What Mortgage Should I Get? (FHA vs. Conventional vs. VA vs. USDA)

"What mortgage should I get?" or "What is the best first-time homebuyer loan?" are questions we hear every single day.

The Consumer Financial Protection Bureau (CFPB) actively recommends that buyers compare Conventional, FHA, VA, USDA, and state housing-finance programs based on their exact financial circumstances.

Because MadCity Home Loans is an independent broker, we aren't limited to pushing just one product from one bank. We have access to them all. Here is a master guide to help you decide which mortgage is right for you.

1. Conventional Loans

Best for: Buyers with good-to-excellent credit (680+) and at least a 3% to 5% down payment.

• The Pros: If you put down 20%, you avoid Private Mortgage Insurance (PMI) entirely. Even if you put down less, the PMI on a conventional loan falls off automatically once you reach 20% equity.
• The Cons: They have stricter credit and Debt-to-Income (DTI) requirements than government-backed loans.
• First-Time Buyer Perks: Fannie Mae (HomeReady) and Freddie Mac (Home Possible) allow 3% down payments for qualifying buyers.

2. FHA Loans

Best for: Buyers with lower credit scores (580+), limited cash, or higher debt-to-income ratios.

• The Pros: Extremely flexible qualification standards. You can buy a home with just 3.5% down, and interest rates are often lower than Conventional rates.
• The Cons: FHA loans require an Upfront Mortgage Insurance Premium (UFMIP) and a monthly Mortgage Insurance Premium (MIP) that lasts for the life of the loan (unless you refinance later or put 10% down initially).

3. VA Loans

Best for: Veterans, active-duty military, and eligible surviving spouses.

• The Pros: This is the best mortgage on the market. 0% down payment required, and absolutely NO monthly mortgage insurance (PMI). Rates are highly competitive, and credit requirements are flexible.
• The Cons: You must have eligible military service. There is also a one-time VA Funding Fee (though it can be rolled into the loan or waived if you have a service-connected disability).

4. USDA Loans

Best for: Low-to-moderate-income buyers purchasing a home in a rural or suburban area.

• The Pros: 0% down payment required. USDA loans offer low interest rates and reduced mortgage insurance costs compared to FHA.
• The Cons: Strict geographical restrictions. The home must be located in a USDA-eligible area (many towns outside of Madison, like parts of Waunakee or Oregon, qualify). You must also fall below the household income limits for your county.

5. WHEDA Loans (Wisconsin Only)

Best for: Wisconsin residents looking for down payment assistance.

• The Pros: WHEDA (Wisconsin Housing and Economic Development Authority) offers below-market interest rates and loans specifically designed to cover your down payment and closing costs.
• The Cons: Like USDA, WHEDA loans have household income limits and purchase price limits, though they are usually quite generous.

💡 The Decision Tree:
Are you a Veteran? Get a VA Loan.
Are you buying rural with no down payment? Look at USDA.
Do you have great credit but need down payment help? Look at WHEDA.
Is your credit under 680? FHA is likely your best bet.
Do you have 20% to put down? Conventional is the clear winner.

Find Your Perfect Fit

You do not have to make this decision alone. Let our experts run the numbers across all five of these programs for you simultaneously.

Schedule a Strategy Session with our team, and we will build a custom mortgage strategy that fits your life.

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Deep Dive Questions

• Can I switch loan types later? Yes! You can absolutely refinance from an FHA loan into a Conventional loan later down the road once your home goes up in value to drop your mortgage insurance.
• Are FHA appraisals harder to pass? FHA and VA appraisers do look for basic health and safety issues (like peeling paint or broken handrails), but they are not the deal-killers many people claim they are.