Compare FHA, VA, USDA, THDA, & Conventional Loans: A Middle Tennessee Home Buyer's Guide

Compare FHA, VA, USDA, THDA, and Conventional Loans for your Middle Tennessee home purchase. Understand down payments, credit scores, and eligibility requirements. First time buying a home in Middle Tennessee? Let Tennessee Properties Real Estate guide you step-by-step ensuring you understand your mortgage options for buying a home.

1. FHA Loans (Federal Housing Administration)

FHA loans are insured by the Federal Housing Administration, which is part of the U.S. Department of Housing and Urban Development (HUD). This insurance protects lenders against losses, making them more willing to offer loans to borrowers who may not qualify for conventional financing.

Feature Basics

Target Borrower: Often first-time homebuyers or those with lower credit scores and limited savings.

Government Backing: Insured by the FHA.

Down Payment: FHA down payment is as low as 3.5% with a FICO score of 580 or higher. A 10% down payment is required for FICO scores between 500 and 579.

Credit Requirements: FHA credit requirements are more flexible than conventional loans; minimum FICO score is typically 580 for the lowest down payment.

Mortgage Insurance: Required. You pay both an Upfront Mortgage Insurance Premium (UFMIP) and an Annual Mortgage Insurance Premium (MIP), which is paid monthly for either 11 years or the life of the loan, depending on the loan-to-value (LTV) ratio and loan term.

Property Requirements: The home must meet FHA's minimum property standards for safety, security, and soundness.

Use: Must be used for a primary residence.

2. VA Loans (Department of Veterans Affairs)

VA loans are mortgages guaranteed by the U.S. Department of Veterans Affairs. They are designed to help eligible veterans, active-duty service members, and surviving spouses purchase a home.

Feature Basics

Target Borrower: Eligible veterans, service members, and surviving spouses.

Government Backing: Guaranteed by the VA.

Down Payment: VA loans typically have a 0% down payment for those with full entitlement.

Credit Requirements: Generally more flexible. While the VA does not set a minimum score, most lenders require a minimum FICO score of around 620.

Mortgage Insurance: No Private Mortgage Insurance (PMI) is required, even with zero down.

Funding Fee: A one-time, mandatory VA Funding Fee is required, which can be financed into the loan. This fee varies based on the type of loan, down payment, and whether you've used your VA loan benefit before.

Use: Must be used for a primary residence.

3. THDA Loans (Tennessee Housing Development Agency)

The Tennessee Housing Development Agency (THDA) is a state-level agency that offers home loan programs, most notably the Great Choice Home Loan program, to make homeownership affordable for low-to-moderate-income Tennessee residents.

Feature Basics

Target Borrower: Tennesseans, including first-time and repeat buyers, who meet certain criteria.

Government Backing: State-level agency (THDA). The primary mortgage is often an FHA, VA, USDA, or conventional loan packaged with THDA's assistance.

Down Payment Assistance: The THDA programs are known for pairing their first mortgage with Down Payment Assistance (DPA) options, such as the Great Choice Plus, which can help cover the down payment and closing costs.

Key Requirements: Borrowers must meet household income and purchase price limits, which vary by county. A minimum credit score (often 640) and a mandatory homebuyer education course are typically required.

Loan Type: The Great Choice Loan is a 30-year, fixed interest rate loan.

Homeownership for Heroes: A specific program offering a discount to qualified members of the military/veterans and certain public servants (e.g., police, EMTs, firefighters, teachers).

4. USDA Loans (U.S. Department of Agriculture)

USDA loans, officially known as the Single Family Housing Guaranteed Loan Program, are designed to promote homeownership in eligible rural areas.

Feature Basics

Target Borrower: Low-to-moderate-income homebuyers who cannot get conventional financing without PMI.

Government Backing: Guaranteed by the USDA.

Down Payment: 0% down payment is typically required.

Credit Requirements: Generally requires a minimum credit score of 640 for streamlined processing, but scores below that may be accepted with manual underwriting.

Geographic Restrictions: The property must be located in an eligible rural area as defined by the USDA's mapping tool.

Income Restrictions: The borrower's household income cannot exceed 115% of the area median income.

Guaranteed Fee: Similar to mortgage insurance, USDA loans require an Upfront Guarantee Fee and an Annual Guarantee Fee, both of which help fund the program.

Use: Must be used for a primary residence.

5. Conventional Loans

Conventional loans are the most common type of mortgage and are not insured or guaranteed by a government agency (like FHA, VA, or USDA). They conform to the guidelines set by Fannie Mae and Freddie Mac.

Feature Basics

Target Borrower: Borrowers with strong credit, stable employment, and verifiable income.

Government Backing: None (though they conform to guidelines set by government-sponsored enterprises Fannie Mae and Freddie Mac).

Down Payment: Can be as low as 3% for first-time homebuyers or those with low-to-moderate income, but the standard for avoiding mortgage insurance is 20%.

Credit Requirements: Stricter than government-backed loans; minimum FICO score is typically 620.

Mortgage Insurance: If the down payment is less than 20%, Private Mortgage Insurance (PMI) is required. A significant advantage is that PMI is able to be cancelled once you reach 20% equity in your home.

Use: Can be used for a primary residence, a second home, or an investment property. Generally have less strict property inspection requirements compared to FHA or VA loans.