There are four common mortgage paths most buyers hear about: VA, USDA, FHA, and Conventional. Each one has its own rules, costs, and quirks. Picking the right mortgage is not about which one sounds the best on paper; it is about which one actually fits your situation once you consider eligibility, income, credit, property type, and who can pay closing costs.

Quick overview

Here is a fast snapshot before we break each loan down:

• VA: 100% financing for eligible veterans and spouses, no monthly mortgage insurance, funding fee applies.
• USDA: 100% financing for homes in designated rural areas, limited household income, low annual fee and an upfront fee.
• FHA: Typically 96.5% financing, lower credit thresholds, but upfront and monthly mortgage insurance that usually lasts the life of the loan.
• Conventional: Lender-specific rules, usually requires a down payment (commonly 5%), mortgage insurance until 80% LTV, more flexibility on property type and appraisals.

VA Loans

VA loans are a powerful tool if you qualify. They are generally 100% financing, meaning no down payment is required. They are guaranteed by the VA and are very flexible when it comes to ownership of other properties and buying multi-family homes to live in one unit and rent the other.

Key details

• Funding fee: 2.1% of the loan amount for first-time users with 100% financing; 3.3% for subsequent uses at 100% financing. This fee can be rolled into the loan if the seller will not cover it.
• Veterans with service-connected disability may have the funding fee waived.
• No monthly mortgage insurance or upfront mortgage insurance premium.
• Putting at least 5% down reduces the funding fee to 1.5%.

Pros

• No monthly mortgage insurance.
• 100% financing available.
• Flexible underwriting for veterans, and you can own other property.

Cons and practical considerations

• Sellers sometimes dislike VA deals because VA appraisals and VA-specific rules can feel strict and limit seller contributions toward certain fees.
• The funding fee can be significant. If the seller will not contribute and you cannot roll it in, you may need cash or to improve your debt-to-income to make it work.
• There are specific rules about who can pay which closing costs.

USDA Loans (Guaranteed Rural Housing)

USDA loans offer true 100% financing with low ongoing costs, but they come with geographic and income rules.

Key details

• 100% financing, seller can pay up to 6% of closing costs.
• Upfront fee (about 1.5%) and an annual fee that functions like mortgage insurance (currently around 0.5% annually). These can often be rolled into the loan.
• Must be a property in a designated rural area. Rural area eligibility is set by USDA maps.
• Household income limits apply. USDA counts income from everyone living in the household, not just the loan applicants.

Pros

• Zero down payment possible with comparatively low program fees.
• Sellers can contribute and you can use local grants or assistance programs to cover closing costs.

Cons and practical considerations

• Strict rural boundary rules: you must be in a designated rural area.
• Household income limits can disqualify families who include other earners living under the same roof.
• Not intended for purchasers who already own another property. If you own any other real estate, you will likely be ineligible.
• Limited options for larger parcels or mini-farm purchases; Farm Credit or other agricultural lenders may be needed for acreage.

FHA Loans

FHA is a government-insured product that lowers credit and down payment barriers. It can be a great bridge into homeownership, especially with gift funds or local assistance programs to cover down payment and closing costs.

Key details

• Typically a 96.5% loan, meaning you need about 3.5% down unless a grant or gift covers it.
• Seller can pay up to 6% of closing costs.
• Upfront mortgage insurance premium (MIP) plus a monthly MIP. The upfront fee and the monthly MIP rates change, so check current figures with your lender.
• No household income limits, but FHA uses front-end and back-end ratios: the front ratio (housing payment) is usually around 29-30% of gross income, and the total debt-to-income (back-end) usually around 41-42%.

Pros

• Easier credit qualifying than many conventional products.
• Competitive interest rates when compared to conventional for similar credit profiles.
• Flexible on property location and type (single-family, etc.).

Cons and practical considerations

• Monthly mortgage insurance premium generally lasts the life of the loan for most FHA loans issued today. It does not automatically drop once you reach certain equity thresholds the way conventional PMI does.
• MIP increases the monthly payment and is essentially an insurance policy for the lender.

Conventional Loans

Conventional loans are not government-backed. They are sold through lenders and investors, so underwriting rules, credit score requirements, and seller contribution limits can vary by lender and program.

Key details

• Down payment requirements vary. Many conventional programs require at least 5% down, although 97% programs exist that require as little as 3% down.
• Mortgage insurance (PMI) applies if you put down less than 20%, but PMI can typically be removed once your equity reaches 20% (cancellation forced at 78% loan-to-value in many cases).
• Back-end debt-to-income ratios on conventional loans are usually stricter, commonly around 36% for total debts.
• Credit score expectations are higher. A 620 score is a rough minimum for many conventional options, and higher scores (640 to 660 and up) will get you better pricing and program availability.

Pros

• More flexible on property types and appraisal issues; conventional lenders tend to be less picky about unusual properties.
• Often faster to close when borrower documentation is strong.
• PMI can be removed once you reach equity thresholds, lowering monthly payments over time.

Cons and practical considerations

• Higher credit and down payment expectations for the best pricing.
• Mortgage insurance premiums are higher the less you put down, and 97% programs often carry high monthly PMI.
• Each lender may have its own overlays and program rules, so shopping can make a big difference.

Credit, debt-to-income, and rate realities

Do not assume the headline interest rate applies to every borrower. Your credit score, down payment, loan program, and property all drive the rate you are offered.

• A borrower with a 580 credit score can find government-backed options in theory, but expect rate bumps. It is hard to get the market-best rates under 620.
• Lower credit means higher rates, which increases the monthly mortgage payment and tightens DTI constraints. That can limit the homes you can qualify for.
• Conventional loans often offer the best rates and quickest closes for borrowers with strong credit and a solid down payment.

How to decide which loan is right for you

Here are practical steps to choose the best mortgage for your situation:

1. Check eligibility first. Are you a veteran? Is your target property in a USDA-eligible rural area? Do you meet household income limits for USDA? These questions can immediately narrow options.
2. Know your credit. If your score is under 620, expect limited conventional options and higher rates. Work to improve your score if needed before locking a mortgage type to a property.
3. Understand down payment and closing cost sources. Can you use grants, gifts, or seller contributions? FHA and USDA work well with grants and gifts; VA allows rolling the funding fee into the loan or having the seller contribute.
4. Factor in who can and cannot be living in the household or owning other property. USDA counts household income and will not work if you already own another house.
5. Compare total monthly cost, not just the down payment. An interest rate bump or monthly MIP can make a 100% loan more expensive than a conventional loan with a small down payment.
6. Talk to a competent loan officer who will run scenarios. Do not lock on the idea of one product before getting full quotes and eligibility checks.

Final tips

• Ask your lender to show total monthly payment comparisons across programs so you can weigh rate, fees, and mortgage insurance.
• If a seller refuses to negotiate or the funding fee is large for a VA buyer, look at rolling fees into the loan only if your DTI allows it.
• Remember that mortgage insurance protects the lender, not you. It exists on FHA and many conventional loans when down payment is below 20%.
• If your desired property is unusual or in a location that a government program might restrict, conventional financing is often the most flexible option.

No single mortgage is the best for everyone. The right choice depends on your veteran status, income, the property you want, your credit score, and how much cash you have for down payment and closing costs. Run the numbers, ask for comparisons, and pick the program that gives you the best long-term outcome for the house you want.

Next steps

Check your credit, verify USDA rural eligibility and household income limits online, and talk to a loan officer who will run scenarios for VA, USDA, FHA, and conventional so you can compare true monthly costs and out-of-pocket needs. Do that before you lock on a property or a loan type.