Mortgage Basics: FHA, Conventional, VA & USDA Loans

Conventional loans

A conventional mortgage is not insured or guaranteed by a federal agency. Many conventional loans follow standards established by Fannie Mae or Freddie Mac, while others use a lender's or investor's own requirements. Qualified buyers may find options with down payments as low as 3%, although availability and pricing depend on the program and borrower profile.

When the down payment is below 20%, private mortgage insurance, or PMI, is commonly required. PMI protects the lender rather than the buyer. Its cost can vary with credit, down payment, loan structure, and insurer. Ask when it may be cancelled and how the cost changes across down-payment scenarios.

• Broadly available for many primary residences, second homes, and investment properties, subject to program rules.
• May offer several term, down-payment, and fixed- or adjustable-rate choices.
• Pricing can be sensitive to credit profile, down payment, property type, and occupancy.
• PMI may be required below 20% down but may be removable when applicable requirements are met.
• Lower down payment does not automatically mean the lowest total cash need or monthly cost.

FHA loans

FHA loans are made by approved lenders and insured by the Federal Housing Administration. They may help buyers who need more flexible qualifying standards or a smaller down payment. For borrowers who meet applicable requirements, the minimum required investment is commonly 3.5%.

FHA financing generally includes an upfront mortgage insurance premium and an annual mortgage insurance premium collected through monthly payments. How long the annual premium remains depends on the loan's terms and current FHA rules. FHA also applies loan limits and property standards, so the home and transaction must qualify along with the borrower.

• May offer greater credit or debt-to-income flexibility than some conventional options.
• Allows eligible gift funds and assistance sources under program rules.
• Includes both upfront and ongoing mortgage insurance costs.
• Requires an FHA appraisal and compliance with applicable property requirements.
• Should be compared with other products using total payment, cash to close, and long-term cost.

VA loans

VA-backed purchase loans serve eligible Veterans, service members, and certain surviving spouses. Eligibility begins with a Certificate of Eligibility, but the borrower must also meet the lender's credit, income, occupancy, and underwriting requirements.

Qualified borrowers may be able to purchase with no down payment when the price does not exceed the appraised value, and VA loans do not require monthly PMI or FHA-style mortgage insurance. Many borrowers pay a one-time VA funding fee, which may be financed; the amount depends on factors such as loan type, down payment, and prior use. Some borrowers are exempt.

• Ask the lender to confirm eligibility and obtain or review the Certificate of Eligibility.
• Request scenarios showing zero down and optional down payments.
• Confirm the funding-fee amount, exemption status, and effect of financing the fee.
• Discuss the VA appraisal, property requirements, entitlement, and closing timeline.
• Ask for details whenever service history, prior VA-loan use, disability status, or the property creates an eligibility question.

USDA loans

USDA Rural Development's guaranteed loan program can provide 100% financing for eligible primary residences in eligible rural areas. Rural eligibility is determined by USDA and can include communities that buyers may not consider remote. A specific address should be checked through the current USDA eligibility tools.

Household income is also limited. For the guaranteed program, income generally cannot exceed the applicable program limit for the area and household, and the lender reviews repayment ability and other requirements. USDA guaranteed loans typically include an upfront guarantee fee and an annual fee, even though they do not use conventional PMI.

• Potential for no required down payment for qualified borrowers and properties.
• Both household income and property location must meet current program rules.
• The home must be a qualifying primary residence.
• Guaranteed loans are generally 30-year fixed-rate mortgages.
• Eligibility maps, income limits, fees, and processing considerations should be confirmed before an offer.

Comparing loan types

The table is a starting point, not an approval chart. Minimums describe possible program structures, not what every borrower will receive. Lenders may apply additional requirements, and fees or guidelines can change.

Interest rates explained

A fixed-rate mortgage keeps the interest rate unchanged for the loan term, so principal-and-interest payments remain predictable. Taxes, insurance, HOA dues, and other housing costs can still change. An adjustable-rate mortgage, or ARM, generally begins with a rate fixed for an initial period and can then adjust according to the loan's index, margin, and caps. Ask how soon it can change, how often, and the maximum possible payment.

The interest rate is the annual cost charged for borrowing principal. The annual percentage rate, or APR, is a broader measure that includes the interest rate and certain loan charges. APR can help compare similar products, but it does not replace reviewing the payment, fees, cash to close, loan term, and adjustable-rate risk.

Discount points are upfront charges paid in exchange for a lower interest rate. One point equals 1% of the loan amount, but the rate reduction is not fixed across lenders or days. Compare a zero-point option with the points option and calculate how long the monthly savings would take to recover the upfront cost.

A rate lock generally protects the quoted rate for a stated period if the loan closes on time and the application does not materially change. Confirm whether the rate is locked, the expiration date, extension costs, and what happens if closing is delayed or loan details change.

Common mortgage mistakes

Mortgage approval continues after pre-approval. Financial changes that seem routine can alter credit, available cash, debt ratios, or employment verification. Coordinate major decisions with the lender until the transaction has closed and funded.

• Shopping based only on the advertised interest rate instead of comparing fees, points, APR, payment, and cash to close.
• Ignoring the total monthly payment, including taxes, insurance, mortgage insurance, HOA dues, and other assessments.
• Changing jobs, pay structure, or employment status without first discussing the effect with the lender.
• Opening new credit accounts or allowing avoidable credit inquiries during underwriting.
• Making large purchases, increasing card balances, or moving money without documentation before closing.