Loan comparison
Conventional vs USDA Loan
Side-by-side breakdown of Conventional Loans and USDA Rural Development Loans — credit, down payment, mortgage insurance, and who each one fits.
At a glance
| Feature | Conventional | USDA |
|---|---|---|
| Minimum credit score | 620+ | 640+ |
| Minimum down payment | 3% | 0% |
| Mortgage insurance | PMI required if <20% down, but drops off automatically at 78% LTV | annual fee of 0.35% + 1% upfront guarantee fee (much cheaper than FHA MIP) |
| Loan limit (2026, standard county) | $806,500 | No hard cap |
| Best for | buyers with 680+ credit and 5%+ down who want to avoid FHA's lifetime MIP | buyers in USDA-eligible rural and suburban areas with moderate income |
| Property types | Primary, second home, and investment | Primary residence only |
Conventional Loan
Conventional loans conform to Fannie Mae / Freddie Mac guidelines and aren't backed by the government. They're the most common loan type in the U.S. and offer the widest range of terms, property types, and borrower profiles.
- 620+ FICO minimum (740+ for best pricing)
- 45% DTI standard, up to 50% with strong compensating factors
- 3% down for first-time buyers (HomeReady/Home Possible) or 5% otherwise
- Primary, second home, and investment properties all eligible
- Two years of employment history preferred
USDA Rural Development Loan
USDA loans are backed by the U.S. Department of Agriculture and require zero down payment. They're geographically restricted — the property must sit in a USDA-eligible area — and income-capped at 115% of the area median.
- 640+ FICO for streamlined underwriting
- Household income at or below 115% of area median (AMI)
- Property in a USDA-designated rural or suburban area
- Primary residence only
- U.S. citizen, permanent resident, or qualified alien
When to choose Conventional over USDA
Choose Conventional when you're buyers with 680+ credit and 5%+ down who want to avoid FHA's lifetime MIP. Choose USDA when you're buyers in USDA-eligible rural and suburban areas with moderate income. The scorecard shows exactly which programs price best for your credit, DTI, and down payment in about 90 seconds.
Frequently asked questions
Is a Conventional or USDA loan better?
Neither is universally better — it depends on your profile. Conventional Loans are buyers with 680+ credit and 5%+ down who want to avoid FHA's lifetime MIP. USDA Rural Development Loans are buyers in USDA-eligible rural and suburban areas with moderate income. Run your numbers in the ReadinessIQ scorecard to see which one you actually qualify for at the best pricing.
Can I switch from a Conventional loan to a USDA loan later?
Yes — refinancing from Conventional to USDA (or vice versa) is common once you build equity or improve credit. Many borrowers start on Conventional and refinance to USDA to drop mortgage insurance.
Which has lower monthly payments, Conventional or USDA?
Base P&I depends on rate, not program. The difference shows up in mortgage insurance: PMI required if <20% down, but drops off automatically at 78% LTV; annual fee of 0.35% + 1% upfront guarantee fee (much cheaper than FHA MIP). Over a 30-year loan that gap can total tens of thousands.
What credit score do I need for Conventional vs USDA?
Conventional Loan: 620+. USDA Rural Development Loan: 640+. Lenders often add overlays above these floors — most originators want 620+ for Conventional and 640+ for USDA in practice.
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