FHA vs. VA vs. Conventional vs. Home Equity Loans in 2025: Which Mortgage Is Right for You?

Conventional Loans, FHA Loans and VA Loans… are you confused about your mortgage options? Choosing a mortgage loan can feel overwhelming. Every option has its criteria and advantages, from credit score requirements to the size of your down payment and closing costs. The option you choose could mean the difference in the home you qualify for and how much it will cost you over the life of the loan.

This guide will briefly overview the four loan types so you can narrow your search before you contact a specialist about your home mortgage needs.

Four Most Common Mortgage Loan Types

There are a staggering number of loan terms and offerings, but most fall under one of four categories.

• Conventional loans (Fannie Mae and Freddie Mac)
• Federal Housing Administration (FHA) loans
• Department of Veterans Affairs (VA) home loans
• Home Equity Loans (HELs) or Home Equity Lines of Credit (HELOCs)

Each type of mortgage loan has its benefits and limitations based on the guidelines they follow. These guidelines affect everything from who qualifies for the loan to the appraisals on the house.

What is a Conventional Loan?

A conventional loan is a loan option that is not backed by a government entity. It is the most common of the four loans, making up over 53% of mortgage originations in 2023.

Conventional loans can be divided into two broad categories

• A conforming loan follows the housing loan guidelines of the Federal Home Loan Mortgage Corporation (FNMA or Fannie Mae) and the Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac). This ensures that one of these giants can purchase the loan in the secondary market should the lender choose not to keep it in their portfolio. This added security allows the lender to offer better rates to the home buyer.
• A non-conforming loan does not perfectly follow Fannie Mae or Freddie Mac’s guidelines. This can allow a buyer with a lower credit score or higher than average debt to income (DTI) to qualify for a house, but the rates tend to be higher to account for the higher risk for the lender.

The key trait of conventional loans is their flexibility. There is no standard for all conventional loan options other than those for conforming loans. Even appraisal requirements vary from lender to lender. Some loans can offer no appraisal, some require a drive-by appraisal, and some require a full appraisal.

In general, the higher your credit score is and the lower your Debt to Income Ratio, the better your chances of qualifying for a loan offer that can save you tens of thousands of dollars over the life of the loan. You can find our guide to conventional loans in 2025 here.

2025 Conforming Loan Limits for Most Counties in the United States

The loan limit in most counties across the United States is $806,500 for conforming loans on a single-family residence. There are no hard limits on non-conforming loans if the buyer has the ability to pay. Conventional loans that exceed the loan limit are known as Jumbo Loans and can have stricter requirements around credit, debt-to-income ratios, and loan-to-value requirements.

2025 High-Balance Conforming Loan Limits

The 2025 high-balance conforming loan limits apply to mortgages in designated high-cost areas where the local median home value exceeds the normal conforming loan limit of $806,500. For single-family homes in these areas, the maximum high-balance conforming loan limit for 2025 is $1,209,750, an increase from $1,149,825 in 2024. These higher limits allow borrowers in expensive housing markets to still obtain mortgages that can be sold to Fannie Mae and Freddie Mac.

Down Payment

3-5% on conforming loans, expect 10-20% on non-conforming loans. Paying 20% down can open you to better rates and the ability to drop private mortgage insurance.

Mortgage Insurance

If paying less than 20% down, the buyer may be required to pay private mortgage insurance.

Credit Rating

620+ with more favorable terms in the mid to upper 700’s. Conforming loans can go as low as 580 under strict conditions.

Debt to Income Ratio

Conventional loans require intense scrutiny of your debts and income. Stable employment, income, and a low debt-to-income ratio are a must. The target is below 36% debt, though some conforming loan programs will allow up to 50%.

What is an FHA Loan?

The Federal Housing Administration insures an FHA loan. Their primary goal is to help low to moderate-income families become homeowners. It is popular with first-time homebuyers and people who might not meet the credit scores or down payments for a conventional loan.

To qualify for an FHA Loan, you must fulfill the following:

• The home must become the borrower’s primary residence.
• The home must be appraised and meet HUD’s Minimum Property Standards.
• While the borrower does not need to be a first-time homeowner, other owned homes must have a mortgage of less than 85% of the home value, and an undue hardship must exist that prevents them from becoming a primary residence.
• Show a two-year history of honoring debts.
• Show a two-year history of stable income.

2025 FHA Loan Limits in Arizona

Most counties have an FHA loan limit of $524,225 in 2025 but Maricopa County, the most populated county in the state housing metro-Phoenix, has a county loan limit of $546,250.

Down Payment

3.5% if the borrower meets the full eligibility requirements. 10% if they have a credit rating of 500-579.

Mortgage Insurance

Buyers must pay two kinds of mortgage insurance. The first is the upfront MIP loan paid at closing. This usually equates to 1.75% of the total value of the loan. The second is the annual MIP payment. Despite the name, it is paid monthly. The rates vary based on the lender and your financial situation. A few circumstances will allow you to drop mortgage insurance after eleven years. In many cases, you will need to keep mortgage insurance through the life of the loan unless you refinance.

Credit Rating:

The credit score needed for an FHA loan depends on the type of transaction.

For a streamline refinance, the FHA doesn’t set a strict minimum score. However, lenders often have their own requirements.

For an FHA cash-out refinance, the FHA typically requires a 620 score. Agave Home Loans may allow scores as low as 500.

Debt to Income Ratio

Debt-to-income ratio has two parts: front-end and back-end. The front-end ratio includes mortgage, HOA, taxes, and insurance. It shouldn’t exceed 47% of your income. The back-end ratio includes all monthly debts plus your mortgage. It shouldn’t exceed 57% of your gross income. Higher ratios may be allowed with strong credit, low loan-to-value, or additional assets.

What is a VA Loan?

VA loans help active or retired military members and their spouses buy a home. To close, you’ll need a Certificate of Eligibility (COE), which you can get through your lender, the VA Eligibility Center, or eBenefits.

To qualify for a VA home loan, you must fulfill at least one of the following requirements:

• Served for at least 90 consecutive days during active wartime
• Served at least 181 consecutive days during peacetime
• For at least six years you served in National Guard or Military Reserves
• Your spouse died in the line of duty or due to service-related disabilities.

VA loans come with several benefits, including no down payment or mortgages insurance premiums. You may also qualify for lower average interest rates and closing costs.

Loan Limits in Arizona

A borrower can borrow up to the maximum conventional conforming loan limit, or $806,500, for a single-family home. If you have your full VA loan entitlement, there could be no loan limit past what lenders are willing to offer.

Down Payment: No Down Payment

Mortgage Insurance: Not required for a VA loan

Credit Rating: While credit score requirements are set by individual lenders, many prefer a minimum FICO score of 620 for VA loans. However, some lenders, like Agave Home Loans, may offer options for veterans with scores as low as 500.

Debt to Income Ratio: Lenders originate VA loans and therefore set their own DTI requirements, often aiming for a back-end DTI of 41% or lower. The VA’s automated underwriting system (AUS) plays a significant role in the approval process, and it may accept DTIs outside this range depending on the overall loan profile and the presence of compensating factors.

What is a Home Equity Loan (HEL) or Home Equity Line of Credit (HELOC)?

Both a Home Equity Loan (HEL) and a Home Equity Line of Credit (HELOC) allow you to borrow against the equity you’ve built in your property, but they function in distinct ways:

Home Equity Loan (HEL):

• Imagine this as a one-time lump sum of money deposited into your account.
• It comes with a fixed interest rate and a predictable repayment schedule over a set term.  
• This makes it ideal for planned, larger expenses such as home renovations, debt consolidation, or major purchases where you know the exact amount you need upfront.

Home Equity Line of Credit (HELOC):

• Think of this as a revolving line of credit, much like a credit card, but secured by your home’s equity.  
• It typically has a draw period during which you can withdraw funds as needed, and you’ll usually make interest-only payments.  
• Following the draw period, there’s a repayment period where you pay back the principal and interest. Interest rates are often variable, meaning they can fluctuate with market conditions.  
• A HELOC offers flexibility for ongoing projects, unexpected expenses, or when you need access to funds over time rather than all at once.  

HELs and HELOCs can both be valuable tools. The best option depends on your needs and intended use of funds.

Lenders typically structure HELOCs and HELs as second liens. These sit behind the homeowner’s existing first mortgage.

This lets borrowers keep their low first-mortgage rate. They can still access equity to pay debt, renovate, or cover expenses.

This strategy has gained popularity among homeowners who locked in historically low rates during 2020 and 2021 and are now seeking to avoid refinancing into significantly higher rates. In fact, according to CoreLogic, second-lien originations surged by 50% year over year in Q4 2023, as more borrowers opted for HELOCs and HELs over cash-out refinances.

Which Type of Loan is Right For Me in Arizona?

There is no universal loan that fits everyone perfectly. Even if you qualify for a Home Equity Loan, HELOC, FHA, or VA loan, you could still get better terms in a Conventional loan if you have a high credit score or can make a large down payment. If cashing-out equity for debt consolidation, it might depend on the interest rate of your first mortgage. Many borrowers find it harder to qualify for a HELOC.

A loan specialist can help you review your unique financial situation and help you find your best option. Not sure you qualify? Our specialist can explain more than what’s covered in this overview.

Let Agave Experts Help You Choose Between Conventional, FHA, VA, and Home Equity Loan Options.

Need help choosing the right mortgage for your Arizona home or refinance? We’re here to help! We believe in a “client first” approach to delivering the services and lending options that fit your financial situation. We even communicate on your behalf with lenders to ensure you get the best deal possible! Contact us today for a consultation.