Not all mortgages are created equal. The type of loan you choose affects your down payment, interest rate, monthly payment, and overall cost. This guide breaks down the main mortgage types to help you choose wisely.
Conventional Loans
The most common type of mortgage, not backed by the government. Best for borrowers with good credit and stable income.
Pros
- • As little as 3% down
- • PMI can be removed at 20% equity
- • More property type options
- • Often lower rates for good credit
- • No upfront mortgage insurance
Cons
- • Stricter credit requirements
- • PMI required if under 20%
- • Higher down payment than some options
- • Stricter debt-to-income limits
Best for: Borrowers with credit scores 620+ who can put down at least 3-5% and want the flexibility to remove PMI later.
FHA Loans
Government-backed loans insured by the Federal Housing Administration. Great for first-time buyers or those with lower credit scores.
Pros
- • Credit scores as low as 580
- • Only 3.5% down payment
- • More lenient on DTI ratio
- • Gift funds allowed for down payment
- • Easier to qualify
Cons
- • MIP required for life of loan (if <10% down)
- • Upfront mortgage insurance premium
- • Property must meet FHA standards
- • Loan limits apply
- • Higher total borrowing cost
Best for: First-time buyers, those with credit scores 580-680, or borrowers with limited down payment savings.
VA Loans
Loans guaranteed by the Department of Veterans Affairs. The best deal in mortgage lending for those who qualify.
Pros
- • 0% down payment required
- • No PMI/MIP ever
- • Competitive interest rates
- • No loan limit (as of 2020)
- • Limited closing costs
- • No minimum credit score (lender varies)
Cons
- • Must be eligible (military service)
- • VA funding fee (can be financed)
- • Property must meet VA standards
- • Not all lenders offer VA loans
Eligibility: Veterans, active-duty service members, National Guard members, reservists, and surviving spouses. Requires a Certificate of Eligibility (COE).
USDA Loans
Loans guaranteed by the U.S. Department of Agriculture for rural and suburban homebuyers. Another 0% down option.
Pros
- • 0% down payment
- • Competitive interest rates
- • Lower mortgage insurance than FHA
- • Flexible credit requirements
Cons
- • Income limits apply
- • Must be in eligible rural area
- • Property size restrictions
- • Guarantee fee required
Eligibility: Home must be in a USDA-eligible area (many suburbs qualify). Household income must be ≤115% of area median income.
Quick Comparison
| Feature | Conventional | FHA | VA | USDA |
|---|---|---|---|---|
| Min Down | 3% | 3.5% | 0% | 0% |
| Min Credit | 620 | 580 | Varies | 640 |
| PMI/MIP | Yes* | Always | No | Small fee |
| Best For | Good credit | Lower credit | Veterans | Rural areas |
*PMI can be removed once you reach 20% equity
Compare monthly payments for each loan type
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