If you buy a $400,000 home with 5% down, your loan amount is about $380,000 before financed costs. At 6.50% on a 30-year fixed, principal and interest is roughly $2,402 a month. At 6.00%, that falls to about $2,279 – a $123 monthly difference and about $7,380 over five years. That is why the question, what type of loan is best for buying a house, is really two questions at once: which loan fits your profile, and which loan produces the lowest total cost over time.
By Duane Buziak, Mortgage Maestro, NMLS#1110647
For buyers in Virginia, Tennessee, Georgia, and Florida, the right answer usually comes down to down payment, credit score, debt-to-income ratio, property location, and whether you qualify for veteran benefits. In Richmond-area pricing, that matters fast. Recent median home values and list-price data often put Richmond and Henrico above many first-time buyers’ comfort zone, while Chesterfield and parts of Hanover can still offer a different payment-to-price balance depending on inventory and taxes. See: https://www.zillow.com/home-values/ and https://www.realtor.com/realestateandhomes-search/Richmond_VA/overview
What type of loan is best for buying a house if you want the lowest payment?
If you are eligible, VA usually leads. It can offer no down payment, no monthly mortgage insurance, and more flexible residual-income treatment than many conventional options. For a veteran buying at $400,000 with zero down, even with a funding fee if applicable, the monthly payment can still beat a conventional loan with 3% down plus private mortgage insurance. Official VA program information is here: https://www.va.gov/housing-assistance/home-loans/
If you are not VA-eligible, conventional is often best when your credit is strong and you can put at least 3% to 5% down. FHA tends to work better when your credit score is lower or your debt ratios are tighter, but FHA mortgage insurance can make it more expensive over the long run for some buyers. HUD’s FHA basics are here: https://www.hud.gov/buying/loans
USDA can be the best value when the property is in an eligible area and household income fits program limits. In many outer-ring markets and smaller communities, USDA’s zero-down structure can outperform FHA simply because cash-to-close stays lower.
Jumbo becomes relevant when the loan amount exceeds conforming limits. For 2025, the baseline conforming loan limit for one-unit properties in most areas is $806,500, with higher limits in designated high-cost areas according to FHFA: https://www.fhfa.gov/data/conforming-loan-limit-cll-values. In most of the markets this audience cares about, the baseline limit is the key number.
Loan types compared side by side
| Loan type | Best for | Typical minimum credit | Down payment | Mortgage insurance | Reserve expectations | |—|—|—:|—:|—|—| | Conventional | Strong credit, lower long-term cost | 620, but best pricing usually 700+ | 3%-5% minimum | PMI if under 20% down | Often 0-2 months, more on multi-unit or risk layers | | FHA | Lower credit, higher DTI flexibility | 580 with 3.5% down in many cases | 3.5% | Upfront and monthly MIP | Often lighter than jumbo, varies by file | | VA | Eligible veterans and service members | No official VA minimum, many lenders use 580-620+ | 0% | No monthly MI | Often flexible if residual income works | | USDA | Eligible rural/suburban properties | Often 640 for streamlined approval paths | 0% | Annual fee, typically lower than FHA MIP impact | Modest reserves depending on file | | Jumbo | Higher-priced homes above conforming limit | Often 700-720+ | 10%-20% common | Usually no PMI, but rate and reserve rules vary | Frequently 6-12 months or more |
What type of loan is best for buying a house based on your situation?
Best for first-time buyers with solid credit
Conventional is usually the first place to look. If your score is 700 or higher, your debt-to-income ratio is controlled, and you have enough for down payment plus closing costs, conventional often gives the best blend of payment and long-term flexibility. You can remove PMI later once equity requirements are met, which is not as simple with FHA annual mortgage insurance.
On a $350,000 purchase in Chesterfield with 5% down, closing costs might land around 2% to 5% of the purchase price depending on escrows, title, taxes, and rate structure. That means roughly $7,000 to $17,500 in total closing costs and prepaid items, on top of down payment. If you are short on cash but not on income, FHA may win simply because approval can be easier.
Best for veterans and active-duty buyers
VA is often the strongest option on the market, full stop. No down payment changes the math. No monthly mortgage insurance changes it again. In practical terms, a buyer in Virginia Beach or Richmond can preserve cash for reserves, repairs, and moving costs instead of tying everything up in down payment.
That said, VA is not automatically best in every file. A conventional borrower with 20% down and excellent credit can sometimes beat VA on total financed cost depending on funding fee status, seller concessions, and the exact rate sheet on the day you lock.
Best for buyers with lower credit scores
FHA usually deserves a serious look when credit falls below the level where conventional pricing becomes punitive. Around 620 to 679, many borrowers find FHA more forgiving on automated approval. Around 580, FHA may still be viable with 3.5% down if the rest of the file is stable.
The trade-off is mortgage insurance. Over five to seven years, that extra monthly cost can outweigh the benefit of the easier approval. FHA is often the right bridge loan for getting into the house now, with a refinance strategy later if credit improves.
Best for buyers with little money down outside dense metro cores
USDA is underrated. If the property address is eligible and income fits program rules, USDA can combine zero down with a payment that is often more manageable than FHA. This matters in fringe suburban and smaller-market areas where home prices remain below major-city levels.
Best for higher-priced homes
Jumbo is not just a bigger conventional loan. It often comes with tighter underwriting, stronger reserve requirements, and more scrutiny on income documentation. For self-employed buyers, that can be the difference between approval and delay. Six to twelve months of reserves is common, though some files require more depending on occupancy, asset profile, and loan size.
Local pricing matters more than most buyers realize
A loan that looks best on paper can stop making sense once you match it to actual local home prices. In the Richmond region, median pricing in areas such as Henrico, Glen Allen, Midlothian, and Chesterfield can vary enough to push one buyer below or above important thresholds for PMI, conforming loan size, or cash-to-close. Near Short Pump, a payment-sensitive buyer may favor conventional with strong credit. In more price-flexible pockets of Chesterfield, FHA or USDA may keep the deal moving with less upfront cash.
6-step roadmap to choose the right loan
- Start with purchase price, not just monthly budget. A $325,000 target and a $525,000 target lead to completely different loan choices.
- Check your middle credit score. Around 580, 620, 680, 700, and 740 are meaningful pricing and approval breakpoints.
- Add your real cash available. Include down payment, closing costs, and at least one to three months of reserves.
- Compare total monthly payment, not just rate. Principal, interest, mortgage insurance, taxes, homeowners insurance, and HOA all matter.
- Match the loan to your file strength. Strong W-2 income leans conventional. Lower credit may lean FHA. Veteran eligibility should trigger a VA review first.
- Get prequalified with a soft credit pull when available so you can compare options without unnecessary score impact.
Competitor comparison: where buyers get tripped up
Large retail lenders such as Rocket Mortgage can be fast and polished, but standardized workflows are not always ideal for borrowers comparing VA versus FHA versus conventional at the edge of approval. Regional lenders such as Atlantic Coast, NFM, Movement, Alcova, C&F, and CrossCountry may offer stronger local market familiarity, though fee structure and lock strategy can differ materially. Veterans United is highly visible for VA, but veterans should still compare total lender fees, credits, and lock terms. The best loan is not just the best headline rate. It is the loan with the best all-in cost for your exact file.
FAQ
Is conventional better than FHA for buying a house?
Usually yes if your credit is strong and you can qualify cleanly. Usually no if your credit is lower or FHA approval is materially easier.
Is VA the best loan for buying a house?
For eligible veterans, often yes because of zero down and no monthly mortgage insurance. But compare the funding fee and total financed cost.
What credit score do I need for the best mortgage option?
Best pricing often starts improving meaningfully at 680, 700, and 740+. FHA can still work at lower scores, often starting around 580 with 3.5% down.
Is USDA only for farms?
No. USDA is for eligible properties in designated areas, many of which are suburban or small-town, not farmland.
What are typical closing costs?
A common planning range is about 2% to 5% of the purchase price, depending on escrows, title charges, taxes, and lender structure.
When do jumbo loans start?
Generally when your loan amount exceeds the conforming limit, which is $806,500 in most standard-limit areas for 2025.
Should I choose the loan with the lowest rate?
Not automatically. The lowest rate can come with higher upfront cost, more restrictive underwriting, or mortgage insurance that changes the true monthly payment.
This article is for educational purposes only and does not constitute financial or legal advice.
The best loan is the one that still looks right after you run the payment, the cash-to-close, and the five-year cost side by side. If a loan only works in a calculator but not in your real monthly life, it is the wrong loan.
Duane Buziak, Mortgage Maestro | NMLS: 1110647 | Licensed VA/TN/GA/FL | VA Broker of the Year 2024-2025 | Top 1% Nationwide | Coast2Coast Mortgage | (804) 212-8663.
