Best Mortgage Types for First-Time Buyers 2025: FHA vs Conventional vs VA vs USDA
Choosing the wrong mortgage type costs first-time buyers $50K-100K over 30 years. Here's the truth: FHA loans require only 3.5% down but charge PMI forever ($200/month = $72K). Conventional loans need 5-20% down but drop PMI at 20% equity. VA loans offer 0% down for veterans with no PMI. USDA loans are 0% down for rural areas. This complete guide compares all 4 types with exact costs, qualification requirements, pros/cons, and reveals which mortgage saves YOU the most money based on your down payment, credit score, location, and veteran status.
🎯 Which Mortgage Type is Best for You?
Answer 5 questions to see which loan type saves you the most money.
Find My Best Mortgage →Quick Comparison: 4 Mortgage Types
| Feature | FHA | Conventional | VA | USDA |
|---|---|---|---|---|
| Down Payment | 3.5% | 5-20% | 0% | 0% |
| Credit Score Min | 580 | 620 | 580 | 640 |
| PMI/MIP | Forever | Drops at 20% | None | None |
| Loan Limits | $498,257 | $766,550 | $766,550 | Varies |
| Best For | Low credit, small down payment | Good credit, 5%+ down | Veterans, active duty | Rural buyers |
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Get Pre-Approved →FHA Loans: Complete Breakdown
✅ FHA Loan Pros
- • Only 3.5% down ($14K on $400K home vs $80K for conventional 20%)
- • Credit score as low as 580 (vs 620+ for conventional)
- • Easier approval for first-time buyers with limited credit history
- • Seller can pay closing costs (up to 6% of purchase price)
- • Gift money allowed for entire down payment from family
❌ FHA Loan Cons
- • PMI forever ($200/month = $72K over 30 years, can't cancel)
- • Upfront MIP (1.75% of loan = $7K on $400K, added to loan)
- • Lower loan limits ($498,257 vs $766,550 conventional)
- • Property must meet FHA standards (stricter inspections)
- • Less competitive offers (sellers prefer conventional buyers)
💰 FHA Cost Example: $400K Home
• Down payment (3.5%): $14,000
• Upfront MIP (1.75%): $7,000 (added to loan)
• Loan amount: $393,000 ($386K + $7K MIP)
• Monthly payment at 6.5%: $2,484
• Monthly MIP (0.55%): +$180
Total monthly: $2,664
PMI never drops. Total PMI over 30 years: $64,800
💰 Compare FHA vs Conventional Rates
See which saves you more money over 30 years.
Compare Loan Types →Conventional Loans: Complete Breakdown
✅ Conventional Loan Pros
- • PMI drops at 20% equity (save $72K vs FHA forever PMI)
- • Higher loan limits ($766,550 vs $498K FHA)
- • Lower rates with good credit (740+ score = 0.5% lower than FHA)
- • Stronger offers (sellers prefer conventional buyers)
- • More property types allowed (condos, investment properties)
❌ Conventional Loan Cons
- • Requires 5-20% down ($20K-80K on $400K home)
- • Credit score 620+ required (vs 580 for FHA)
- • Stricter approval (debt-to-income ratio, credit history)
- • PMI if less than 20% down ($150-250/month until 20% equity)
- • Higher rates with low credit (680 score = 1% higher rate)
💰 Conventional Cost Example: $400K Home (5% Down)
• Down payment (5%): $20,000
• Loan amount: $380,000
• Monthly payment at 6.25%: $2,340
• Monthly PMI (0.5%): +$158
Total monthly: $2,498
PMI drops when you reach 20% equity (typically 5-7 years)
Total PMI paid: ~$11,000 (vs $64,800 FHA)
VA Loans: Complete Breakdown
✅ VA Loan Pros (BEST DEAL!)
- • 0% down payment (buy $400K home with $0 down)
- • NO PMI ever (save $72K+ vs FHA, $11K+ vs conventional)
- • Lower rates (typically 0.25-0.5% lower than conventional)
- • No minimum credit score (lender discretion, typically 580+)
- • Seller can pay all closing costs (up to 4%)
- • Reusable benefit (use multiple times)
❌ VA Loan Cons
- • Only for veterans/active duty (must have Certificate of Eligibility)
- • Funding fee (2.3% first-time, 3.6% subsequent = $9K on $400K)
- • Property must meet VA standards (stricter than conventional)
- • Some sellers avoid VA buyers (misconception about difficulty)
💰 VA Cost Example: $400K Home (0% Down)
• Down payment: $0
• Funding fee (2.3%): $9,200 (added to loan)
• Loan amount: $409,200
• Monthly payment at 6.0%: $2,453
• Monthly PMI: $0
Total monthly: $2,453
LOWEST total cost of all loan types!
USDA Loans: Complete Breakdown
✅ USDA Loan Pros
- • 0% down payment (buy with $0 down in eligible areas)
- • Lower rates (typically 0.25% lower than conventional)
- • Low PMI (0.35% vs 0.5-1% conventional)
- • Flexible credit (640+ score, some lenders accept 580)
❌ USDA Loan Cons
- • Location restricted (only USDA-eligible rural/suburban areas)
- • Income limits (typically 115% of area median income)
- • Longer processing (45-60 days vs 30-45 conventional)
- • Property restrictions (must be primary residence, under 2,000 sq ft lot)
Which Mortgage Type Should YOU Choose?
Choose FHA if:
- • Credit score 580-680
- • Only have 3.5% down payment
- • Limited credit history
- • Planning to refinance in 2-3 years when credit improves
Choose Conventional if:
- • Credit score 700+
- • Have 5-20% down payment
- • Want PMI to drop eventually
- • Buying home over $498K
Choose VA if:
- • You're a veteran or active duty
- • Want 0% down with no PMI (BEST DEAL!)
- • Any credit score 580+
Choose USDA if:
- • Buying in rural/suburban eligible area
- • Income under area limits
- • Want 0% down (non-veteran)
Frequently Asked Questions
Can I switch from FHA to conventional later?
Yes! Refinance to conventional once you have: 20% equity (to avoid PMI), 680+ credit score, and stable income. This eliminates FHA's forever PMI and saves $72K over life of loan.
Is FHA or conventional better for first-time buyers?
Depends on your situation:
- • FHA better if: Low credit (580-680), small down payment (3.5%), plan to refinance in 2-3 years
- • Conventional better if: Good credit (700+), 5%+ down payment, want PMI to drop eventually
How much does PMI cost?
PMI costs vary by loan type:
- • FHA MIP: 0.55% annually = $180/month on $400K loan (forever)
- • Conventional PMI: 0.5-1% annually = $158-316/month (drops at 20% equity)
- • VA: $0 (no PMI)
- • USDA: 0.35% annually = $117/month