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Key Takeaways

  • FHA loans require a minimum credit score of 500 (10% down) or 580 (3.5% down) and have maximum loan limits of $498,257 in standard areas and $1,149,825 in high-cost areas (2024)
  • FHA mortgage insurance includes upfront MIP of 1.75% (can be financed) plus annual MIP of 0.55-1.05% depending on loan term, LTV, and loan amount
  • VA loans offer 100% financing (no down payment), no monthly mortgage insurance, and are available to veterans, active duty, and eligible surviving spouses
  • VA loans charge a funding fee ranging from 1.25-3.3% depending on down payment, type of service, and first-time vs. subsequent use; some veterans are exempt
  • USDA loans provide 100% financing for rural and suburban properties with income limits of 115% of area median income and require 1% upfront and 0.35% annual guarantee fees
  • Conforming loans meet Fannie Mae/Freddie Mac guidelines and limits ($766,550 in 2024) while non-conforming loans exceed limits or don't meet agency guidelines
Last updated: January 2026

Government Loan Programs

Government-backed mortgage programs make homeownership accessible to borrowers who might not qualify for conventional financing. Understanding FHA, VA, and USDA loans is critical for MLO exam success.

FHA Loans (Federal Housing Administration)

FHA loans are insured by the Federal Housing Administration, part of HUD. They're designed to help borrowers with lower credit scores and smaller down payments.

FHA Program Overview

FeatureRequirement
Minimum Down Payment3.5% (credit score 580+) or 10% (score 500-579)
Minimum Credit Score500 (varies by lender)
Property Type1-4 unit primary residence
OccupancyOwner-occupied only
Mortgage InsuranceRequired regardless of LTV

FHA Loan Limits (2024)

Area TypeSingle-Family Limit
Floor (Low-Cost Areas)$498,257
Ceiling (High-Cost Areas)$1,149,825
Alaska, Hawaii, Guam, Virgin Islands$1,724,725

Limits vary by county and are updated annually. Check HUD's website for specific county limits.

FHA Mortgage Insurance Premium (MIP)

FHA loans require two types of mortgage insurance:

Upfront MIP (UFMIP)

FactorAmount
Rate1.75% of loan amount
PaymentCan be paid at closing or financed into loan
Refundable?Partially if refinanced within 3 years

Annual MIP

Paid monthly, varies based on loan characteristics:

Loan TermLTVAnnual MIP Rate
> 15 years> 95%0.55%
> 15 years<= 95%0.50%
<= 15 years> 90%0.40%
<= 15 years<= 90%0.15%

FHA MIP Duration

LTV at OriginationMIP Duration
> 90%Life of loan
<= 90%11 years

Key Point: Unlike conventional PMI, FHA MIP with LTV > 90% does not automatically cancel and remains for the life of the loan.

FHA MIP Example

For a $350,000 FHA loan with 3.5% down:

  • Upfront MIP: $350,000 x 1.75% = $6,125
  • Annual MIP: $350,000 x 0.55% = $1,925/year ($160.42/month)

VA Loans (Department of Veterans Affairs)

VA loans are guaranteed by the Department of Veterans Affairs for eligible military members, veterans, and surviving spouses.

Eligibility Requirements

CategoryService Requirement
Active DutyCurrently serving
Veterans90 days wartime or 181 days peacetime
National Guard/Reserves6 years or 90 days active federal service
Surviving SpousesUnremarried spouse of veteran who died in service or from service-connected disability

VA Loan Benefits

BenefitDescription
No Down Payment100% financing available
No Monthly MINo private mortgage insurance required
No Prepayment PenaltyPay off anytime without penalty
AssumableQualified buyers can assume the loan
Competitive RatesOften lower than conventional
Limited Closing CostsVA limits what lenders can charge

VA Funding Fee

Instead of monthly MI, VA loans charge a one-time funding fee:

Down PaymentFirst-Time UseSubsequent Use
0%2.15%3.3%
5-9.99%1.5%1.5%
10%+1.25%1.25%

Funding Fee Exemptions

The following borrowers are exempt from the funding fee:

  • Veterans receiving VA disability compensation
  • Veterans entitled to receive VA disability (pending rating)
  • Surviving spouses of veterans who died in service
  • Purple Heart recipients currently serving

VA Loan Limits

As of 2020, VA loans no longer have limits for borrowers with full entitlement. Borrowers with remaining entitlement (prior VA loan) may face limits.

Certificate of Eligibility (COE)

Borrowers must obtain a Certificate of Eligibility to prove VA loan eligibility. Lenders can often obtain this through VA's Web LGY system.

USDA Loans (Rural Development)

USDA loans are guaranteed by the U.S. Department of Agriculture for eligible properties in rural and suburban areas.

USDA Eligibility Requirements

RequirementDescription
Property LocationDesignated rural area (check USDA eligibility maps)
Income LimitHousehold income <= 115% of Area Median Income
OccupancyPrimary residence only
CreditNo minimum (most lenders require 640+)
CitizenshipU.S. citizen or eligible non-citizen

Income Limits

USDA has household income limits based on area median income:

  • Includes income from all adult household members
  • Limits vary significantly by county and household size
  • Check USDA income eligibility calculator for specific limits

USDA Guarantee Fees

Fee TypeAmount
Upfront Guarantee Fee1.0% of loan amount
Annual Fee0.35% of remaining balance

USDA Loan Benefits

  • 100% financing available (no down payment)
  • Below-market interest rates in some cases
  • Low guarantee fees compared to FHA MIP
  • Closing costs can be financed or paid by seller

Conforming vs. Non-Conforming Loans

Understanding this distinction is essential for the MLO exam.

Conforming Loans

Conforming loans meet the underwriting guidelines and loan limits set by Fannie Mae and Freddie Mac.

Requirement2024 Standard
Loan Limit$766,550 (single-family)
High-Cost Area LimitUp to $1,149,825
Credit Score620 minimum (generally)
DTI RatioUp to 45% (50% with strong factors)
DocumentationFull documentation required

Non-Conforming Loans

Non-conforming loans don't meet Fannie/Freddie standards. There are two types:

TypeDescription
Jumbo LoansExceed conforming loan limits
Non-QM LoansDon't meet Qualified Mortgage standards

Comparison Chart

FeatureConformingJumboNon-QM
Loan LimitUp to $766,550Above limitAny
Credit Score620+700+ typically500+ varies
DTIUp to 45-50%Usually 43%50%+ possible
DocumentationFull docFull docAlt-doc available
Interest RateLowerSlightly higherHigher

Government vs. Conventional: Quick Comparison

FeatureFHAVAUSDAConventional
Min Down Payment3.5%0%0%3-5%
Mortgage InsuranceMIP (life of loan if >90% LTV)Funding feeGuarantee feePMI (cancelable)
Credit Score Min500-580None (lender overlay)None (lender overlay)620
Property1-4 units1-4 units1 unit, rural1-4 units
OccupancyPrimaryPrimaryPrimaryPrimary, 2nd home, investment

Loan Program Selection Guide

If Borrower Has...Consider...
Low credit, limited down paymentFHA
Military serviceVA
Rural property, moderate incomeUSDA
Strong credit, 20% downConventional
Loan above conforming limitsJumbo
Non-traditional incomeNon-QM

Key Takeaways

  • FHA loans require 3.5% down (580+ score) with upfront and annual MIP
  • VA loans offer 100% financing with no monthly MI for eligible veterans
  • USDA loans provide 100% financing in rural areas with income limits
  • FHA MIP remains for the life of the loan if LTV > 90% at origination
  • VA funding fee is waived for disabled veterans and Purple Heart recipients
  • Conforming loans meet Fannie/Freddie limits and guidelines
  • Non-conforming includes jumbo loans (over limits) and non-QM loans
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Government vs. Conventional Loan Programs
Minimum Down Payment Requirements by Loan Type (%)
Test Your Knowledge

A borrower has a credit score of 560 and wants to purchase a home. Which government loan program might they qualify for with a 10% down payment?

A
B
C
D
Test Your Knowledge

Which of the following borrowers is EXEMPT from paying the VA funding fee?

A
B
C
D
Test Your Knowledge

For an FHA loan with an original LTV of 95%, how long must the borrower pay annual mortgage insurance premium (MIP)?

A
B
C
D
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3.3 Underwriting Guidelines

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