Most first-time buyers are quietly funneled toward whichever loan their lender earns the most on — not the one that costs them the least. The three main options (conventional, FHA, VA) differ by tens of thousands of dollars over the life of the loan depending on your down payment, credit, and military status. This guide breaks down exactly when each one wins, with the real 2026 numbers.
The 30-second answer
- Eligible for a VA loan? It almost always wins. Zero down, no monthly mortgage insurance ever, competitive rates. The only cost is a one-time funding fee (waived for disabled veterans).
- Strong credit (700+) and 5%+ down? Conventional is usually cheapest — PMI is removable and often smaller than FHA’s.
- Lower credit (580–madeup-ish) or thin file, small down payment? FHA is the accessible option — but its mortgage insurance often lasts the life of the loan.
The rest of this guide is the detail behind that summary.
Down payment
| Loan | Minimum down |
|---|---|
| VA | 0% |
| USDA (rural, bonus option) | 0% |
| Conventional (HomeReady/Home Possible) | 3% |
| FHA | 3.5% |
| Conventional (standard) | 5% |
VA and USDA are the only true zero-down options. Between FHA’s 3.5% and conventional’s 3%, conventional can actually require less cash down for buyers who qualify for the 3% programs — a fact lenders rarely volunteer.
Mortgage insurance — the part that quietly costs the most
This is where the loans diverge hardest:
- Conventional PMI: required under 20% down, but removable. You can request cancellation at 80% loan-to-value and it auto-terminates at 78%. Rising home value can kill it even faster. See exactly when with the PMI removal calculator.
- FHA MIP: an upfront 1.75% premium plus an annual premium that, for most modern FHA loans with under 10% down, lasts the entire life of the loan. The only escape is refinancing out of FHA entirely.
- VA: no monthly mortgage insurance, ever, at any down payment. This single difference is worth $20,000–$45,000 over the first decade versus a comparable low-down FHA or conventional loan.
Mortgage insurance, not the interest rate, is usually the biggest hidden cost difference between these loans.
The funding fee / upfront costs
- VA funding fee: one-time, 1.25%–3.3% depending on down payment and first vs subsequent use — almost always rolled into the loan, and waived entirely for veterans with a 10%+ disability rating. Model it precisely with the VA loan calculator.
- FHA upfront MIP: 1.75% of the loan, also typically financed.
- Conventional: no government upfront fee — just standard closing costs.
Credit score reality
- Conventional: best pricing at 740+. Below ~680 the rate and PMI cost climb fast.
- FHA: designed for 580+ (sometimes lower with 10% down). Forgiving on credit blemishes and higher debt-to-income.
- VA: no VA-set minimum; lenders typically want ~620, but VA is flexible on the whole file.
Run your debt-to-income first with the DTI calculator — it decides approval more than the score itself.
Worked comparison: $400,000 home, 5% down, 700 credit
Rough 2026 monthly cost ranking, all-in (P&I + mortgage insurance):
- VA — lowest. No PMI; only the financed funding fee slightly raises the balance.
- Conventional — close behind; PMI is modest at 700 credit and disappears at 20% equity.
- FHA — often the highest long-term cost because MIP never falls off without refinancing, even though the monthly payment can start similar.
Plug your real numbers into the mortgage payment calculator and the FHA vs conventional calculator to see your exact spread.
When each loan actually wins
Choose VA if you or your spouse qualify. It is the strongest mortgage product in America. Nothing else competes on total cost.
Choose conventional if you have decent credit (680+) and can put at least 3–5% down. PMI is temporary and you keep the most flexibility (no lifetime insurance, easiest to drop mortgage insurance, widest property eligibility).
Choose FHA if your credit is rebuilding, your debt-to-income is high, or you have a non-traditional income/credit profile. It is the most forgiving door into ownership — just plan to refinance into a conventional loan later to escape lifetime MIP once your credit and equity improve.
The mistake to avoid
Do not pick a loan on the monthly payment alone. FHA and conventional can quote nearly identical first-month payments while differing by $30,000+ over the time you own the home — entirely because of how long mortgage insurance lasts. Always compare total cost over your expected stay, not the teaser monthly number.
Do this next
- Check eligibility — if there is any military connection, investigate VA first.
- Run your DTI to see what you’ll actually qualify for.
- Compare total cost (not monthly) with the FHA vs conventional calculator and VA loan calculator.
- If conventional, see when PMI dies with the PMI removal calculator.
The right loan can be worth more than a 0.25% rate difference you’d negotiate for weeks. Spend the hour comparing all three properly.
Educational guide, not loan or financial advice. Confirm specifics with a licensed lender.