By Austin Black II
One of the questions I get most often from buyers — first-time buyers especially — is some version of "What kind of loan should I get?" It seems like it should have a simple answer, but it genuinely depends on your situation: your credit score, your down payment savings, your military service history, where the home you're buying is located, and what your long-term plans look like. Understanding the main mortgage types before you sit down with a lender is one of the most useful things you can do. Here's what you need to know.
Key Takeaways
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Conventional loans are the most common mortgage type and reward buyers with strong credit and stable income
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FHA loans offer a lower barrier to entry for first-time and lower-credit buyers, with just 3.5% down required
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VA loans provide exceptional terms for eligible military service members and veterans, with no down payment required
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USDA loans offer zero-down financing for buyers in eligible suburban and rural areas outside Detroit proper
Conventional Loans: The Most Common Path
Conventional loans are mortgages not backed by a government agency — they're privately funded and follow guidelines set by Fannie Mae and Freddie Mac. They're the most widely used loan type and offer the most flexibility in terms of property types, loan amounts, and use. In 2026, the conventional conforming loan limit is $832,750 for most areas, though Detroit's price points typically sit well below that threshold.
Conventional loans work best for buyers with a credit score of 620 or higher, and they become significantly more attractive above 740, where rates and mortgage insurance costs improve considerably. The minimum down payment is 3%, though buyers who put down less than 20% will pay private mortgage insurance (PMI) until they build sufficient equity. Unlike FHA mortgage insurance, PMI on a conventional loan is cancellable once you reach 20% equity.
Conventional loans work best for buyers with a credit score of 620 or higher, and they become significantly more attractive above 740, where rates and mortgage insurance costs improve considerably. The minimum down payment is 3%, though buyers who put down less than 20% will pay private mortgage insurance (PMI) until they build sufficient equity. Unlike FHA mortgage insurance, PMI on a conventional loan is cancellable once you reach 20% equity.
Who conventional loans work best for:
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Buyers with credit scores above 680 and stable employment history
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Buyers who can put down 10% to 20% to minimize or eliminate PMI costs
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Those purchasing investment properties or second homes, where government-backed loans don't apply
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Buyers who want flexibility in loan term — conventional loans are available in 10, 15, 20, and 30-year options
FHA Loans: Built for First-Time and Lower-Credit Buyers
FHA loans are insured by the Federal Housing Administration and are specifically designed to make homeownership accessible to buyers with lower credit scores or limited down payment savings. With a minimum down payment of 3.5% for buyers with credit scores of 580 or above, FHA loans open doors that conventional financing might not. Buyers with scores between 500 and 579 can still qualify, but will need to put down at least 10%.
For Detroit buyers using down payment assistance programs like the city's DPA grant or MSHDA's MI Home Loan, FHA is often the loan type those programs pair with. The tradeoff is mortgage insurance: FHA loans carry both an upfront premium of 1.75% of the loan amount and an annual premium that continues for the life of the loan in most cases, unless you refinance.
For Detroit buyers using down payment assistance programs like the city's DPA grant or MSHDA's MI Home Loan, FHA is often the loan type those programs pair with. The tradeoff is mortgage insurance: FHA loans carry both an upfront premium of 1.75% of the loan amount and an annual premium that continues for the life of the loan in most cases, unless you refinance.
What to know before choosing an FHA loan:
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Minimum 3.5% down payment for buyers with credit scores of 580 or above
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Upfront mortgage insurance premium of 1.75% of the loan amount, typically rolled into the loan
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Annual mortgage insurance premium that persists for the life of the loan with less than 10% down
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FHA appraisals follow stricter guidelines than conventional — properties must meet HUD condition standards
VA Loans: The Best Terms Available for Eligible Buyers
VA loans are guaranteed by the U.S. Department of Veterans Affairs and are available to veterans, active-duty service members, and eligible surviving spouses. They offer some of the most favorable terms of any mortgage type: no down payment required, no monthly mortgage insurance, and competitive interest rates. For buyers who qualify, VA loans are typically the strongest option available.
The one cost VA loans carry is a funding fee — typically ranging from about 1.25% to 3.3% of the loan amount — though service members receiving disability compensation are exempt from this fee. Most buyers choose to roll the funding fee into the loan rather than pay it upfront. There is no official loan limit for eligible VA borrowers with full entitlement, though lenders still evaluate income, credit, and repayment ability when determining the loan amount.
The one cost VA loans carry is a funding fee — typically ranging from about 1.25% to 3.3% of the loan amount — though service members receiving disability compensation are exempt from this fee. Most buyers choose to roll the funding fee into the loan rather than pay it upfront. There is no official loan limit for eligible VA borrowers with full entitlement, though lenders still evaluate income, credit, and repayment ability when determining the loan amount.
VA loan basics for Detroit buyers:
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No down payment required for eligible borrowers with full VA entitlement
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No monthly private mortgage insurance, which meaningfully reduces monthly payment costs
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Competitive interest rates that often come in below conventional loan rates
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Funding fee of approximately 1.25% to 3.3% of the loan amount; exempt for eligible disabled veterans
USDA Loans: Zero Down for Suburban and Rural Buyers
USDA loans are backed by the U.S. Department of Agriculture and offer zero-down-payment financing for buyers in eligible suburban and rural areas. They're not applicable to Detroit proper, but buyers targeting communities in the Woodward corridor suburbs, communities further west or north of the metro, or other outlying areas should check USDA eligibility for their target location. In 2026, income limits for USDA loans are $119,850 for households with one to four members and $158,250 for households with five to eight members.
USDA loans carry lower mortgage insurance costs than FHA loans, though the annual fee persists for the life of the loan. The property must be used as a primary residence and must meet USDA property standards.
USDA loans carry lower mortgage insurance costs than FHA loans, though the annual fee persists for the life of the loan. The property must be used as a primary residence and must meet USDA property standards.
When a USDA loan is worth exploring:
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When the target property is in a USDA-eligible suburban or rural area outside Detroit
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When household income falls within USDA program limits
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When no down payment savings are available and VA eligibility doesn't apply
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When the buyer wants to minimize upfront costs and is comfortable with a longer-term insurance obligation
Fixed-Rate vs. Adjustable-Rate: The Structure Decision
Regardless of loan type, buyers also choose between fixed-rate and adjustable-rate mortgage structures. Fixed-rate loans lock in the interest rate for the life of the loan — your principal and interest payment never changes. For buyers planning to stay in a home for seven years or more, fixed-rate loans provide the certainty that protects against future rate movement.
Adjustable-rate mortgages (ARMs) offer a lower initial rate for a fixed period — often five, seven, or ten years — before adjusting periodically based on market conditions. For buyers with a clear shorter-term horizon, an ARM can reduce monthly costs. For most Detroit buyers planning to put down roots in a neighborhood they've chosen carefully, a fixed-rate loan is the more straightforward choice.
Adjustable-rate mortgages (ARMs) offer a lower initial rate for a fixed period — often five, seven, or ten years — before adjusting periodically based on market conditions. For buyers with a clear shorter-term horizon, an ARM can reduce monthly costs. For most Detroit buyers planning to put down roots in a neighborhood they've chosen carefully, a fixed-rate loan is the more straightforward choice.
Fixed vs. adjustable: how to decide:
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Planning to stay seven or more years: fixed-rate provides stability and protection against rate increases
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Planning to sell or refinance within five years: an ARM may offer a lower initial payment
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In a rising-rate environment: fixed-rate locks in current rates before they move higher
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Uncertain about your timeline: default to fixed-rate, which carries no rate risk
Frequently Asked Questions
Which mortgage type is best for a first-time buyer in Detroit?
It depends on your credit score and down payment savings. Buyers with strong credit and some savings often do well with a conventional loan. Buyers with lower credit or limited savings typically benefit from FHA financing, especially when paired with Detroit's down payment assistance programs.
Can I use a VA loan to buy a home in Detroit?
Yes. VA loans can be used to purchase a primary residence in Detroit and throughout Michigan. Eligible veterans, active-duty service members, and qualifying surviving spouses can take advantage of VA loan terms, including no down payment required.
Do I need to decide on a mortgage type before I start looking at homes?
Getting pre-approved before you begin your home search is important — and that process requires choosing a loan type. Talk to a lender early and, if possible, get quotes on multiple loan types to compare the actual costs before committing.
Work With a Detroit Agent Who Knows the Lending Landscape
Choosing the right mortgage is a financial decision, and I always recommend working with a knowledgeable local lender. What I bring to the process is context: knowing which loan types work best for specific neighborhoods and price points in Detroit, and helping buyers find agents who can coordinate with their lender so the whole process moves cleanly. Reach out to me to learn more about how I guide buyers through the Detroit home purchase process from financing through closing.
