"What kind of loan should I get?" is one of the first questions almost every buyer asks, and the honest answer is that it depends on your income, your credit, how much you have saved, and sometimes even where the home is located. There isn't one loan type that's best for everyone.
Here's a plain breakdown of the four main loan types buyers use, what each one actually requires, and where they tend to fit.
Conventional Loans
Not backed by a government agency, which means guidelines are set by Fannie Mae and Freddie Mac rather than FHA or the VA. Typically wants a credit score in the 620+ range, though better pricing usually starts higher than that. Private mortgage insurance (PMI) applies below 20% down, but unlike FHA, PMI on a conventional loan can be removed once you've built enough equity, rather than sticking around for the life of the loan.
FHA Loans
Backed by the Federal Housing Administration, which is why lenders can work with lower credit scores and smaller down payments than most conventional loans allow. The trade-off is mortgage insurance premium (MIP), which on most FHA loans today stays for the life of the loan unless you eventually refinance out of it. FHA loans also have county-specific loan limits, which change annually and cap how large a loan FHA will insure in a given area.
VA Loans
Backed by the Department of Veterans Affairs. No monthly mortgage insurance, which is a real monthly savings compared to FHA or low-down conventional. Instead, most borrowers pay a one-time VA funding fee at closing, which can often be rolled into the loan. Eligibility depends on service history, so it starts with a Certificate of Eligibility (COE) from the VA.
USDA Loans
Backed by the Department of Agriculture, with 0% down and competitive rates. The catch is that the property has to sit inside a USDA-designated eligible area, and eligibility is based on population and distance from larger urbanized centers, not on the property being a farm. More built-up, higher-population suburbs are generally not eligible, while smaller or more rural communities farther out sometimes are.
Eligibility maps are updated periodically and are address-specific, down to the exact parcel. I'm not going to guess at which streets in our area qualify, because it genuinely depends on the specific address, and getting it wrong wastes your time. Check any address directly on the official USDA eligibility map before assuming it does or doesn't qualify. Household income limits also apply and vary by county.
USDA Property Eligibility Map (official, opens in a new tab)
Combining a Loan Type With Down Payment Assistance
Most of Illinois's and Will County's down payment assistance programs are designed to pair with a specific set of loan types, usually FHA, VA, USDA, or a conventional HFA Preferred loan. If stretching your down payment further is part of your plan, it's worth reading through what's actually available right now before settling on a loan type, since the two decisions affect each other.
So Which One Is Actually Right for You?
There's no universal answer, but a few patterns show up often:
- Strong credit and a bit of savings often point toward conventional, especially since PMI can eventually be removed.
- Lower credit scores or minimal savings often point toward FHA, in exchange for mortgage insurance that doesn't go away as easily.
- Military service, active duty, or veteran status almost always makes a VA loan worth exploring first, since the savings are substantial.
- A specific address in an eligible area, combined with income inside the limits, can make USDA worth a serious look, but it has to start with checking that address.
This is also exactly the kind of decision where running your real numbers with a lender, not just general rules of thumb, makes the biggest difference.
Not Sure Which Loan Fits Your Situation?
I can walk you through how each option plays out with your actual numbers and point you toward lenders who handle whichever type fits best, including VA and USDA specialists when that applies.
Talk Through Your Loan OptionsLoan Type FAQ
Can first-time buyers use any of these loan types?
Yes. None of these four loan types require you to be a first-time buyer, though some down payment assistance programs that pair with them do have first-time buyer requirements of their own.
Is FHA mortgage insurance really permanent?
On most FHA loans originated today with less than 10% down, MIP lasts for the life of the loan. The way to get out of it is usually refinancing into a conventional loan once you have enough equity.
Does a USDA loan mean the home has to be a farm or acreage?
No. USDA loans apply to ordinary single-family homes in eligible areas, which is about population and location relative to urbanized centers, not about farmland or lot size.
Can I switch loan types partway through the process?
Sometimes, especially early on, but it can affect your timeline and the documentation your lender needs. The earlier you and your lender land on the right fit, the smoother the rest of the process goes.