USDA loan vs. Conventional loan
For a buyer in an eligible rural or suburban area, USDA and conventional pull in opposite directions. USDA finances 100% of the price with no down payment, but caps household income at 115% of the area median and only works in qualifying locations. A conventional loan has no location or income limits and can go as low as 3% down, but that down payment is real money and it's priced at market rates.
The decision usually comes down to cash on hand and whether you clear USDA's income and area rules. Low on savings and eligible? USDA. Above the income cap, outside an eligible area, or want to avoid the guarantee fee? Conventional.
Side by side
| Factor | USDA loan | Conventional loan |
|---|---|---|
| Down payment | 0% | As low as 3–5% |
| Income limit | Capped at 115% of area median | None |
| Location limit | USDA-eligible areas only | None |
| Mortgage insurance | Annual + upfront guarantee fee | PMI, cancels at 20% equity |
| Minimum credit | 640 typical | 620+ |
| Best when | Little cash and you meet the area/income rules | You want flexibility or exceed USDA limits |
Figures are representative ranges, not quotes, and vary by lender. Read the full guides: USDA loan · Conventional loan.
Who should pick usda loan
Buyers with limited savings who are purchasing in a USDA-eligible area and fall under the household-income cap — zero down is hard to beat when cash is the constraint.
Who should pick conventional loan
Buyers who exceed the USDA income cap, are shopping outside eligible areas, or have enough for a down payment and want PMI they can cancel later at 20% equity.
Bottom line
Still deciding? Take the 5-question loan quiz, compare every option on the loan types page, or size a purchase with the affordability calculator.
FAQ
Not the same way. Conventional PMI cancels once you reach 20% equity. USDA's annual guarantee fee stays for the life of the loan, though it's smaller than FHA's MIP. To drop it entirely, most borrowers refinance into a conventional loan once they have enough equity.
Yes, but USDA underwrites on documented income — typically two years of tax returns with net profit averaged — and counts total household income against the area cap. If write-offs push your qualifying income down, a conventional or bank-statement loan may approve a larger purchase even without the zero-down benefit.
Educational information only — not financial advice, and not a quote, pre-approval, or offer of credit. Mortgage Merlin is a publisher, not a lender or broker.