Most Michigan buyers end up choosing among five loan families, conventional, FHA, VA, USDA and jumbo, and the right one usually comes down to three things: your credit score, your down payment, and how long you plan to keep the home. Conventional loans generally start at 3% down with a 620 score, FHA at 3.5% down with a 580 score, and VA and USDA can reach 0% down for buyers who qualify.

A second choice sits on top, fixed rate or adjustable, and it decides how much interest-rate risk you keep. Learn how government-backed and conventional programs differ, which low-down-payment mortgages you qualify for, and whether a fixed or adjustable structure fits your timeline.

Key takeaways:

• Down payment is the first filter: VA and USDA loans can reach 0% down, FHA needs 3.5% at a 580 score, and conventional starts near 3% at a 620 score.
• Mortgage insurance is where the real cost gap lives: Conventional PMI cancels at 80% loan-to-value, while FHA’s annual premium usually runs for the life of the loan when you put less than 10% down.
• Qualifying for one program isn’t the same as choosing it: Most buyers with a 640-plus score qualify for more than one, and pricing on your actual file decides the winner, not the program name.

What are the main types of mortgage loans?

Five loan families cover nearly every home purchase in the country: conventional, FHA, VA, USDA and jumbo. Each sets its own down payment floor, credit expectations and mortgage insurance rules, and those three variables decide most comparisons across the full menu of types of mortgage loans.

Three of the five, FHA, VA and USDA, are government-backed loans: a federal agency insures or guarantees the lender against loss, so the lender can accept a file it would otherwise decline.

• Conventional: No government insurance; most follow Fannie Mae or Freddie Mac guidelines. Eligible buyers can put 3% down, and lenders commonly look for a 620 score. Detail lives in our conventional loans hub.
• FHA: Insured by the Federal Housing Administration, with 3.5% down at a 580 score or 10% down at 500 – 579, the widest credit door in mainstream lending.³ Our FHA loans hub has the premium math.
• VA: Guaranteed by the Department of Veterans Affairs for eligible veterans, service members and surviving spouses: no down payment, no monthly mortgage insurance and no loan limit with full entitlement.² Start at our VA loans hub.
• USDA: Guaranteed by USDA Rural Development, financing 100% of the price in eligible areas for households within 115% of the area median income. See our USDA and assistance programs hub.
• Jumbo: Any loan above your county’s conforming limit, $832,750 on a one-unit home in most counties for 2026, priced by private investors instead of the agencies. See jumbo and non-QM lending.

Conventional vs. government-backed loans: What’s the difference?

A conventional loan is backed by private capital and priced on your credit profile; a government-backed loan is insured or guaranteed by a federal agency and priced on that guarantee. In practice, conventional rewards strong credit while FHA, VA and USDA reward buyers short on down payment, credit history or both.

Feature	Conventional	FHA	VA	USDA
Minimum down payment	3% for eligible buyers	3.5% at a 580 score; 10% at 500 – 579	0%	0%
Typical minimum credit score	Commonly 620, set by the lender and the underwriting system	580 for the 3.5% option	No agency minimum; lenders in Align’s network want 580 – 660	No published minimum; 640 is the practical line
Mortgage insurance	PMI below 20% down, cancellable at 80% loan-to-value	0.55% a year for most borrowers, usually for the loan’s life	None	Annual guarantee fee for the loan’s life
Upfront fee	None	1.75% premium, financed into the loan	One-time funding fee, waived for veterans receiving disability compensation	Guarantee fee, financed into the loan
Property restrictions	Fewest; primary, second home or investment	Primary residence; appraiser grades condition	Primary residence; Minimum Property Requirements apply	Primary residence inside an eligible area
Best for	Solid credit, or a long enough hold for PMI to end	Thinner credit files and higher debt ratios	Anyone eligible, the cheapest financing available	Moderate-income buyers outside the urban core

The guarantee is the whole difference, and it protects the lender rather than you, our guide to how mortgage insurance and agency guarantees actually work unpacks what that means for your approval odds. The rules come from the agencies themselves: FHA’s from the U.S. Department of Housing and Urban Development, VA’s from the Department of Veterans Affairs.

Read any comparison chart with one caution: agency minimums are floors, not approvals. Every lender layers its own overlays on top, which is why the same file can be declined at one wholesale lender and approved at the next.

Low-down-payment loans compared: 0%, 3% and 3.5% options

Five widely available paths put you in a home for less than 5% down, and two require nothing down. Our guide to low-down-payment mortgages runs the full comparison; here’s the short version.

• VA, 0% down: No down payment and no monthly mortgage insurance, funded by a one-time fee that is waived for veterans receiving compensation for a service-connected disability.
• USDA, 0% down: 100% financing in eligible areas for households within 115% of the area median income, paid for with an upfront guarantee fee and a smaller annual fee.
• FHA, 3.5% down: Available at a 580 score, and the entire minimum investment can come from a documented gift.
• Conventional 97, HomeReady and Home Possible, 3% down: Fannie Mae’s HomeReady and Freddie Mac’s Home Possible pair 3% down with reduced mortgage insurance for households at or below 80% of area median income.
• Professional programs, 0% – 10% down: Physician and dentist products from a handful of lenders in Align’s network allow little or nothing down and treat student loan debt more favorably.

Say you’re buying a $280,000 home in Waterford. At 3% down on a conventional loan you bring $8,400; at 3.5% down on FHA you bring $9,800, and the 1.75% upfront premium adds about $4,729 to the balance instead of your cash at closing. FHA’s 0.55% annual premium runs roughly $124 a month in year one and stays for the loan’s life. Conventional PMI is priced from your credit score. It can start higher or lower, but it cancels at 80% loan-to-value and terminates automatically at 78%.¹

That’s the whole tradeoff: the program that lets you get in with as little as 3% down on a Conventional 97 may not be the one that costs least by year seven. Down payment assistance stacks on top as a separate lever, see state-specific mortgage assistance programs.

Fixed-rate vs. adjustable-rate: Which structure fits your timeline?

A fixed rate buys certainty and an adjustable rate buys a lower starting payment, and the break-even is almost always about how long you’ll keep the loan. Every program above comes in both structures, so this is a second decision layered on the first, not an alternative to it.

A fixed- vs. adjustable-rate mortgage (ARM) comparison starts with the notation. A 5/6 ARM is fixed for five years, then adjusts every six months; 7/6 and 10/6 work the same way with longer fixed periods. After that, your rate is an index plus a fixed margin, bounded by an initial adjustment cap, a periodic cap and a lifetime ceiling.

The rule of thumb is unglamorous but reliable: if your realistic horizon in the home is shorter than the ARM’s fixed period, the ARM math usually wins. If it isn’t, it usually doesn’t. Compare both inside our fixed and adjustable-rate structures hub before you price a term.

How to choose: A 5-question filter

Five questions narrow almost every buyer to one or two programs, in this order, eligibility first, cost second, structure last. Our guide to choosing the right mortgage type walks the same framework in more depth.

1. Are you eligible for a VA or USDA loan?

If yes, start there. Both allow 0% down, and VA adds no monthly mortgage insurance. VA eligibility depends on service history; USDA on the property’s location and your household income.

2. What is your middle credit score?

The middle of your three bureau scores sets the menu. Below 620, FHA is usually the realistic path. From 620 to 680, conventional and FHA are close enough that both deserve a quote. Above 680, conventional usually wins over a long hold because its insurance ends.

3. How much cash can you put down without draining reserves?

The gap between 3% and 3.5% down on a $280,000 home is about $1,400, rarely the deciding factor. Emptying savings to reach a lower insurance tier is usually the worse trade. Weigh the choices in our guide to how to save for a down payment without emptying your reserves.

4. How long will you realistically keep this home?

Under five to seven years, upfront costs matter more than cancellable insurance. Beyond that, the loan whose mortgage insurance ends almost always costs less. This question also decides whether an ARM belongs in your comparison, and it’s the same math behind our 15-year vs. 30-year mortgage comparison.

5. Does the property itself qualify?

The house has to pass too. FHA and VA appraisals grade condition alongside value, USDA requires an eligible address, condos need project approval, and anything above your county’s conforming limit moves into jumbo territory.

Here’s what we see on real files: across Align’s wholesale lender network, credit-score overlays on the same program run from roughly 580 to 660, so a file one lender declines is often approvable at the next, and the program a buyer assumes is theirs frequently isn’t the one that prices best once mortgage insurance is counted. Have a broker run the same file through more than one program before you write an offer, that’s part of why mortgage preapproval matters more than a rate quote.

What Michigan buyers should know

Three Michigan realities change which programs belong in your comparison.

• USDA territory is wider than the word “rural” suggests: Much of the state outside Metro Detroit, Grand Rapids and Ann Arbor sits in USDA-eligible areas, putting 0%-down financing on the table for buyers a national guide would skip. Check the exact address on USDA’s map first. The boundary can run down the middle of a street. Our guide to USDA loan basics covers address and income eligibility.
• MSHDA stacks on top of the program you pick: The Michigan State Housing Development Authority offers up to $10,000 through its MI 10K DPA Loan, a 0% interest, non-amortizing second mortgage with no monthly payment, paired with an MSHDA MI Home Loan first mortgage on the FHA, USDA Guaranteed or conventional side. The loan comparison and the assistance comparison are separate decisions.
• Conforming limits rarely bind here: With Michigan sale prices sitting well below the 2026 conforming limit of $832,750, most buyers here never approach jumbo territory. If you’re shopping above that line, our guide to qualifying above the conforming limit covers the standards that take over.

FAQ: Comparing mortgage loan types

Here are answers to common questions about comparing mortgage loan types.

Which mortgage type has the lowest total cost?

It depends on how long you keep the loan. Over a full 30 years, a conventional loan usually wins because PMI can be cancelled once you reach 80% loan-to-value, while FHA mortgage insurance typically runs for the life of the loan when you put less than 10% down. Over the first five to seven years, FHA or a VA loan can easily cost less. Compare the total five-year cost, not just the rate.

Can I switch loan types after I’ve already been preapproved?

Yes. A preapproval is not a commitment to one program, and switching from conventional to FHA, or the reverse, is common once the appraisal, the seller’s concerns, or updated pricing gives you a reason. Expect a new preapproval letter, possibly a new appraisal if the program requires different standards, and a few extra days. Tell your broker early so the timeline absorbs it.

Does shopping several loan types hurt my credit score?

Barely, if you do it quickly. The scoring models treat multiple mortgage inquiries inside a 14- to 45-day window as one event, so comparing programs and lenders in the same two weeks generally costs a few points at most. The risk is not the shopping. It is opening new credit cards or auto loans while your file is in underwriting.

What loan type makes sense if I’ll move again in five years?

Usually an ARM or a lower-cost-upfront program. If your realistic horizon is shorter than an ARM’s fixed period, you get the lower starting rate and sell or refinance before the first adjustment. You also want to avoid paying discount points or a large upfront funding fee you will not live long enough in the home to recover.

The bottom line: The best loan type is the one your file prices best in

Five families cover nearly every purchase, conventional, FHA, VA, USDA and jumbo, and three numbers narrow them fast. VA and USDA reach 0% down for eligible buyers, FHA needs 3.5% down at a 580 score, and conventional starts near 3% at a 620 score. What usually decides total cost isn’t the program label but the mortgage insurance behind it: conventional PMI ends at 80% loan-to-value, while FHA’s annual premium generally doesn’t when you put less than 10% down.

If you’re ready to see which loan type actually prices best for you, talk to Align Lending, we’ll shop your scenario across our lender network and show you the programs side by side. Call 248-506-5727 or start online today.

Footnotes:

1. Example figures are hypothetical and for educational purposes only; they do not constitute an advertisement of credit terms or a rate quote under federal or state lending laws. Your rate and terms will depend on your application and market conditions. Back
2. Align Lending works with VA-approved lenders and is not endorsed or sponsored by the Department of Veterans Affairs or any government agency. Back
3. Align Lending is not acting on behalf of or at the direction of FHA or HUD. Back

This article is for informational purposes only and is not intended to provide legal, financial, or tax advice. Consult a qualified professional about your situation. Program terms, credit score minimums, premium rates and loan limits shown are illustrative, are not a rate quote or an offer of credit, and are subject to lender overlays and change. Align Lending works with FHA- and VA-approved lenders and is not acting on behalf of, endorsed by, or sponsored by FHA, HUD, the Department of Veterans Affairs, or USDA.