Loan Types — Conventional vs. FHA vs. VA vs. USDA

The short version: The loan type you qualify for changes your down payment, your mortgage insurance, and sometimes your interest rate — not just paperwork, but real numbers. Most people default into whatever their lender mentions first, without knowing the others existed.

Conventional loans — the type most people end up with

Not backed by a government agency, which means the lender carries more of the risk themselves — and prices accordingly. Down payments can go as low as 3% for qualified buyers, though anything under 20% brings PMI into the picture (see our PMI guide for exactly how that works and when it goes away). Generally allows debt-to-income ratios up to around 36-45% for the best pricing, and is generally the most flexible option if your credit and income are solid.

FHA loans — built for a lower down payment and more forgiving credit

Backed by the Federal Housing Administration, which is why lenders can approve buyers with lower credit scores and down payments as low as 3.5%. FHA also tends to allow a higher debt-to-income ratio than conventional loans — commonly up to 43%, sometimes higher with strong compensating factors. The tradeoff: FHA loans carry mortgage insurance that, unlike conventional PMI, often doesn't go away automatically regardless of how much equity you build — sometimes for the life of the loan.

If you're thinking about buying a fixer-upper, an FHA loan might not work due to property condition standards the home actually has to pass, not just a credit and income check on you. A few of the most common dealbreakers:

• The roof needs at least 2 years of life left, not just "no active leaks."
• Electrical, plumbing, and HVAC systems all need to be functional — not aesthetically updated, but genuinely working.
• The foundation needs to be free of significant cracks or settling, with proper drainage.

A home that fails on any of these generally needs repairs before an FHA loan can close on it — which can turn a "great deal on a fixer-upper" into a more complicated purchase than expected.

For more on how FHA's mortgage insurance works, what it costs, and when it stops, see our FHA Mortgage Insurance Premium guide.

VA loans — for those who've earned it

Backed by the Department of Veterans Affairs, available to eligible veterans, active-duty service members, and some surviving spouses. The headline feature: 0% down is genuinely on the table, and there's no monthly mortgage insurance at all — replaced instead by a one-time funding fee rolled into the loan. VA underwriting doesn't use a hard DTI cap the way other loan types do, weighing your residual income more heavily instead. For eligible buyers, this is often the strongest loan type available, full stop.

USDA loans — for eligible rural and suburban areas

Backed by the Department of Agriculture, designed to encourage homeownership outside dense urban areas. Also offers 0% down for eligible buyers, with income limits and a requirement that the home sits in a USDA-eligible area (the map is broader than "rural" sounds — plenty of suburban areas qualify). Carries its own guarantee fee, similar in spirit to FHA's insurance but usually smaller.

Don't forget to ask about first-time buyer programs too

Separate from the loan type itself, a lot of states and local housing authorities offer their own first-time buyer programs — down payment assistance, closing cost grants, or reduced-rate loans that can stack on top of whatever loan type you choose. These are commonly overlooked simply because nobody asks, not because buyers don't qualify. A direct question to your lender or a quick search for your state's housing finance agency can turn up options you didn't know existed.

Why this actually matters for your numbers

The loan type you use directly changes several things this calculator asks you for: your realistic down payment, whether PMI applies at all, and sometimes your rate. Two people buying the identical house can end up with meaningfully different monthly payments purely based on which loan type they used — not because one shopped better, but because they qualified for a different program entirely.

Which one is right for you

There's no universal answer — it depends on your service history, the home's location, your credit profile, and how much you have saved. The one practical step that helps regardless: ask your lender which programs you qualify for, rather than assuming conventional is the only option. A lot of eligible VA and USDA buyers never ask, and default into a conventional loan with PMI they didn't need to pay.