How long does this lesson take?

About 13 minutes to read, plus a ten-question check in the free course.

Conventional, FHA, VA & USDA

Q: What are common MLO exam mistakes on conventional, fha, va & usda?

Quoting FHA's 3.5% down for every credit score. The fix: 3.5% belongs to 580+. Scores 500–579 require 10% down. Calling the VA funding fee universal. The fix: Borrowers receiving VA disability compensation are exempt — a favorite exam detail. Treating FHA MIP like cancellable PMI. The fix: Under 10% down, FHA annual MIP lasts the life of the loan; escape is refinancing. PMI cancels at equity milestones.

~13 min read · Match borrower scenarios to the right program: down payment, MI, eligibility, limits.

Program matching is the MLO's core craft: conventional for the strong file, FHA for thin credit and small savings, VA for the veteran, USDA for the rural buyer. The exam tests each program's signature numbers — down payments, credit floors, insurance structures, and who qualifies.

Conventional loans

Conventional loans carry no government insurance. Conforming conventionals meet Fannie Mae/Freddie Mac standards and loan limits (adjusted annually by FHFA); minimum down payment can reach 3% for qualifying programs, but any down payment under 20% requires private mortgage insurance. Typical credit floor: 620. Pricing is risk-based via loan-level adjustments, so strong credit and equity earn the best terms. Non-conforming loans — jumbos above the limits, or files outside agency guidelines — price on the lender's own book.

No government backing; conforming = within GSE guidelines and limits
PMI required under 20% down; cancellable later
≈620 minimum score; 3% minimum down for qualifying programs
Jumbo = above conforming limits, lender-set standards

FHA loans

FHA (HUD-insured) serves lower scores and smaller savings: 3.5% down with a 580+ score (10% down for 500–579), more forgiving DTI and credit-event waiting periods. The cost: MIP both ways — an upfront premium (financeable) plus an annual MIP, which on typical ≤90%-LTV-exception terms runs for the life of the loan when down payment is under 10% (11 years at 10%+ down). Loans are assumable with lender approval. FHA appraisals enforce minimum property standards.

3.5% down at 580+; 10% down at 500–579
Upfront MIP + annual MIP; life-of-loan under 10% down
Assumable; property must meet FHA standards

VA and USDA

VA loans (guaranteed by the Department of Veterans Affairs) offer eligible veterans, service members, and surviving spouses zero down, no monthly mortgage insurance, and a one-time funding fee (financeable; waived for those receiving VA disability compensation). Entitlement is documented by the Certificate of Eligibility; a residual income test supplements DTI. USDA Rural Development loans: zero down in designated rural areas, household income limits, an upfront guarantee fee plus a modest annual fee. Both demand owner occupancy.

VA: 0 down, no monthly MI, funding fee (disability waiver), COE, residual income
USDA: 0 down, rural property + income limits, guarantee fees
Owner-occupancy required for both

Worked example

Three borrowers, one afternoon: (1) 645 score, 4% saved, suburban condo; (2) 705 score, disabled veteran, zero savings; (3) 590 score, 5% saved, small-town home possibly in a USDA-eligible area. Match programs and name the deciding numbers.

(1) 645 clears conventional's 620 floor and FHA's 580; with 4% down both work — conventional 3%-down programs carry PMI that CANCELS at 20% equity, while FHA's annual MIP under 10% down runs for the loan's life: the conventional path likely wins long-term cost analysis. (2) The veteran dominates every alternative: VA zero down solves zero savings, no monthly MI, and the funding fee is WAIVED due to disability compensation — get the COE and run residual income. (3) 590 sits between FHA's 580 (3.5% down — his 5% covers it) and conventional's 620; check the USDA map and income limits first — zero down beats 3.5% if the address and household qualify; FHA is the fallback. Program selection is exactly this: eligibility gates first, insurance math second.

Common exam pitfalls

Quoting FHA's 3.5% down for every credit score.

3.5% belongs to 580+. Scores 500–579 require 10% down.

Calling the VA funding fee universal.

Borrowers receiving VA disability compensation are exempt — a favorite exam detail.

Treating FHA MIP like cancellable PMI.

Under 10% down, FHA annual MIP lasts the life of the loan; escape is refinancing. PMI cancels at equity milestones.

Conventional saves the strong, FHA forgives, VA honors, USDA grows.

Recap

Conventional: 620ish floor, PMI under 20% down, conforming limits
FHA: 3.5% down at 580+, dual MIP, life-of-loan under 10% down
VA: zero down, no monthly MI, funding fee with disability waiver, COE + residual income
USDA: zero down, rural maps + income caps, guarantee fees
Insurance structure drives long-run cost comparisons
Eligibility gates (service, geography, income) sort before pricing