If you are comparing different home buying loans, the biggest mistake is treating them like small variations of the same product. They are not. A 3% down conventional loan, a 3.5% down FHA loan, and a 0% down VA or USDA loan can produce very different monthly payments, cash-to-close numbers, and long-term costs even on the same house.
For a buyer looking at a $400,000 home, the difference matters fast. A 3% down payment is $12,000. A 3.5% down payment is $14,000. A 10% down payment is $40,000. Add closing costs that often run about 2% to 5% of the purchase price, and the right loan choice can change whether a deal feels manageable or stressful.
The different home buying loans most buyers compare
Most purchase borrowers end up looking at five core options: conventional, FHA, VA, USDA, and jumbo. Some buyers also need non-QM options such as bank statement loans or DSCR loans, but those are more specialized and usually fit self-employed borrowers or investors rather than a typical owner-occupant first purchase.
Conventional loans
Conventional loans are the most common fit for borrowers with solid credit, stable income, and at least some down payment available. Fannie Mae and Freddie Mac back much of this market, and conforming loan limits matter here. In 2025, the baseline conforming loan limit for a one-unit property in most areas is $806,500, according to the Federal Housing Finance Agency. That means many buyers in Richmond, Glen Allen, Midlothian, and Chesterfield can stay within conforming limits even at higher price points.
Conventional financing can allow down payments as low as 3% for certain primary residence programs. Private mortgage insurance is usually required below 20% down, but unlike FHA mortgage insurance, it can often be canceled later once equity and servicing rules allow. Fannie Mae notes that many first-time buyers may qualify with a credit score as low as 620, though stronger pricing usually shows up at 740-plus. Source: FannieMae.com.
This loan tends to reward stronger credit. If your score is 760, your debt-to-income ratio is moderate, and you can put 5% to 20% down, conventional often gives you a cleaner long-term cost structure.
FHA loans
FHA loans are often the best fit when credit is decent but not pristine, or when conventional pricing gets too expensive because of score-based adjustments. FHA allows a minimum 3.5% down payment with a 580 credit score in many cases, according to HUD guidelines, while borrowers with scores between 500 and 579 may need 10% down. Source: HUD.gov.
For a $350,000 purchase, 3.5% down is $12,250. That can be more realistic than 5% or 10% for many buyers. FHA also tends to be more flexible on prior credit events and can handle higher debt-to-income ratios than many conventional scenarios.
The trade-off is mortgage insurance. FHA has both an upfront mortgage insurance premium and monthly mortgage insurance. For many borrowers putting less than 10% down, the annual mortgage insurance can remain for the life of the loan. That is where FHA can be easier to qualify for upfront but more expensive over time.
VA loans
For eligible veterans, active-duty service members, and some surviving spouses, VA loans are one of the strongest purchase options in the market. The headline advantage is real: 0% down payment. On a $425,000 purchase, that preserves $42,500 compared with a 10% down conventional structure.
The VA also limits certain borrower costs and does not require monthly mortgage insurance. That can create a materially lower monthly payment than FHA or conventional with mortgage insurance. The VA funding fee may apply, but some borrowers are exempt, especially those with qualifying service-connected disability status. Source: VA.gov.
VA underwriting is not automatic just because the program is strong. Residual income, entitlement, occupancy, and property standards still matter. But if you are eligible, VA is often the first loan worth reviewing because the combination of 0% down and no monthly mortgage insurance is hard to beat.
USDA loans
USDA loans are another 0% down option for eligible rural and some suburban areas. Many buyers hear “rural” and assume farmland. In practice, some outer-market communities still qualify. Income limits and property location rules apply, so this program is more targeted than conventional, FHA, or VA.
USDA has guarantee fees and annual fees, but cash-to-close can still be far lower than a conventional or FHA option. For buyers purchasing outside core urban zones, it is worth checking before assuming you need a down payment.
Jumbo loans
Jumbo loans apply when the loan amount exceeds conforming loan limits. In higher price bands, they can be useful, but they usually demand stronger credit, larger reserves, and often bigger down payments. Twelve months of liquid reserves is not unusual on some jumbo scenarios, though six months may work in others.
If you are buying above the conforming threshold, the conversation changes from simple program eligibility to layered risk review. Credit score, reserve assets, property type, and overall profile carry more weight.
How different home buying loans change your monthly cost
Buyers often focus too much on rate and not enough on structure. A loan with a slightly lower rate is not always cheaper if it includes permanent mortgage insurance or a large upfront fee.
Take a simple example on a $400,000 home:
- Conventional at 5% down means a $20,000 down payment and a $380,000 loan.
- FHA at 3.5% down means a $14,000 down payment and a $386,000 base loan before financed upfront mortgage insurance.
- VA at 0% down means the full purchase amount is financed, subject to any applicable funding fee.
The conventional loan may have better long-term economics if your credit is strong and mortgage insurance can drop off. FHA may win on approval flexibility. VA may produce the best blend of low cash-to-close and lower monthly payment if eligibility is there. That is why comparing APR, monthly payment, and total cash needed matters more than looking at note rate alone.
The CFPB recommends reviewing the Loan Estimate carefully, especially sections covering projected payments, closing costs, and cash to close. Source: ConsumerFinance.gov.
Which borrowers usually fit each loan type
A first-time buyer with a 760 score, stable W-2 income, and 5% down is often a strong conventional candidate. A buyer with a 620 score and tighter cash may find FHA more forgiving. An eligible veteran should usually review VA first. A buyer in a USDA-eligible area with qualifying income may be able to preserve cash with 0% down. A high-balance buyer with strong reserves may need jumbo.
Then there are edge cases. Self-employed borrowers who show strong bank deposits but lower taxable income may need a bank statement loan. Real estate investors buying based on property cash flow may use DSCR financing. These are valid products, but they generally carry higher rates and stricter reserve expectations than agency-backed owner-occupied loans.
Different home buying loans and credit score reality
Credit score is not just pass or fail. It affects pricing, mortgage insurance, and sometimes program choice.
At 760, conventional is often compelling. At 680, conventional may still work well, but FHA becomes worth comparing. At 620, FHA can become more attractive depending on debt ratio and down payment. Below that, options narrow quickly.
That is one reason early pre-qualification matters. A soft credit pull can help a buyer understand likely payment ranges and loan fit without immediately putting pressure on the score during the earliest exploration stage. Once you are ready to move, a full review gives the clearer approval path.
FAQ
What is the best home buying loan for a first-time buyer?
There is no universal winner. Conventional is often best for stronger credit and lower long-term costs. FHA can be better for lower credit scores or tighter qualification. VA is often best for eligible veterans because of 0% down and no monthly mortgage insurance.
Is FHA better than conventional?
Sometimes. FHA can be easier to qualify for, especially around the high-500s to mid-600s score range. Conventional can be cheaper over time if your credit is stronger and you can remove mortgage insurance later.
How much do I need for closing costs?
A practical planning range is 2% to 5% of the purchase price, though it varies by loan type, rate choice, taxes, insurance, and seller concessions. On a $400,000 purchase, that means roughly $8,000 to $20,000.
Are 0% down loans harder to get?
They are not necessarily harder, but they are more specific. VA requires eligibility tied to military service. USDA requires both borrower and property eligibility. When those boxes are checked, they can be excellent options.
The smart move is not asking which loan is best in the abstract. It is asking which loan fits your credit, cash, income pattern, property, and timeline with the lowest friction and the strongest long-term outcome. A good mortgage strategy should make the numbers clearer, not more confusing.
Duane Buziak, Mortgage Maestro | NMLS: 1110647 | Licensed in VA, TN, GA, FL | Virginia Broker of the Year 2024 & 2025 | Top 1% of All Brokers Nationwide | Coast2Coast Mortgage | (804) 212-8663.
