Your coworker got a 3% down conventional loan. Your neighbor used a VA loan with zero down. Your friend is talking about jumbo loans. Which one is right for you?
Choosing the wrong loan type can cost you thousands of dollars annually in unnecessary fees, higher interest rates, or mortgage insurance you don't need. In Seattle's expensive market, where median home prices exceed $800,000, understanding your loan options is critical.
In this article, you'll learn:
- The 5 main loan types available to Seattle buyers
- Pros and cons of each loan type with real payment comparisons
- Jumbo loan requirements for Seattle's high-price market ($806,500+ in King County)
- Condo financing challenges and solutions
- How to choose the best loan for your situation
This article is for you if: You're trying to decide which type of mortgage to apply for, or you want to understand if you're getting the best loan type for your situation.
Table of Contents
- The 5 Main Loan Types
- Loan Type Comparison Chart
- How to Choose the Right Loan
- Condo Financing Challenges
- Summary: Key Takeaways
- Next Steps
- Additional Resources
The 5 Main Loan Types
1. Conventional Loans
What it is: Standard mortgage not backed by government. Most common loan type.
Down payment:
- Minimum: 3% (first-time buyers)
- Typical: 5–20%
- Ideal: 20% (avoids PMI)
Credit score:
- Minimum: 620
- Better rates: 700+
- Best rates: 740+
Loan limits (2024):
- King County: $806,500
- Above this = jumbo loan
PMI (Private Mortgage Insurance):
- Required if down payment <20%
- Cost: 0.5–1.5% of loan annually
- Removable when you reach 20% equity
Real payment example ($750,000 home):
20% down ($150,000):
- Loan: $600,000
- Rate: 6.5%
- P&I: $3,790/month
- PMI: $0
- Total: $3,790/month
10% down ($75,000):
- Loan: $675,000
- Rate: 6.75%
- P&I: $4,380/month
- PMI: $420/month
- Total: $4,800/month
Difference: $1,010/month
Best for:
- Good credit (680+)
- 5–20% down payment
- Buying within conforming limits
- Want to remove PMI later
Pros:
- Competitive rates
- PMI removable at 20% equity
- Flexible terms
- Works for investment properties
Cons:
- Requires PMI if <20% down
- Stricter credit than FHA
- Higher down payment than FHA/VA
2. FHA Loans
What it is: Government-backed loan for first-time and lower-income buyers.
Down payment:
- Minimum: 3.5%
- Can use gift funds
Credit score:
- Minimum: 580 (for 3.5% down)
- 500–579: 10% down required
Loan limits (2024):
- King County: $806,500
Mortgage Insurance:
- Upfront: 1.75% of loan
- Annual: 0.55–0.85% of loan
- Permanent (cannot be removed)
Real payment example ($600,000 home, 3.5% down):
- Loan: $588,115 (includes upfront MIP)
- Rate: 6.25%
- P&I: $3,620/month
- MIP: $340/month
- Total: $3,960/month
Best for:
- First-time buyers
- Credit scores 580–680
- Limited savings
- Short-term ownership (5–7 years)
Pros:
- Low down payment (3.5%)
- Lower credit requirements
- Gift funds allowed
- Lower interest rates
Cons:
- Permanent mortgage insurance
- Upfront MIP (1.75%)
- More expensive long-term
- Stricter property standards
3. VA Loans
What it is: Zero-down loan for veterans and active military.
Eligibility:
- Veterans
- Active-duty service members
- National Guard/Reserves (6+ years)
- Surviving spouses
Down payment:
- $0 (up to $806,500)
- Above $806,500: 25% of amount over limit
Credit score:
- No official minimum
- Most lenders require 620+
Funding fee:
- First use: 2.15% (0% down)
- Subsequent use: 3.3%
- Waived for disabled veterans
No monthly mortgage insurance
Real payment example ($750,000 home, $0 down):
- Loan: $766,125 (includes 2.15% funding fee)
- Rate: 6.25%
- P&I: $4,715/month
- MI: $0
- Total: $4,715/month
Compare to conventional 5% down:
- Total: $5,200/month (with PMI)
- VA saves $485/month
Best for:
- Eligible veterans/military
- Limited down payment
- Want to avoid PMI
- Long-term ownership
Pros:
- $0 down payment
- No monthly MI
- Competitive rates
- No prepayment penalty
- Funding fee can be financed
Cons:
- Eligibility requirements
- Funding fee (2.15–3.3%)
- Property must meet VA standards
- Seller may prefer other buyers
4. USDA Loans
What it is: Zero-down loan for rural areas.
Eligibility:
- Property in eligible rural area
- Income limits apply
- Must be primary residence
Down payment:
- $0
Credit score:
- Minimum: 640 (typical)
Guarantee fees:
- Upfront: 1% of loan
- Annual: 0.35% of loan
Seattle area:
- Most of King County NOT eligible
- Some areas in Snohomish, Pierce, Kitsap counties eligible
- Check USDA eligibility map
Best for:
- Buying in eligible rural areas
- Limited down payment
- Income within limits
Pros:
- $0 down payment
- Low guarantee fees
- Competitive rates
Cons:
- Limited to rural areas
- Income limits
- Property restrictions
- Longer processing
5. Jumbo Loans
What it is: Loans above conforming limits ($806,500 in King County).
Down payment:
- Minimum: 10–20%
- Typical: 20%+
Credit score:
- Minimum: 700
- Preferred: 740+
Debt-to-income:
- Maximum: 43%
- Preferred: 36%
Reserves:
- 6–12 months required
- More for higher loan amounts
Interest rates:
- Typically 0.25–0.75% higher than conforming
- 6.75–7.5% typical (Q4 2024)
Real payment example ($1,200,000 home, 20% down):
- Loan: $960,000
- Rate: 7.0%
- P&I: $6,385/month
- PMI: $0
- Total: $6,385/month
Best for:
- Buying above $806,500
- Excellent credit (740+)
- 20%+ down payment
- Strong income and reserves
Pros:
- Can buy expensive homes
- No PMI with 20% down
- Flexible terms
Cons:
- Higher interest rates
- Stricter requirements
- Larger down payment
- More reserves needed
- Longer processing
Loan Type Comparison Chart
| Feature | Conventional | FHA | VA | USDA | Jumbo |
|---|---|---|---|---|---|
| Min Down | 3% | 3.5% | 0% | 0% | 10–20% |
| Min Credit | 620 | 580 | 620 | 640 | 700 |
| Loan Limit | $806,500 | $806,500 | $806,500 | $806,500 | No limit |
| MI Required | If <20% | Always | Never | Always | If <20% |
| MI Removable | Yes | No | N/A | No | Yes |
| Best Rate | 6.25–6.75% | 6.0–6.5% | 6.0–6.5% | 6.0–6.5% | 6.75–7.5% |
| Processing | Fast | Moderate | Moderate | Slow | Slow |
How to Choose the Right Loan
Decision Tree
Are you a veteran or active military?
- Yes → VA loan (best option for eligible buyers)
- No → Continue
Is your home price above $806,500?
- Yes → Jumbo loan (only option)
- No → Continue
Do you have 20%+ down payment?
- Yes → Conventional (avoid PMI)
- No → Continue
Is your credit score below 680?
- Yes → FHA (easier to qualify)
- No → Continue
Do you have 5%+ down payment?
- Yes → Conventional (PMI removable)
- No → FHA (3.5% down)
Cost Comparison Example
$750,000 home, 10% down ($75,000)
Conventional:
- Loan: $675,000
- Rate: 6.75%
- P&I: $4,380/month
- PMI: $420/month (removable)
- Total: $4,800/month
FHA:
- Loan: $736,875 (includes upfront MIP)
- Rate: 6.25%
- P&I: $4,535/month
- MIP: $425/month (permanent)
- Total: $4,960/month
Winner: Conventional (saves $160/month, PMI removable)
Condo Financing Challenges
Why Condos Are Different
Lender concerns:
- HOA financial health
- Owner-occupancy ratio
- Litigation
- Commercial space percentage
Requirements:
- HOA must be "approved" by lender
- 50%+ owner-occupied
- <15% delinquent HOA fees
- Adequate reserves
- No major litigation
Condo Approval Process
Warrantable condos:
- Meet all lender requirements
- Easier to finance
- Better rates
- More lender options
Non-warrantable condos:
- Don't meet requirements
- Harder to finance
- Higher rates (0.5–1% higher)
- Fewer lender options
- May require 20–25% down
Seattle consideration:
- Many older condos are non-warrantable
- Check with lender early
- May need portfolio lender
Summary: Key Takeaways
- VA loan is best for eligible veterans (0% down, no PMI)
- Conventional is best for good credit + 5–20% down (PMI removable)
- FHA is best for credit <680 or 3.5% down (but permanent MI)
- Jumbo required for homes >$806,500 (stricter requirements)
- USDA only works in eligible rural areas (limited in Seattle)
- 20% down avoids PMI on conventional and jumbo loans
- Condo financing requires HOA approval (check early)
Next Steps
- Check your eligibility - VA, USDA, FHA requirements
- Calculate down payment - How much can you put down?
- Check credit score - Determines which loans available
- Get pre-approved - For specific loan type
- Compare costs - Total monthly payment with each option
- Choose best fit - Based on your situation
Related articles:
Additional Resources
Loan limit information:
VA loan information:
USDA eligibility:
FHA information:
Disclaimer: This article provides general information about mortgage loan types and should not be considered financial advice. Loan terms, rates, and requirements vary by lender and change frequently. Consult with a licensed mortgage lender for guidance specific to your situation.