Guide to Loan Types
Our calculator supports four major loan types. Understanding the differences between them is crucial for accurate estimation, as each has unique rules for down payments, insurance, and fees.
1. Conventional Loans
Conventional loans are the most common type of mortgage. They are not insured or guaranteed by the federal government. Instead, they are typically backed by private lenders and often sold to government-sponsored enterprises like Fannie Mae and Freddie Mac.
Key Calculator Rules:
- PMI Requirement: If your down payment is below a certain threshold (typically a standard percentage), lenders require Private Mortgage Insurance (PMI). Our tool automatically estimates this cost based on your loan-to-value ratio.
- Credit Sensitivity: Interest rates for conventional loans are highly sensitive to credit scores. A higher score usually results in a significantly lower rate.
2. FHA Loans
Insured by the Federal Housing Administration, FHA loans are designed to help first-time homebuyers and those with lower credit scores or smaller down payments.
Key Calculator Rules:
- Minimum Down Payment: FHA guidelines allow for a low down payment for qualifying borrowers.
- Insurance Premiums: Unlike conventional loans, FHA loans require two types of mortgage insurance:
- UFMIP: An Upfront Mortgage Insurance Premium is usually added to your total loan amount.
- MIP: An annual Mortgage Insurance Premium is paid monthly.
3. VA Loans
VA loans are a benefit available to eligible American veterans, active-duty service members, and some surviving spouses. They are guaranteed by the U.S. Department of Veterans Affairs.
Key Calculator Rules:
- Zero Down Payment: VA loans often allow for little to no down payment without requiring monthly mortgage insurance.
- Funding Fee: While there is no monthly insurance, there is a one-time "Funding Fee." The amount varies based on your service category and whether you have used a VA loan before. Our calculator estimates this fee automatically.
4. USDA Loans
The USDA loan program is backed by the U.S. Department of Agriculture and is designed to encourage homeownership in eligible rural and suburban areas.
Key Calculator Rules:
- Zero Down Payment: Like VA loans, USDA loans allow for minimal or no down payment.
- Guarantee Fees: USDA loans include both an upfront guarantee fee (financed into the loan) and an annual fee that is paid in monthly installments. Our tool factors both into your monthly payment estimate.