Buying a home doesn’t have to mean a 20% down payment and a 30-year conventional mortgage. There are multiple legitimate pathways to homeownership, each with different qualification requirements, costs, and trade-offs. Understanding all your options puts you in a stronger negotiating position and may open doors you didn’t know existed.
Here are five proven ways to purchase a home, with the mechanics, costs, and who each method works best for.
1. Conventional Mortgage (The Standard Route)
How It Works
A conventional mortgage is a home loan not backed by a government agency. You borrow from a bank, credit union, or mortgage lender and repay with interest over 15 or 30 years. Most conventional loans are sold to Fannie Mae or Freddie Mac, so they must meet conforming loan limits (in 2025, up to $806,500 in most markets).
What You Need
- Credit Score: 620 minimum; 740+ gets the best rates
- Down Payment: 3% to 20%+ (anything under 20% requires PMI)
- Debt-to-Income (DTI) Ratio: Under 45% preferred
- Employment History: 2 years of consistent W-2 or self-employment documentation
Cost Breakdown Example (on a $400,000 home)
- Down Payment (10%): $40,000
- Closing Costs (2-4%): $8,000 – $16,000
- PMI (~0.7% annually if under 20% down): ~$233/month until you hit 80% LTV
- Monthly P&I at 7%: ~$2,394/month
Best For
Buyers with solid credit, stable employment, and enough savings for a down payment. Conventional loans offer flexibility — you can buy a primary home, second home, or investment property.
Key Watch-Out
Don’t stretch to the top of what a lender will approve. Just because you qualify for $450,000 doesn’t mean that payment fits your life. Run your own numbers using the 28/36 rule: your housing payment should be under 28% of gross monthly income, and all debt payments under 36%.
2. FHA Loan (Government-Backed, Low Down Payment)
How It Works
FHA loans are insured by the Federal Housing Administration. Because the government backs the lender’s risk, FHA loans are more accessible to buyers with lower credit scores and smaller down payments. You can buy with as little as 3.5% down with a 580+ credit score, or 10% down with a 500-579 score.
What You Need
- Credit Score: 500 minimum (580 for 3.5% down)
- Down Payment: 3.5% (with 580+ score)
- DTI Ratio: Up to 57% in some cases
- Property Requirements: Must be primary residence; must meet FHA condition standards (no major structural issues)
Cost Breakdown Example (on a $300,000 home)
- Down Payment (3.5%): $10,500
- Upfront MIP (Mortgage Insurance Premium, 1.75% of loan): $5,076
- Annual MIP (~0.85% of remaining loan balance): ~$243/month
- Closing Costs: $6,000 – $12,000
- Monthly P&I at 7%: ~$1,935/month
Best For
First-time buyers or those rebuilding credit who have stable income but limited savings or lower credit scores. FHA is also useful when a seller is willing to cover some closing costs via a seller concession.
Key Watch-Out
FHA mortgage insurance stays for the life of the loan if you put less than 10% down. With a conventional loan, PMI drops off when you reach 80% LTV. Over a 30-year loan, this difference adds up significantly. Run the comparison if you’re close to the 620+ threshold for conventional.
3. VA Loan (For Military Members and Veterans)
How It Works
VA loans are guaranteed by the Department of Veterans Affairs and are available to eligible active-duty service members, veterans, and surviving spouses. VA loans offer zero down payment with no PMI — arguably the best financing terms available to any buyer segment.
What You Need
- Eligibility: Service requirements vary; generally 90 days active duty wartime or 181 days peacetime; 6 years National Guard/Reserve; surviving spouse of a veteran
- Credit Score: No VA minimum, but most lenders require 620+
- Down Payment: $0 required
- DTI Ratio: 41% guideline, but exceptions exist
- Certificate of Eligibility (COE): Required before application
Cost Breakdown Example (on a $400,000 home)
- Down Payment: $0
- VA Funding Fee (first use, 2.15% of loan amount): $8,600 (can be financed into the loan)
- No PMI: $0/month (saves ~$280/month vs. FHA or conventional with low down)
- Closing Costs: $4,000 – $10,000 (sellers can pay up to 4% of purchase price)
- Monthly P&I at 7% on $400,000: ~$2,661/month
Best For
Any eligible veteran or active service member. The VA loan is almost always the best option for those who qualify. The no-down-payment feature combined with no PMI makes it far superior to FHA and comparable to conventional at a much lower cash requirement at closing.
Key Watch-Out
The VA Funding Fee applies unless you have a service-connected disability. Also, VA loans have property condition requirements that can sometimes complicate purchases of distressed homes or fixer-uppers. Work with a VA-experienced lender and buyer’s agent who understand these nuances.
4. Seller Financing (Also Called Owner Financing)
How It Works
In seller financing, the seller acts as the bank. Instead of getting a mortgage from a lender, the buyer makes monthly payments directly to the seller under a negotiated promissory note and contract for deed or deed of trust. Terms are completely negotiable — interest rate, down payment, amortization period, balloon payment date, and default conditions are all set between buyer and seller.
What You Need
- A motivated seller who owns the property free and clear (or has enough equity to carry the note)
- A real estate attorney to draft or review the promissory note and security agreement
- Agreed-upon purchase price, interest rate, and payment schedule
Cost Breakdown Example (on a $250,000 home)
- Down Payment: Negotiated — could be 5%-20% ($12,500 – $50,000)
- Interest Rate: Negotiated — often 6%-10% (higher than conventional)
- No Bank Closing Costs: Saves $5,000-$10,000
- Attorney/Legal Fees for Contract: $500-$2,000
- Balloon Payment Risk: Many seller finance deals include a 3-7 year balloon requiring refinance
Best For
Buyers who can’t qualify for traditional financing (self-employed with irregular income, recent credit events, non-citizen buyers with limited US credit history). Also valuable when buying unique or rural properties that don’t appraise well for conventional loans.
Key Watch-Out
Always record the deed in your name and get a proper security interest. Never enter a seller-finance deal on a verbal agreement or a simple “contract for deed” without legal counsel. If the seller has an existing mortgage with a due-on-sale clause, that clause could be triggered, putting your purchase at risk. Have a licensed real estate attorney review every document before you sign.
5. Assumable Mortgage (Take Over an Existing Loan)
How It Works
When you assume a mortgage, you take over the seller’s existing loan — including the interest rate, remaining balance, and terms. If the seller locked in a 3% rate in 2021 and rates are now 7%, assuming that mortgage is enormously valuable. The buyer pays the difference between the purchase price and the loan balance to the seller (in cash or through a second mortgage).
What You Need
- A seller with an assumable loan (FHA, VA, and USDA loans are assumable; conventional loans typically are not)
- Lender approval (you must qualify financially with the original lender)
- Cash or secondary financing to cover the equity gap (purchase price minus assumed loan balance)
Cost Breakdown Example
- Seller’s Existing Loan Balance: $280,000 at 3.25%
- Purchase Price: $380,000
- Cash Required to Cover Equity Gap: $100,000 (or use a second mortgage at higher rate)
- Monthly P&I on assumed loan ($280,000 at 3.25%): ~$1,220/month vs. ~$1,864/month at 7%
- Monthly Savings: ~$644/month — over 25 years remaining, that’s $193,200 in savings
- Assumption Fee: $500-$1,000 (charged by lender)
Best For
Buyers in high-interest-rate environments who can afford the equity gap. FHA and VA assumption opportunities are real — search for sellers in the 2020-2022 purchase period who may have 3-4% loans. Some buyers specifically target these properties because the financing arbitrage is significant enough to justify a higher purchase price.
Key Watch-Out
The equity gap can be substantial in high-appreciation markets. If a seller’s loan balance is $200,000 but the home is worth $500,000, you need $300,000 in cash or additional financing — which negates much of the rate benefit. The assumption process also takes time (60-90 days with some servicers) and requires full lender qualification. Don’t skip steps or assume informal agreement with the seller is sufficient.
Comparing the Five Methods Side by Side
- Conventional Mortgage: Most flexible; available for primary, second homes, and investment properties; requires solid credit and cash reserves
- FHA Loan: Lowest credit score threshold; higher mortgage insurance costs long-term; primary residence only
- VA Loan: Best terms for eligible veterans; no down payment, no PMI; primary residence only
- Seller Financing: Most flexible terms; no bank qualification; carries higher rate risk and requires strong legal documentation
- Assumable Mortgage: Best value when rates are elevated; limited by seller loan type and equity gap
Before You Choose a Path
Before selecting a purchase method, nail down these four numbers:
- Credit Score: Pull all three bureaus — the qualifying score is usually the middle score
- Available Cash: Down payment + closing costs + 2-3 months reserves minimum
- Monthly Housing Budget: What can you actually sustain, not just qualify for
- Timeline: VA and assumable loans take longer to close — plan accordingly if on a deadline
Every buyer’s situation is different. A first-time buyer with a 610 credit score and $15,000 saved takes a different path than a veteran with no money down eligibility or a self-employed buyer who can’t document income the traditional way. Know your profile, know your options, and negotiate from a position of knowledge — not desperation.