Conventional financing is the default most buyers hear about first, but it assumes a lot: a strong credit score, a meaningful down payment, W-2 income, and a move-in-ready home. A 620 score, a thin down payment, a recent credit event, or self-employment income can make it expensive or out of reach. Other programs exist for each of those obstacles, and their costs differ in ways a headline rate hides. Below are seven conventional loan alternatives, each with the mechanism, a worked scenario, the usual mistake, and what to measure. Don’t Guess Your Rate. Shop It. Rates and fees in the examples are assumptions for illustration, not quotes.
By Duane Buziak, NMLS #1110647
1. FHA Loans
FHA loans are insured by HUD, which is why lenders accept lower scores and smaller down payments. As of 2026, HUD’s FHA program allows 3.5% down with a 580 score, and a 500 to 579 score generally requires 10% down. The cost is mortgage insurance: an upfront premium (1.75% of the base loan, usually financed) plus an annual MIP billed monthly. That is the key contrast with conventional PMI, which has no upfront premium and whose price swings sharply with credit score.
Suppose a $400,000 purchase with a 630 score. Assume FHA at 6.25% with 3.5% down: base loan $386,000, upfront MIP $6,755, financed loan $392,755. Principal and interest is about $2,418, and annual MIP at 0.55% is about $177 a month, for roughly $2,595. Now assume conventional with 3% down at 6.75% (a 630 score carries pricing adjustments): loan $388,000, P&I about $2,517, plus PMI at an assumed 1.75% of about $566 a month, for roughly $3,082. That is about $487 a month in FHA’s favor, or around $29,200 over five years. Taxes and insurance are the same in both cases, so I left them out.
The pitfall is the exit. With under 10% down, FHA MIP lasts the life of the loan, while conventional PMI can be requested at 80% loan-to-value (LTV). On this $400,000 home, that is a $320,000 balance, and it ends automatically at 78%, or $312,000, per CFPB guidance.
- Request a soft credit pull mortgage pre-approval so shopping doesn’t dent your score.
- Look up the county FHA limit on HUD.gov.
- Get FHA and conventional quotes with MIP and PMI itemized.
- Model a refinance into conventional once equity reaches 20%.
Measure the full monthly payment including MIP, then the 5-year and 10-year cost against conventional, including the refinance’s closing costs.
2. VA Loans
The most common error is assuming a down payment is required, or skipping the comparison because VA is “standard.” Eligible veterans and service members can buy with no down payment and no monthly mortgage insurance. The trade is a one-time funding fee. As of 2026, VA.gov’s funding fee table lists 2.15% for first-use, zero-down purchases, with lower tiers for larger down payments. Veterans receiving service-connected disability compensation are generally exempt.
Illustration: a $400,000 purchase with $0 down. The 2.15% fee is $8,600, financed to a $408,600 loan. At an assumed 6.0%, payment is about $2,450. A conventional loan with 5% down ($20,000) at an assumed 6.5% on $380,000 costs about $2,402 plus $285 a month in PMI, or about $2,687. The VA payment is roughly $237 lower, about $19,900 over seven years. Conventional PMI also persists: after 84 payments the balance is about $343,600, still above the $320,000 cancellation point.
Entitlement mechanics matter if you have used VA benefits before. Take the county loan limit times 25% for the maximum guarantee, subtract entitlement still in use, then multiply the remainder by four for the zero-down limit. Hypothetically, with a $800,000 limit: $200,000, minus $50,000 used, leaves $150,000, times four is a $600,000 zero-down ceiling.
- Pull your Certificate of Eligibility electronically (we need your SSN and date of birth), or request it on VA.gov.
- Confirm your funding fee tier.
- Compare quotes across hundreds of wholesale lenders.
- If refinancing later, remember VA cash-out goes to 100% LTV; conventional cash-out tops out at 90%.
Measure funding fee dollars plus lifetime interest against a conventional loan with PMI.
3. USDA Loans
The misconception here is that USDA means farmland. The program covers eligible areas, and many suburban-edge addresses qualify. A zero-down loan is guaranteed by USDA, with household income limits. As of 2026, the guarantee fee has been 1% upfront and 0.35% annually, which is cheaper than FHA’s 1.75% and 0.55%. Rules change, so verify on the USDA eligibility site.
Illustration: a family finds a home on a town’s outskirts, checks the address on the USDA map, and it is eligible. Their household income is under the limit for their household size (commonly 115% of area median, which the USDA site confirms). On a $300,000 loan, the USDA annual fee at 0.35% is $1,050 a year, or $87.50 a month. FHA’s 0.55% is $1,650, or $137.50 a month. That is $50 a month, or $3,000 over five years. The upfront fee gap is also meaningful: 1% ($3,000) versus 1.75% ($5,250), both usually financed.
Do this in order:
- Enter the specific address in the eligibility map before you fall in love with a listing.
- Check the current income limit for your county and household size, counting everyone in the household.
- Get USDA, FHA, and conventional quotes with fees itemized.
The mistake is testing only one address, or never testing at all. Eligibility is parcel by parcel and maps are updated, so a house two blocks away may differ. The other trap is comparing rates only, when the fee structures differ.
Measure the annual fee dollars against FHA MIP and conventional PMI over five years, plus the upfront fee amount.
4. Down Payment Assistance Pairings
Down payment assistance (DPA) is not a standalone loan. It is a layer on an eligible first mortgage that reduces the cash you need at closing, and it is not free money. Many programs are repayable or forgivable second liens with conditions. Duane Buziak works with programs including Dynamo, Turbo DPA, Orion, and Click n’ Close, and each has its own eligibility rules, income limits, and terms.
What to read before you commit
Find out whether the assistance is a grant, a forgivable lien, or a repayable second, and what triggers repayment: sale, refinance, or moving out within a set window. Ask whether it carries interest and whether the first mortgage rate is higher when you use it.
A worked illustration
Suppose a $350,000 FHA purchase. The 3.5% down payment is $12,250. A hypothetical 3% second lien ($10,500), 0% interest and due on sale or refinance, cuts the cash needed to $1,750 plus closing costs. If the first mortgage rate runs 0.25% higher with DPA (6.5% versus 6.25%), the payment on the $337,750 base loan rises about $55 a month, roughly $3,300 over five years. You would also owe $10,500 later. Whether that trade works depends on whether cash at closing is the thing keeping you from buying.
- Confirm program eligibility, income limits, and property rules.
- Read the lien type and the repayment or recapture terms in full.
- Get first-mortgage quotes with and without the assistance.
- Record your total repayment obligation.
Measure cash needed at closing, the first-mortgage rate change, and total repayment obligation.
5. Physician and Doctor Loans
Medical professionals often look weak on paper to conventional underwriting: heavy student debt, little savings, and income that hasn’t started yet. Physician loans address this by accepting a signed employment contract as income, offering flexible down payments, and often waiving monthly PMI. Duane Buziak offers this program, and terms change, so quotes matter.
Illustration: a resident has a signed attending contract starting in three months, limited savings, and student loans. Conventional underwriting would look at current resident pay. A physician program can qualify on the contract. Now the cost. Assume a $650,000 home, 5% down, loan $617,500. A physician loan at 6.75% with no PMI is about $4,005 a month. Conventional at 6.5% is about $3,903 plus $360 in PMI (0.7% assumed), roughly $4,263. The physician loan is about $258 a month lower, around $21,700 over seven years. The rate premium alone costs about $102 a month, but PMI costs more. At year seven, the conventional balance is about $558,000, still above the $520,000 (80% LTV) cancellation point.
The mistake is choosing on “no PMI” alone. If you can reach 20% down, the conventional option has no PMI and likely a lower rate, so the comparison flips. Also confirm what happens to the rate if you stay a decade.
- Gather your license, degree, and employment contract.
- List all student loan payments with their documentation.
- Get physician, conventional, and FHA quotes with rate, down payment, and PMI treatment side by side.
- Model a 7 to 10 year hold.
Measure the all-in monthly payment and the 7 to 10 year total cost against conventional.
6. Non-QM and DSCR Loans
Non-QM loans qualify you on something other than tax returns: bank statements, assets, or, for investors, the property’s rent. A DSCR (debt service coverage ratio) loan divides monthly rent by the full monthly housing payment (principal, interest, taxes, insurance, and any HOA). Rent of $2,400 against a $2,000 payment is a 1.20 DSCR. Minimums vary by program, and some accept ratios near or below 1.0 with other compensating factors.
Illustration: a self-employed borrower grosses $240,000 in deposits over 12 months, but write-offs leave a tax-return income too low for agency guidelines. A bank-statement program applies an expense factor, say 50% for this example, to reach qualifying income of $10,000 a month. Expense factors differ by program and business type. The price is the rate. On a $300,000 loan, 7.5% costs about $2,098 monthly versus about $1,896 at 6.5%, or about $201 more, around $2,400 a year.
The mistake is treating non-QM as a fix for credit problems, or not pricing the premium against waiting a year or two to qualify conventionally. If the premium runs $2,400 a year, a one-year wait for agency pricing might be cheaper than locking in the higher rate.
- Collect 12 to 24 months of statements, or the lease and market rent data.
- Compare rate and down payment tiers by scenario.
- Read the prepayment penalty terms. Investor programs commonly use multi-year step-downs.
- Ask about a plan to refinance to agency pricing.
Measure the rate premium over agency pricing, plus either the DSCR ratio or your qualifying income margin above the payment.
7. Jumbo and FHA 203(k) Renovation Loans
These solve a property problem rather than a borrower problem. A jumbo loan exceeds the conforming limit. As of 2026, FHFA set the baseline at $832,750, with higher limits in designated high-cost counties, so check your county. Jumbo underwriting is typically stricter on reserves. Meanwhile, a 203(k) rolls purchase and repair costs into one FHA loan. Per HUD’s 203(k) page, the Limited version covers smaller non-structural repairs (capped at $35,000, as of 2026), while the Standard version covers structural work and requires a HUD consultant.
Illustration: a buyer finds a dated $300,000 home needing $60,000 in repairs. A Standard 203(k) might finance the $60,000, a 15% contingency reserve ($9,000), and related fees, about $69,000 on top of the purchase. At the assumed 6.25%, that portion costs about $425 a month. Separate renovation financing, say a 10-year loan at 10%, would run about $912 a month. The 203(k) payment is lower, but the 30-year term means more total interest ($83,900 versus $40,400 on this slice). You can mitigate that with extra principal payments.
The common failure is underestimating. Contractor bids come in higher than expected, contingency gets drained, and closings stall. On jumbo loans, the shortfall is usually reserves, often months of payments held in liquid assets.
- Verify the 2026 conforming limit for your county on FHFA.gov.
- For a 203(k), collect contractor bids and engage a consultant where HUD requires one.
- Compare jumbo reserve requirements across programs.
Measure the total financed amount, reserve requirement, and cost versus separate purchase and renovation loans.
What Each Program Charges and Requires, Side by Side
The rates below are the assumptions used in this article, not current quotes. The Freddie Mac Primary Mortgage Market Survey describes the national averages methodology, and your actual pricing depends on score, LTV, and property. Fannie Mae’s Selling Guide sets conventional eligibility rules.
| Program | Min. down payment | Rate assumed here | Term | Upfront fee | Ongoing cost | Qualifies on |
|---|---|---|---|---|---|---|
| Conventional (630 score, 3% down) | 3% | 6.75% | 30 years | None for PMI | PMI, assumed 1.75% a year, cancelable | Tax-return income, 620+ score |
| FHA | 3.5% (580+ score) | 6.25% | 30 years | 1.75% upfront MIP | Annual MIP, 0.55% in the example | Tax-return income, flexible credit |
| VA | 0% | 6.0% | 30 years | 2.15% funding fee (first use, zero down) | No monthly mortgage insurance | Eligibility via COE, tax-return income |
| USDA | 0% | Quoted per scenario | 30 years | 1% guarantee fee | 0.35% annual fee | Eligible address and income limits |
| Non-QM / DSCR | Program-specific | 7.5% in the example | Often 30 years | Varies | Rate premium, possible prepayment penalty | Bank statements, assets, or rent coverage |
Start With Your Biggest Obstacle, Then Compare Real Quotes
Name the one thing that most blocks conventional financing for you: credit, down payment, income, or the property itself. Credit and cash point toward FHA, VA, USDA, or DPA. Contract or self-employed income points toward physician or non-QM programs. A home needing work or priced above the limit points toward 203(k) or jumbo. Narrow to two or three programs, because comparing seven at once buries the numbers that matter.
Then get real quotes. Duane Buziak at Shop Mortgage Rates, working as a soft pull mortgage broker, can run a mortgage pre approval without hard pull, so you can compare your programs side by side without credit damage. Your dream home is within reach, discover how much you could save with personalized mortgage rates tailored to your unique situation. Securely pre-qualify in minutes with no impact to your credit score and compare competitive offers from trusted lenders who are ready to help you save.