Comparison

USDA vs. Conventional Loans: The Zero-Down Comparison

Independent USDA buyer guide · Updated 2026-07-22

The trade is simple: USDA gives you true zero down but ties you to an eligible area and an income cap, and its insurance-equivalent fee lasts the life of the loan. Conventional asks for a down payment and charges PMI under 20% down — but that PMI cancels once you hit 20% equity, and there's no location or income limit. USDA wins for zero-down buyers in eligible areas under the cap; conventional wins for higher earners, 20%-down buyers, and anyone the USDA map or income rules shut out.

USDA.properties is independent — not a lender, not affiliated with USDA, and we take no referral fees. Here's how the two actually compare so you can pick the right lane before you apply.

Side-by-side comparison

The one difference that matters most: does the insurance ever go away?

This is the crux. USDA's annual fee is small (0.35%) but permanent — you pay it for as long as you hold the loan, no matter how much equity you build. Conventional PMI is often larger month to month, but it's temporary: once you reach 20% equity you can request cancellation, and at 22% the servicer must drop it automatically. So the right question isn't "which has cheaper insurance today?" but "how long will I hold this loan, and how fast will I build equity?" A buyer planning to stay put and pay down principal may come out ahead on conventional over time; a zero-down buyer who needs to get in the door at all leans USDA.

When USDA wins

USDA is the better choice when you clear its four filters and you don't have 20% — or much of anything — to put down. Zero down means you keep your cash for reserves, moving, and repairs. Add the seller's ability to cover up to 6% of closing costs and you can reach the table with very little out of pocket (the real no-money-down math). If the home is in an eligible area and your household income is under the cap, USDA is usually the cheapest way in.

When conventional wins

• You have 20% down. No mortgage insurance at all, and no upfront fee — often the lowest total cost, period.
• You're a high earner. Over the USDA income cap? Conventional doesn't ask what you make.
• The home is in an ineligible area. Cities and many close-in suburbs fall outside the USDA map — verify the exact address on the official USDA tool or our free checker.
• You want the insurance to drop off. If building to 20% equity and shedding PMI is your plan, that's a conventional feature USDA can't match.

The middle ground: 3%-down conventional

You don't have to choose between zero down and 20% down. Conventional programs like Fannie Mae's HomeReady and Freddie Mac's Home Possible allow as little as 3% down. You'll pay PMI, but it still cancels at 20% equity — and there's no location limit. For a buyer who's slightly over the USDA income cap, or who loves a house just outside the eligible map, a 3%-down conventional loan is often the natural fallback.

How to decide

• Check the exact address on the USDA map first — ineligible means conventional (or FHA).
• Compare household income to your county cap — over it means conventional.
• Count your available down payment — 20% strongly favors conventional.
• Ask a lender to quote USDA and 3%-down conventional side by side, including how long each carries insurance.

Both paths are laid out in the pillar guide to buying with a USDA loan. For the complete side-by-side decision system with fillable worksheets, see The USDA Home Buyer Playbook.

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