Purchase and financing
Loan type, explained
A mortgage is money you borrow to buy a home. The loan type is the set of rules that mortgage follows. A conventional loan does not use a government loan program. Federal Housing Administration (FHA), U.S. Department of Veterans Affairs (VA), and U.S. Department of Agriculture (USDA) loans use government programs with their own rules.
Published and maintained by Kevin Song for Your Home Cost. Last reviewed: . How guides are reviewed.
8 cited sources
Loan types in this calculator
No option is automatically best for everyone.
Conventional loan
A mortgage that is not insured or guaranteed by a specific federal home-loan program. Many conventional loans follow Fannie Mae or Freddie Mac standards, while other conventional loans use rules set more directly by the lender.
Down payments and approval rules vary. With less than 20% down, private mortgage insurance (PMI) is often required, but its rate must come from the lender because credit, down payment, and loan details affect it. PMI may later be removable when legal and lender conditions are met.
Federal Housing Administration (FHA)-insured loan
An approved private lender provides the money, and the Federal Housing Administration insures the lender against certain losses. These loans may allow a down payment as low as 3.5% and may accept lower credit scores than many conventional loans.
The home generally must be a primary residence and meet program property rules, and county loan limits apply. FHA mortgage insurance includes a 1.75% upfront mortgage insurance premium plus an annual mortgage insurance premium (MIP), usually collected monthly. This calculator estimates the annual tier but does not add the upfront premium.
U.S. Department of Veterans Affairs (VA)-backed loan
A private lender makes the loan, and the U.S. Department of Veterans Affairs guarantees part of it. It is limited to eligible service members, veterans, and certain surviving spouses who meet VA and lender rules and plan to occupy the home.
A qualifying borrower may be able to buy with no down payment when the price is not above the appraised value. There is no monthly PMI or MIP, but a one-time VA funding fee may apply unless the borrower is exempt. Its rate varies with down payment and first or later use, so this calculator does not guess or add it.
U.S. Department of Agriculture (USDA)-guaranteed loan
For this calculator, USDA means the Section 502 Guaranteed Loan Program. An approved private lender makes the loan, and USDA Rural Development guarantees part of it for qualifying households buying a primary residence in an eligible rural area.
Household-income and property-location limits apply. Qualified borrowers may receive 100% financing, which means no down payment, but closing cash may still be needed. This is a 30-year fixed-rate program with a 1% upfront guarantee fee and a 0.35% annual guarantee fee under the current cited instruction; this calculator estimates only the annual fee.
Why it changes your estimate
Loan type can change who is eligible, how much cash may be needed up front, loan limits, property rules, and the mortgage-insurance or guarantee fees charged. It does not create one automatic interest rate for everyone. A lender still reviews the borrower's finances, the property, and current market conditions.
What to enter
Choose the program you expect to use. If you are unsure, use Conventional only as a neutral planning starting point. Ask lenders which programs you may qualify for, then compare official Loan Estimates—standard forms showing each offer's rate, payment, and costs—before deciding.
Good to know
This selection changes only the calculator's recurring mortgage-insurance or guarantee-fee rule. It does not approve a loan, check income or credit, confirm military service or rural-property eligibility, enforce occupancy or property standards, or test county loan limits. The calculator also does not add one-time FHA, VA, or USDA program fees. If such a fee is financed, this estimate can understate the starting balance and payment. Get an exact lender quote for the complete cost.
Compare programs with the same purchase scenario
A useful loan-program comparison holds the property, price, down payment, and quote date constant. Ask each lender to show the same scenario on an official Loan Estimate, then compare the interest rate, principal and interest, mortgage-insurance or guarantee charge, lender credits, origination charges, cash to close, and whether an upfront program fee is paid in cash or added to the balance. A lower advertised rate can lose its advantage when fees, mortgage insurance, or financed charges are included.
Verify eligibility before building a plan around a program. Confirm occupancy rules, income or service requirements, property eligibility, appraisal standards, and loan limits with the lender or agency resource. Also ask how long recurring insurance or guarantee charges are expected to last. Keep the calculator selection aligned with the program actually quoted; it models recurring program charges, not underwriting approval or every fee on the disclosure.
- Request same-day Loan Estimates using the same price, down payment, and lock period.
- Separate cash-paid fees from charges that would increase the starting loan balance.
- Confirm program eligibility and property rules before treating an option as available.
Worked example
On a $400,000 home with $40,000 down, the starting loan is $360,000. At an illustrative 0.5% annual conventional PMI rate, the simple cost is $1,800 per year, or $150 per month. For the same 30-year, 90% loan-to-value example, the calculator's FHA annual MIP tier is also 0.5%, USDA's 0.35% annual fee is about $105 per month, and VA adds no monthly mortgage insurance. Those figures do not decide which loan costs less because rates, eligibility, and upfront fees also differ.
Sources and citations
These references support the definitions, planning guidance, and program rules above. A citation does not mean its publisher endorses this guide.
- Consumer Financial Protection Bureau: Compare loan types
- Consumer Financial Protection Bureau: Conventional loans
- Consumer Financial Protection Bureau: FHA loans
- U.S. Department of Veterans Affairs: Purchase loans
- U.S. Department of Agriculture: Guaranteed loans
- U.S. Department of Housing and Urban Development: FHA premium calculation
- U.S. Department of Veterans Affairs: Funding fee and costs
- U.S. Department of Agriculture: Guarantee-fee schedule
Original planning exercise
Follow one upfront fee through two payment choices
Suppose the property price is $400,000, the down payment is $20,000, and a lender quotes a $6,650 upfront program charge. Compare paying that charge in cash with financing it. Hold the illustrative note rate at 6.5% and the term at 30 years; omit other charges to isolate this one decision.
Illustrative assumptions, not quotes or forecasts. Calculations by Your Home Cost; mortgage payment examples use the calculator's shared fixed-rate formula.
| Option or step | Calculation | Planning result |
|---|---|---|
| Pay the fee in cash | $400,000 − $20,000 = $380,000 borrowed | $2,401.86/month principal and interest; $6,650 extra cash |
| Finance the fee | $380,000 + $6,650 = $386,650 borrowed | $2,443.89/month principal and interest; fee added to debt |
What the comparison tells you
Financing the fee adds $42.03 to the monthly principal and interest in this example. It saves cash on the payment date but does not make the charge disappear. Recurring mortgage insurance, program eligibility and other closing items can still change the comparison.
Evidence to collect
Ask the lender to identify the base loan, total financed loan, upfront program charge, recurring charge and where each appears on the Loan Estimate. Use the lender's amounts rather than treating this hypothetical fee as a quote.
Apply it in the calculator
The calculator derives its loan from price minus down payment and does not automatically finance program fees. Record a cash-paid fee in Other one-time costs only if it is not already in closing costs. A financed fee requires the lender's payment schedule to capture the larger balance.
Original planning exercise added . Source-review dates above are maintained separately.