What Is the Difference Between Government-Insured Loans and Conventional Loans?

Government-backed loans (FHA loans insured by the Federal Housing Administration, and VA and USDA loans guaranteed by the Department of Veterans Affairs and the Department of Agriculture) protect the lender if you default, so they accept smaller down payments and, for FHA, credit scores down to 500. Conventional loans have no federal backing, so they usually need a higher score and at least 3% to 5% down, but the private mortgage insurance (PMI) they require below 20% down can be canceled, while FHA's annual premium usually lasts for the life of the loan. For a borrower with a lower credit score, FHA is usually cheaper; with a score around 760 and a small down payment, a conventional loan can cost less over time.

For the basics of how any mortgage works, see what a mortgage is and how it works.

How do the rules compare?

Figures below are the agencies' minimums for a one-unit home you will live in. Lenders can set stricter rules of their own. VA loans require qualifying military service or another eligible status, such as an eligible surviving spouse, documented by a Certificate of Eligibility.

Types of mortgage loans covers jumbo, adjustable-rate, and other options alongside these four.

How does mortgage insurance differ?

Mortgage insurance is usually the largest cost difference between these loans.

• FHA. You pay an upfront premium of 1.75% of the loan, usually added to the balance, plus an annual premium paid monthly. On a loan of $726,200 or less over more than 15 years, the annual rate is 0.55% with less than 5% down and 0.50% with 5% or more. With less than 10% down, the annual premium lasts for the life of the loan; the only way out is to refinance or pay off the loan. With 10% or more down, it ends after 11 years. FHA charges the same rates at every credit score.
• Conventional PMI. The insurer prices PMI from your credit score and down payment, so it costs more at lower scores. You can ask your servicer in writing to cancel it when your balance reaches 80% of the home's original value, if you are current and have a good payment history. You must also meet the servicer's requirements for proof that the home has not fallen below its original value and has no other liens, such as a second mortgage. If you are current on payments, the servicer must end PMI automatically when the balance is scheduled to reach 78%, or, if it is still in place, the month after the midpoint of the loan term.
• VA. No monthly mortgage insurance. You pay a one-time funding fee, 2.15% of the loan on first use with less than 5% down, 1.5% with 5% down, and 1.25% with 10% down. You are exempt if you receive VA compensation for a service-connected disability, and in a few other cases.
• USDA. An upfront guarantee fee of 1% and an annual fee of 0.35% for fiscal year 2027, which began October 1, 2026. USDA can change both each year.

The specific requirements for each program are in FHA loan requirements, VA loan requirements, USDA loan requirements, and Fannie Mae and Freddie Mac loan requirements.

When does FHA cost more or less than a conventional loan with PMI?

Example: a $400,000 home with 3.5% down ($14,000) and a $386,000 base loan over 30 years. Rates are the Urban Institute's September 2026 figures: 6.78% for FHA and 7.12% for a conforming loan, from the Mortgage Bankers Association's survey for September 23, 2026, and annual PMI rates from Enact Mortgage Insurance.

FHA side. The upfront premium is $386,000 x 1.75% = $6,755, financed, so the loan is $392,755. Principal and interest are $2,555.24 a month. The annual premium is about $386,000 x 0.55% / 12 = $177 a month, figured each year on the average balance, so it falls slowly. Total: about $2,732 a month, and it stays near that level for 30 years.

Conventional side. Principal and interest on $386,000 at 7.12% are $2,599.25 a month, plus PMI. At this rate, the balance reaches 80% of the $400,000 value ($320,000) at payment 139, about 11.5 years in, and you can then ask to cancel PMI. If the servicer approves cancellation under the requirements above, the payment falls to $2,599.25, about $104 less than the FHA payment at that point.

Net cost below is the payments made plus the balance still owed, so it counts the larger FHA loan:

In this data, the FHA rate was 0.34 points below the conforming rate. If both loans had the same 6.78% rate, the 700 to 719 borrower would come out about $4,200 ahead with the conventional loan after 5 years.

The conventional figures are the low end. The PMI rates assume the lower-cost mortgage insurance used for Fannie Mae's HomeReady and Freddie Mac's Home Possible loans, and the conventional rate leaves out the loan-level price adjustments that Fannie Mae and Freddie Mac add for lower scores and smaller down payments. Standard PMI and those adjustments raise the conventional cost for most buyers. Taxes and homeowners insurance are the same on both and are left out.

How do loan limits and property rules differ?

Loan limits. For 2026, FHA's one-unit limit runs from $541,287 in lower-cost counties to $1,249,125 in high-cost counties. The conforming limit for conventional loans is $832,750 in most counties, up to the same $1,249,125 in high-cost areas. In lower-cost counties, a loan between $541,287 and $832,750 can be conventional but not FHA, so check your county's FHA limit before choosing.

Occupancy. FHA requires at least one borrower to move in within 60 days of signing and intend to live there for at least a year. USDA guarantees loans only for a principal residence, and VA loans are also for a home you will live in. Conventional loans can finance a second home with 10% down or an investment property with 15% down under Freddie Mac's limits.

Property and location. FHA appraisers check the home against HUD's minimum property standards, which require it to be safe, sound, and secure. USDA guarantees loans only in areas Rural Development designates as rural, and your household income must be at or below its moderate-income limit. Conventional loans have no income limit outside special programs and no location rule.