WHEDA, FHA, USDA, VA, or Conventional: Which Loan Fits a Southwest Wisconsin Buyer?

The most expensive sentence I hear from buyers in Grant County is "we're waiting until we have 20 percent down." For a lot of them, that wait is unnecessary. Much of southwest Wisconsin is in a USDA-eligible rural area, Wisconsin has its own down payment assistance through WHEDA, and veterans can buy with nothing down at all. I'm Jeremy Fishnick, a Realtor and home inspector in Lancaster, Wisconsin, and I run into some version of that misunderstanding every month. This post is a plain-language tour of the five loan types southwest Wisconsin buyers actually use, with an emphasis on which one tends to fit which situation.

Short answer: USDA and VA can mean zero down for eligible buyers in our rural areas. FHA is forgiving on credit with 3.5 percent down. WHEDA layers Wisconsin-specific down payment help onto a conventional or FHA loan. Conventional is often the cheapest long-term if you have strong credit and some savings. The right one depends on your credit, income, savings, military service, and the specific house, so confirm everything below with a lender.

One caveat: loan rules, limits, and fees change. I am not a lender, and your loan officer's word on current guidelines beats mine.

USDA Rural Development loans

This is the program most buyers around here don't know they qualify for. The USDA guaranteed loan is for moderate-income buyers purchasing a primary residence in an eligible rural area, and most of Grant, Iowa, Lafayette, and Crawford counties qualify. Any address can be checked on the USDA eligibility map.

• Down payment: none required.
• Income limit: household income (everyone in the home, not just the borrowers) generally must be at or under 115 percent of the area median income. Your lender can look up the current limit for your county.
• Fees: an upfront guarantee fee of 1 percent of the loan, which can be rolled in, and an annual fee of 0.35 percent of the balance, paid monthly. That annual fee is typically less than FHA mortgage insurance.
• Credit: lenders commonly look for a 640 score for streamlined approval; lower scores can sometimes work with manual underwriting.
• Property: primary residence only, and the home must meet the program's condition standards.

Best fit: a buyer with moderate income, limited savings, and a house in a small town or the country. That describes a lot of people buying in Cassville, Potosi, or Muscoda.

VA loans

If you served, look here first. VA loans are for eligible veterans, active-duty service members, and certain surviving spouses.

• Down payment: none required for eligible borrowers.
• Mortgage insurance: none. This is a big deal over the life of a loan.
• Funding fee: a one-time fee, currently 2.3 percent of the loan for a first-time user putting nothing down, which can be financed. Veterans receiving VA disability compensation and some others are exempt.
• Eligibility: you'll need a Certificate of Eligibility, which your lender can usually pull quickly.

Best fit: any eligible veteran. Zero down with no monthly mortgage insurance is hard to beat.

FHA loans

FHA loans are insured by the federal government and are built for buyers whose credit or savings don't fit conventional guidelines.

• Down payment: 3.5 percent with a credit score of 580 or higher; 10 percent for scores from 500 to 579. Many lenders set their own minimums above these.
• Mortgage insurance: an upfront premium of 1.75 percent of the loan, plus an annual premium paid monthly. With less than 10 percent down, that monthly premium stays for the life of the loan unless you refinance.
• Property: primary residence only, and the home has to pass an FHA appraisal that checks minimum property standards. Peeling paint on an older house, a bad roof, or missing handrails can become conditions of the loan.

Best fit: a buyer with a bruised credit history or higher debts who has at least a small down payment or gift funds from family.

WHEDA loans

WHEDA is the Wisconsin Housing and Economic Development Authority. You work through a WHEDA-approved lender. It offers two first mortgages, Advantage Conventional and Advantage FHA, and two down payment assistance programs that can be layered on either one.

• Advantage Conventional: 30-year fixed; minimum credit score of 620; no borrower funds required for a single-family home when paired with WHEDA's down payment assistance.
• Advantage FHA: 30-year fixed; minimum credit score of 640; the 3.5 percent FHA minimum can be covered by WHEDA's assistance.
• Easy Close Advantage: a second mortgage of at least $1,000 and up to 6 percent of the purchase price, repaid over 10 years at the same rate as your first mortgage.
• Capital Access Advantage: $7,500 at zero percent interest with no monthly payments, for buyers under a lower income limit. Funding is limited and first-come, first-served, so ask your lender whether it's available.
• Requirements: you don't have to be a first-time buyer, but first-time buyers must complete home buyer education. The home must be in Wisconsin and owner-occupied, and household income must be under WHEDA's limit for the county.

Best fit: a Wisconsin buyer with decent credit who is short on cash to close. The assistance can often get a buyer to 100 percent financing.

Conventional loans

Conventional loans aren't government-insured. They follow Fannie Mae and Freddie Mac guidelines.

• Down payment: some programs allow as little as 3 percent for first-time buyers; 5 percent is common; 20 percent avoids mortgage insurance.
• Mortgage insurance: private mortgage insurance applies with less than 20 percent down, but unlike FHA it can be cancelled once you reach 20 percent equity.
• Credit and reserves: stricter than FHA. Better credit gets a noticeably better rate.
• Property: more flexible on condition than FHA or USDA, which can matter on an older farmhouse that needs work.

Best fit: a buyer with good credit and savings who wants the lowest long-term cost, or anyone buying a second home or investment property, which the government programs don't allow.

How I help buyers sort it out

I'm not your lender, but I've watched a lot of these decisions and inspected the houses they were made on. A few patterns:

1. If you're a veteran, start with VA.
2. If the house is in an eligible area and your income is under the limit, compare USDA against FHA. The USDA annual fee is usually cheaper.
3. If cash to close is the problem, ask about WHEDA's assistance.
4. If your credit is strong, price out conventional. Mortgage insurance you can cancel later is worth a lot.
5. If the house needs work, know that FHA and USDA appraisers will flag condition issues. A pre-offer walkthrough with someone who inspects houses for a living, which is part of what I do for my buyers, can keep you from writing an offer on a house your loan won't close on.

Once you've picked a program, get a real pre-approval before you shop. I explain why in Pre-Approval vs. Pre-Qualification, and the budgeting side in How Much House Can You Afford in Southwest Wisconsin?

Talk to Jeremy

If you're buying in Grant County or anywhere in the Driftless Area and want an introduction to a lender who works with all five of these programs, I'm Jeremy Fishnick. Call or text 608-732-2564, or start your search at jeremyfishnick.com/phf.