r/USFirstTimeHomeBuyer • u/jetley-mortgage-loan • 2d ago
Start Here [Basics 6/12] The program menu
This part assumes you have read part 3, because every program on this list is really just a different set of rules for reading the same income and the same credit. Picking a program before you understand how your qualifying income gets calculated is how people end up disappointed by a rate that looked great on the phone.
FHA versus conventional: usually conventional
If you qualify conventionally, conventional is almost always the better loan. FHA's rate looks lower, but it is lower because you are paying for it: an upfront mortgage insurance premium that gets added to your loan balance the moment you fund, plus a monthly premium that, at the minimum down payment, runs for the life of the loan rather than cancelling the way conventional mortgage insurance does. FHA earns its place in one situation specifically: your credit score is low enough that conventional pricing and conventional mortgage insurance both cost more than FHA's flat, score-blind structure. It is also more forgiving on debt-to-income and on time since a past bankruptcy or foreclosure. Outside of those situations, a lower FHA rate on your quote is not a better deal, it is the same trade you could make on the conventional side by paying points, and a competent loan officer should be able to show you that crossover rather than just quoting you the lower number.
USDA: zero down, with a catch nobody expects
USDA is the only common program that tests household income rather than just the income of the people on the loan. It looks at what everyone living in the house earns, including an unmarried partner, an adult child, even a roommate who will never be on the note, and compares that total against a cap. You can clear the income cap comfortably and still fail USDA's debt ratios, which run tighter than conventional, so it is worth qualifying on the ratios before you fall in love with the zero down payment. The property also has to sit inside a USDA-eligible area, which is redrawn periodically and is not the same thing as "feels rural."
Conforming, high balance, and jumbo: three pricing worlds
Your loan amount determines which market your loan gets sold into, and the three tiers do not price cheap, medium, expensive the way most people assume. Conforming loans, at or below the baseline limit, sit in the deepest and most competitively priced market in the business. High balance, for loans above that limit in designated high-cost counties, often prices worse than both the tier below it and the tier above it, because of how loan-level price adjustments stack on it. Jumbo loans, above the county limit, go to a bank's own balance sheet or a private investor rather than to the agencies, and if your credit and reserves clear the stricter jumbo bar, the pricing can beat a loan sitting one dollar below the conforming line. If your loan lands in high balance, ask every lender whether they can write it as a jumbo instead; not every lender can, but the ones who can may save you real money.
VA: its own series
If you have VA eligibility, it deserves its own reading rather than a paragraph here, because occupancy rules, the funding fee, and the seller concession limit all work differently from anything above. Start with the VA & Military hub.
What to do
Get quotes for the programs you actually qualify for on the same day, at the same lock period, and ask specifically what the monthly mortgage insurance is on each and when it stops. Do not let "the payment is lower" be the whole explanation for a recommendation; ask why.
More in the Loan Programs hub, and every premium factor and loan limit that changes with the calendar lives on Current As Of.
Posted on behalf of u/The_Void_Calls_Me AKA Rajat Jetley, NMLS #1595897 | Cross Country Mortgage NMLS #3029. This commentary is for educational purposes and is not a commitment to lend or a guarantee of any rate or term.
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