it is worth improving your score before applying.

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FHA vs USDA vs Conventional Loans: Which Mortgage Should You Choose?

By Marcus ReedUpdated June 22, 202610 min read

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Once you start shopping for a mortgage, three names come up constantly: FHA, USDA, and conventional. They are the loans most buyers actually choose between, and picking the right one can mean tens of thousands of dollars over the life of the loan. Here is how they really differ, and how to tell which one fits you.

The Quick Comparison

	USDA	FHA	Conventional
Down payment	0%	3.5%	3-20%
Min credit score	~640	580 (500 w/ 10% down)	620
Mortgage insurance	0.35% annual (lowest)	1.75% up + ~0.55% annual, often for life	PMI if <20% down, drops at 20% equity
Income limit	Yes (115% of area median)	No	Usually no
Location limit	Eligible areas only	Anywhere	Anywhere

Conventional: Best If You Have Credit and Some Savings

Conventional loans are not government-backed. They need a 620+ score (740+ for the best rates) and anywhere from 3% to 20% down. The big advantage: if you put 20% down you skip mortgage insurance entirely, and even if you put less, the PMI automatically falls off once you reach 20% equity. That makes conventional the cheapest option over time for buyers with decent credit and at least a small down payment.

FHA: Best If Your Credit Is Lower

FHA loans are the most forgiving on credit: 580 with 3.5% down, or as low as 500 with 10% down, and no income limits anywhere in the country. The downside is mortgage insurance. FHA charges 1.75% upfront plus an annual premium that, in most cases, lasts the entire life of the loan and never drops off. That is why many people use FHA to get in, then refinance into a conventional loan once they have 20% equity and stronger credit. Full details in our FHA loans guide.

USDA: Best If You Qualify (Cheapest Out of Pocket)

For buyers who fit the box, USDA is hard to beat: zero down and the lowest mortgage insurance of the three. The trade-off is the two eligibility gates - the home must be in an eligible area, and your household income must be under the local cap. If you clear both, it is usually the cheapest way into a home. Check eligibility with our USDA eligibility map guide and the full breakdown in our USDA loans guide.

How to Choose

Credit 680+ and 5%+ to put down? Conventional is usually cheapest.
Credit in the 500s-low 600s? FHA is likely your most accessible path.
Eligible area and under the income cap? USDA wins on out-of-pocket cost.
A veteran? Do not forget VA - zero down and no mortgage insurance usually beats all three. See our VA loans guide.

Bottom Line

There is no single best mortgage, only the best one for your credit, savings, income, and where you are buying. Conventional rewards strong credit, FHA opens the door with weaker credit, and USDA is the cheapest for those who qualify. Figure out which gates you clear, then compare real quotes - the same buyer can get very different deals across the three. Our how much house can I afford guide helps you size the payment before you choose.

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Marcus Reed

Founder & Editor, CrunchYourDollars

Marcus Reed is the founder and editor of CrunchYourDollars. He builds the site's calculators and writes its guides, turning primary-source research from the Federal Reserve, the CFPB, the IRS, HUD, and the USDA into plain-English money explainers. He is not a licensed financial advisor - the goal here is to show the math clearly so you can make your own informed decisions.

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