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Loan Types Explained
Every loan type, explained in plain English, with a calculator and the guide that goes deeper. Not sure which fits? The calculator matches you automatically.
Open the calculatorHow the six loan types differ
Every mortgage program answers the same three questions in a different way: how much cash you need up front, what credit profile the program accepts, and what you pay for mortgage insurance. Those three answers drive most of the gap between one program's monthly payment and another's. Rate matters too, but on a given day the rate spread between programs is usually smaller than the mortgage insurance spread.
| Loan type | Typical minimum down | Typical credit floor | Mortgage insurance |
|---|
| Conventional | 3% | 620 | PMI monthly until about 78% loan-to-value, then it ends |
| FHA | 3.5% | 580 | 1.75% up front plus an annual MIP, often for the life of the loan |
| VA | 0% | Lender set, often 620 | None. A one-time funding fee applies instead |
| USDA | 0% | Lender set, often 640 | 1% up-front guarantee fee plus a 0.35% annual fee |
| Jumbo | 10% to 20% | 700+ | Usually none. The cost sits in the rate and reserves |
| Construction | 10% to 25% | 680+ | Depends on the permanent loan it converts into |
Typical published figures for estimation. Individual lenders set their own overlays, so your file will differ. Run your own numbers in the payment calculator.
Pick by whatever limits you most
When cash is the constraint
Look at VA first if you or your spouse served. Zero down with no monthly mortgage insurance is the strongest combination in the market, and the funding fee is waived for veterans with a service-connected disability rating. If VA is out, check the address against USDA eligibility before assuming you need a down payment. USDA maps cover a surprising amount of land on the edge of mid-sized towns, not only farmland. After that, compare FHA at 3.5% down against conventional at 3%. See down payments explained for what each five percent changes.
When credit is the constraint
FHA is built for this. It accepts scores down to 580 at 3.5% down and treats past derogatory credit more forgivingly than conventional underwriting does. The trade is mortgage insurance that sticks around. Many buyers use FHA to get in, rebuild the score for two or three years, then refinance into conventional to drop the MIP. Read credit scores and mortgages for the score bands that move pricing.
When income or existing debt is the constraint
Debt-to-income decides more denials than credit score does. FHA and VA allow higher ratios than conventional in most scenarios, especially with strong compensating factors like reserves or a long job history. Before shopping, run the DTI calculator and read how debt-to-income works so you know which monthly obligations count against you.
When the price of the house is the constraint
Once the loan amount passes the conforming limit for the county, conventional pricing stops applying and you are in jumbo territory. Jumbo underwriting looks hardest at reserves and documented income rather than at the down payment alone. Buyers near the line often put slightly more down to stay conforming, which is frequently cheaper than crossing into jumbo.
Where buyers get this wrong
- Comparing interest rate alone. A lower rate with lifetime mortgage insurance often loses to a higher rate with PMI that falls off. Compare five-year total cost, which the calculator does automatically.
- Assuming FHA is always the cheap option. At 700+ credit and 10% down, conventional usually wins on total cost because PMI is priced by score and ends on its own.
- Skipping VA because of an old assumption. There is no VA loan limit for full-entitlement borrowers, and VA loans are usable more than once.
- Ruling out USDA without checking the map. Eligibility is about the property address and household income, not about farming.
- Treating construction financing like a purchase. Draws, interest-only periods, and the conversion to permanent financing all change the cash flow during the build.
Loan type questions buyers ask
Which loan type has the lowest monthly payment?
It depends on your credit score and down payment, not on the program name. At low credit and minimum down, FHA usually produces the lower payment. At strong credit with 10% or more down, conventional usually does. VA beats both when you are eligible, because there is no monthly mortgage insurance at all.
Is it possible to switch loan types after pre-approval?
Yes. Until the loan is locked and disclosed, switching programs is routine. Tell the loan officer what changed, because the new program will re-run the numbers and re-disclose costs.
Do all lenders offer every loan type?
No. Some banks skip USDA and construction entirely, and lender credit overlays sit on top of the agency minimums, so a 600 score approved at one lender is declined at another. That is the main reason to compare more than one lender. See how to shop for a mortgage.
What does mortgage insurance add to a payment?
On a $300,000 loan, PMI at 0.5% adds roughly $125 a month, and FHA annual MIP at 0.55% adds roughly $138 a month plus a 1.75% up-front premium financed into the balance. Full detail is in PMI and MIP explained.
Important disclosures. LoanFitCalc is a free educational tool that provides estimates only. It is not a loan, a loan approval, a commitment to lend, a rate lock, or an offer to make a loan, and it does not provide financial, legal, or tax advice or recommend a specific loan for you. Mortgage insurance rates, funding and guarantee fees, loan limits, taxes, and insurance figures are typical published values used for estimation and are subject to change. Program eligibility rules are summarized and simplified. Actual terms depend on your full application, credit, property, and lender underwriting. Consult a licensed mortgage loan originator before making any decision. LoanFitCalc is an independent educational website and is not a lender. ⌂ Equal Housing Opportunity
