The Four Main Mortgage Types, Explained

One of the first questions I get from buyers in Henderson, KY and Evansville, IN is which type of loan actually makes sense for them. FHA, VA, conventional, USDA. The names alone can feel like a wall of letters before you’ve even started house hunting. So what mortgage acronym do you want to use and what do they stand for?  FHA stands for  The Federal Housing Administration. VA for Department of Veterans Affairs. USDA stands for U.S. Department of Agriculture.

The truth is, each loan type was built for a different kind of buyer, and none of them is automatically “better.” In my experience, once buyers understand what each one actually requires, the right choice usually becomes obvious. This guide breaks down the four most common mortgage types in plain English, with real numbers, so you can walk into a lender conversation already knowing what to ask and which questions matter most for your situation.

Why This Matters in Henderson, KY

Henderson County has a mix of buyers: first-time buyers just getting started, buyers relocating from Evansville, and buyers moving up to a larger home. Because the area includes both established neighborhoods and more rural stretches outside the city limits, several loan types that aren’t available everywhere actually apply here, USDA financing being the biggest example.

Understanding your options before you start touring homes also changes how you shop. A buyer using a VA loan, for instance, is often looking at different price points and property conditions than a buyer using a conventional loan with a smaller down payment. Knowing your loan type early saves time later, and it also helps set realistic expectations with your agent about which listings are worth touring in person.

The Four Main Mortgage Types, Explained

Conventional Loans

A conventional loan is not backed by a government agency. It’s the most common loan type nationally, and it works well for buyers with solid credit and a down payment of at least 3 to 5 percent. If you put down less than 20 percent, you’ll typically pay private mortgage insurance, an added monthly cost that protects the lender, until you build enough equity to remove it.

Conventional loans tend to offer the most flexibility in terms of property type and condition, which makes them a common choice for buyers purchasing a resale home in good shape. Because conventional loans aren’t backed by a government agency, underwriting guidelines can also vary slightly from one lender to the next, so it’s worth comparing offers rather than assuming every conventional quote will look the same.

FHA Loans

FHA loans are backed by the Federal Housing Administration and are popular with first-time buyers because they allow a lower down payment, as little as 3.5 percent, and are more forgiving of lower credit scores than conventional loans. In exchange, FHA loans require mortgage insurance for the life of the loan in most cases, which adds a consistent monthly cost.

Here’s a real example. On a $100,000 home with an FHA loan and 3.5 percent down, your loan amount would be about $96,500. Depending on your interest rate, your monthly principal and interest payment would land somewhere in the $600 to $650 range, before adding property taxes, homeowners insurance, and mortgage insurance. Those additional costs typically add a few hundred dollars more, so it’s worth asking your lender for a full monthly estimate, not just the loan payment alone.

VA Loans

VA loans are available to eligible veterans, active service members, and some surviving spouses, and they’re backed by the Department of Veterans Affairs. One of the biggest advantages is that VA loans often allow qualified buyers to purchase with no down payment at all, and they don’t require monthly mortgage insurance, which can mean a noticeably lower monthly payment compared to FHA or conventional loans.

VA loans do have specific property requirements, since the home needs to meet certain safety and condition standards. This is worth knowing upfront if you’re considering an older home that may need updates.

USDA Loans

USDA loans are backed by the U.S. Department of Agriculture and are designed to support homebuying in eligible rural and suburban areas. Some zones in Henderson County qualify, which surprises a lot of buyers who assume USDA financing only applies to farmland or remote properties. Like VA loans, USDA loans can allow no down payment for qualified buyers, and they typically come with competitive interest rates.

Eligibility depends on both the property’s location and the buyer’s household income, so it’s worth checking a specific address against the USDA’s eligibility map before assuming a home does or doesn’t qualify.

Closing Costs and Fees Vary by Loan Type

Beyond the down payment, each loan type carries its own set of upfront fees. FHA loans include an upfront mortgage insurance premium, typically around 1.75 percent of the loan amount, which is often rolled into the loan itself rather than paid in cash at closing. VA loans include a funding fee, which varies based on your down payment amount and whether you’ve used a VA loan before, though some veterans are exempt from this fee entirely. USDA loans include a guarantee fee, which functions similarly.

Conventional loans generally have fewer built-in government fees, but buyers putting down less than 20 percent will pay ongoing private mortgage insurance instead. In addition, all four loan types share standard closing costs like appraisal fees, title insurance, and lender fees, which typically run 2 to 5 percent of the purchase price regardless of loan type.

How Do You Know Which Loan Type Fits You?

Start with two questions: how much do you have for a down payment, and do you qualify for VA or USDA financing based on your service history or the property’s location? If you qualify for VA or USDA and the low or no down payment option appeals to you, those are often worth exploring first, since they can significantly lower your upfront cash needed at closing.

If neither applies, the choice usually comes down to FHA versus conventional. FHA tends to help buyers with a smaller down payment or a shorter credit history, while conventional loans often make sense once you have stronger credit and can put down at least 5 to 10 percent, since you’ll avoid FHA’s lifetime mortgage insurance requirement.

Of course, every buyer’s situation is different, and a local lender can run the actual numbers for your specific credit and income. I always recommend talking to two or three lenders early in the process, since rates and fees can vary more than buyers expect.

It also helps to think beyond the first year. A loan with a lower down payment might get you into a home sooner, but a higher monthly payment from ongoing mortgage insurance adds up over time. Running both scenarios, lower upfront cost versus lower monthly cost, side by side with a lender usually makes the tradeoff much clearer than looking at either number alone.

Frequently Asked Questions

What is the minimum down payment for an FHA loan?

FHA loans typically require a minimum down payment of 3.5 percent for buyers with a credit score of 580 or higher. Buyers with lower scores may need to put down more.

Do VA loans really require no down payment?

Yes, for most eligible veterans and service members, VA loans allow financing with no down payment at all, as long as the loan amount fits within the buyer’s entitlement and the home appraises at or above the purchase price.

Is Henderson County eligible for USDA loans?

Some areas of Henderson County fall within USDA-eligible zones, though eligibility depends on the specific property address. It’s best to check a particular home against the USDA’s eligibility map or ask your lender directly.

What’s the difference between FHA mortgage insurance and conventional PMI?

FHA mortgage insurance is typically required for the life of the loan, while conventional private mortgage insurance can usually be removed once you reach 20 percent equity in the home.

Can I switch loan types partway through the process?

In some cases, yes, especially early on, but it depends on your lender and how far along you are in underwriting. It’s much easier to compare loan types before you make an offer than to switch after you’re under contract.

How does my credit score affect which loan I should choose?

A lower credit score often makes FHA financing more accessible, since it’s more forgiving than conventional guidelines. As your credit score improves, conventional financing tends to become more competitive, especially once you can avoid FHA’s lifetime mortgage insurance.

Can I use a USDA or VA loan on any home in Henderson County?

Not necessarily. VA loans require the property to meet specific condition standards, and USDA loans require the property to fall within an eligible zone. Checking both the property and your own eligibility early prevents surprises later in the process.

Let’s Talk About Your Mortgage Options

If you’re not sure which loan type fits your situation, let’s talk through it together. I can point you toward local lenders who specialize in FHA, VA, and USDA financing, and help you understand how each option affects your home search in Henderson County and Evansville.

About Linda Meuth
Linda Meuth is a real estate salesperson with ERA First Advantage Realty, Inc. in Henderson, KY. Licensed in both Kentucky and Indiana, she has lived in the Tri-State area her whole life and has been helping buyers and sellers across Henderson County and Evansville since 2012.

Linda Meuth | ERA First Advantage Realty, Inc.
914 N. Elm St., Henderson, KY 42420
Direct: 270-577-7617 | Office: 270-577-8701
Email: linda.meuth@erafirst.com
Website: linda.sites.erarealestate.com