FHA loans are used by a broad swath of people, including those with lower credit scores and income. You can get an FHA loan with a downpayment of 3.5% if you have a minimum credit score of 580. You can still qualify with a credit score below 580 — even with no credit score — but the down payment and other requirements will be much higher.
FHA loans conform to loan limits set by county; these limits typically range from $294,515 to $679,650 in high-cost areas. You can view the FHA mortgage caps for your county at hud.gov. If you get an FHA loan, you must pay an upfront mortgage insurance premium (MIP) and an annual premium of 0.85%. Currently, the MIP is 1.75% of the loan amount — so, $1,750 for a $100,000 loan. This premium can be paid upfront at the mortgage closing, or it can be rolled into the monthly mortgage payment.
Also, a heads-up, the date an FHA loan was issued affects the MIP. If you received an FHA loan on or before June 3, 2013: You’re eligible for canceling MIP after five years, but you must have 22% equity in your home and have made all payments on time. If you received an FHA loan after June 3, 2013, to stop paying MIP, you’d have to refinance into a conventional loan and have a current loan-to-value of at least 80%.
VA loans are for active or retired military or a veteran’s surviving spouse. They offer a mortgage with a 0% down payment. VA loans also can have more lenient credit requirements — typically around a minimum 620 credit score — and lower DTI requirements. The VA only allows lenders to charge 1% maximum to cover the costs of originating and underwriting the loan, so you save money at closing. There is, however, an additional upfront, one-time funding fee of 2.15%. VA loans also don’t charge borrowers mortgage insurance — potentially helping you save a significant chunk of cash on your monthly payment. Given the benefits, a VA loan is often the best mortgage option for people who qualify.
USDA loans are mortgages for limited-income home buyers in towns with populations of 10,000 or less, or that are “rural in character,” meaning that some areas that now have bigger populations are grandfathered in. You can see whether your town is eligible on the USDA’s website.
USDA loans typically have lower interest rates than non-USDA loans. Down payments can be as low as 0%. USDA mortgages also have more lenient credit score requirements than conventional loans. Income limits to qualify depend on location and household size. USDA loans charge an upfront mortgage insurance fee of 1% of the loan amount and annual mortgage insurance premium of 0.35%. And USDA loan borrowers must buy a “modest home” — a property with a market value deemed reasonable for the area, though the USDA does not set specific price limitations.