Conventional vs FHA vs VA vs USDA loans: what the exam expects you to know

The four loan types at a glance

PSI's national salesperson content outline weights Financing at 10 percent and, under "Types of Loans," lists "Conventional loans" and three "Government Loans" by name: "FHA insured loans," "VA guaranteed loans" and "USDA/Rural Development loan programs." Notice the verbs. The outline itself tells you the most tested distinction: FHA insures, VA guarantees, and a conventional loan has no government program behind it at all.

If you remember nothing else: conventional means "not a government program," FHA means low down payment plus mortgage insurance premiums, VA means no down payment and a funding fee instead of mortgage insurance, and USDA means rural plus an income cap. Most exam questions are one of those four ideas wearing a scenario.

Insured vs guaranteed: who backs each loan

None of these agencies normally hands you the money. A private lender (a bank, credit union or mortgage company) makes the loan. The government program only changes who absorbs the loss if the borrower defaults.

• FHA insures. The borrower pays mortgage insurance premiums, and FHA's insurance protects the lender. HUD's own mortgagee letters call it "FHA-insured financing."
• VA guarantees. VA promises to cover part of the lender's loss. That guaranty is the borrower's "entitlement," and VA describes remaining entitlement as 25 percent of the county loan limit, minus any entitlement already used and not restored.
• USDA guarantees. Under the Single Family Housing Guaranteed Loan Program (Section 502), USDA gives approved lenders a 90 percent loan note guarantee. USDA also has a separate direct loan program, but the guaranteed program is the one most buyers and most exam questions mean.
• Conventional loans have no government backing. The CFPB defines a conventional loan as "any mortgage loan that is not insured or guaranteed by the government." When the down payment is small, private mortgage insurance protects the lender instead.

Conventional loans: conforming, jumbo and PMI

A conventional loan is either conforming or non-conforming. A conforming loan fits within the loan limit the Federal Housing Finance Agency sets each year for loans Fannie Mae and Freddie Mac can buy. For 2026, FHFA set the baseline one-unit limit at $832,750, up $26,250 from 2025, with a ceiling of $1,249,125 (150 percent of the baseline) in high-cost areas. A loan above the limit for its county is a jumbo loan.

The CFPB says borrowers who put down less than 20 percent of the purchase price need to pay for mortgage insurance, and that with 20 percent down, PMI is not required on a conventional loan. The most common way to pay PMI is a monthly premium added to the mortgage payment, though some loans use a one-time premium at closing or both. Federal law sets when it has to stop. Under the Homeowners Protection Act, for a single-family principal residence loan that closed on or after July 29, 1999, the rules work like this:

Two exam details hide in that table. First, 80 percent is the borrower's request; 78 percent is automatic. Second, these rules are for private mortgage insurance on conventional loans. The CFPB notes that FHA and VA loans have different requirements, and lender-paid mortgage insurance is not covered either.

FHA loans: 3.5% down, credit tiers and MIP

HUD says an FHA down payment "can be as low as 3.5% of the purchase price." Whether you get that low depends on your credit score. These are the tiers as HUD restated them in Mortgagee Letter 2026-11:

• 580 or higher: eligible for maximum financing, which means the 3.5 percent minimum investment.
• 500 to 579: limited to a maximum loan-to-value of 90 percent, so at least 10 percent down.
• Below 500: not eligible for FHA-insured financing.

The tiers are not changing. In that same Mortgagee Letter 2026-11, dated October 8, 2026, FHA adds FICO 10T and VantageScore 4.0 alongside Classic FICO for case numbers assigned on or after January 1, 2027, and states that "the existing minimum credit score thresholds remain unchanged regardless of Credit Score Model Type."

FHA charges mortgage insurance two ways. The upfront premium (UFMIP) is 1.75 percent of the base loan amount. The annual premium is set by Mortgagee Letter 2023-05, effective for loans endorsed on or after March 20, 2023, and it is the most recent annual premium schedule we found from HUD as of October 27, 2026. For the typical buyer, a loan longer than 15 years with a base amount of $726,200 or less, it looks like this:

For the exam, the PMI cancellation rules above do not apply here. FHA mortgage insurance follows FHA's own schedule, which is why "MIP stays for the life of the loan with less than 10 percent down" is a classic FHA fact.

VA loans: no down payment, a funding fee and no monthly MI

VA says plainly that its home loan program does not require a down payment or monthly mortgage insurance. In place of mortgage insurance, most borrowers pay a one-time funding fee. The rates on va.gov are labeled effective April 7, 2023:

Other VA fees on the same page: 2.15 percent first use and 3.3 percent after for cash-out refinances, 0.5 percent for an interest rate reduction refinance loan (IRRRL), and 0.5 percent for a loan assumption. Some borrowers pay no fee at all, including veterans receiving VA compensation for a service-connected disability, surviving spouses receiving Dependency and Indemnity Compensation, and active-duty members who show they received a Purple Heart on or before closing.

Loan limits work differently, too. The Blue Water Navy Vietnam Veterans Act of 2019, which took effect January 1, 2020, removed the conforming loan limit cap on VA guaranties for veterans with full entitlement. VA's loan limits page now says that with full entitlement you generally have no loan limit, as long as you can afford the loan and the appraisal supports the price. The lender still checks credit, income and debts. A veteran without full entitlement, for example because an earlier VA loan is still open, has remaining entitlement figured from the county limit: 25 percent of the county's one-unit conforming limit, minus entitlement already used.

USDA loans: rural areas and income limits

The USDA Single Family Housing Guaranteed Loan Program helps moderate-income households buy in rural areas. USDA's program page lists the core rules:

• Household income cannot exceed 115 percent of median household income for the area. That is the USDA "income limit" idea: the cap is on the buyer's income, not on the loan size.
• The home must be in an eligible rural area. USDA runs an eligibility site where you can check a specific address.
• 100 percent financing, so no down payment for qualifying buyers.
• 30-year fixed rate only, with the rate set by the lender.
• The buyer must live in the home as a primary residence, and USDA says it "cannot be an income-producing property."
• No set credit score requirement, but the buyer must show willingness and ability to manage debt.

Instead of PMI or MIP, USDA charges a guarantee fee. In its September 16, 2026 lender bulletin, USDA Rural Development set an upfront guarantee fee of 1.00 percent and an annual fee of 0.35 percent for fiscal year 2027 (October 1, 2026 through September 30, 2027), for both purchases and refinances. Those are the same rates as fiscal year 2026. On a $300,000 USDA loan, that is a $3,000 upfront fee and roughly $1,050 in annual fee the first year.

2026 loan limits, and the 2027 question

Loan limits are the numbers most likely to go stale, so here is exactly what is in force and where it comes from. As of October 27, 2026, FHFA has not announced 2027 conforming loan limits and HUD has not issued 2027 FHA limits, so the 2026 figures below are current.

Mortgagee Letter 2025-23 also sets 2026 FHA ceilings for two-unit ($1,599,375), three-unit ($1,933,200) and four-unit ($2,402,625) properties. Each county's actual limit sits somewhere between the floor and the ceiling. If you work in New Jersey, limits vary by county, and we have not printed county figures here: look up your county on FHFA's conforming loan limit page or HUD's FHA mortgage limits lookup. You will not be asked a specific county's limit on the PSI exam. What it can test is the concept: limits are set annually, and a loan above the conforming limit is a jumbo loan.

How the exam asks about it

Financing questions on these programs tend to fall into a few patterns. Here are the mix-ups worth drilling (our list, not PSI's):

• "FHA lends money to buyers." False. FHA insures loans that approved lenders make.
• "VA requires 3.5 percent down." False. VA requires no down payment; 3.5 percent is FHA's minimum.
• "VA borrowers pay monthly mortgage insurance." False. They pay a one-time funding fee, unless exempt.
• "PMI drops off automatically at 80 percent." False. At 80 percent you can ask; at 78 percent it ends automatically.
• "USDA loans are for farms." No. They are home loans for owner-occupants in eligible rural areas, with an income cap.
• "A conventional loan is the same as a conforming loan." Not quite. Conforming is a type of conventional loan; a jumbo is conventional but not conforming.
• Math: funding fees, MIP and guarantee fees are all percentages of the loan amount, not the price. Multiply the rate by the loan, not the sale price.

For the rest of the financing domain, including points, LTV and the federal lending laws, work through the financing study guide. Percent-of-loan problems like the funding fee examples above are drilled on the real estate math page, and the glossary covers terms like LTV and amortization. When you are ready, a timed practice exam shows whether financing is costing you points.