Who lends, who backs the loan, and who qualifies?
A loan name is a starting point, not a complete approval decision. Use these five distinctions to organize the facts. The comparison concerns home-purchase financing, not every specialized loan offered by each agency.
FHA
- Lender and backing
- FHA insures loans made by approved lenders.
- Eligibility focus
- Borrower, property, occupancy, and lender requirements still apply. It is not restricted to first-time buyers.
- Cash and charges
- Down payment can be as low as 3.5% for qualifying borrowers. Standard FHA purchase financing involves mortgage insurance, not just the down payment.
Insured, not a loan made directly by FHA.
FHA: official program explanationVA
- Lender and backing
- VA backs eligible loans made by lenders.
- Eligibility focus
- A Certificate of Eligibility establishes benefit eligibility; credit, income, occupancy, and property requirements remain.
- Cash and charges
- Eligible purchases can require no down payment. No monthly PMI, but a funding fee may apply unless the borrower qualifies for an exemption.
A guarantee is not guaranteed loan approval.
VA: official program explanationUSDA
- Lender and backing
- The guaranteed program uses approved lenders. The direct program lends through USDA.
- Eligibility focus
- Eligible rural location, household income, and occupancy matter. Direct loans serve eligible low- and very-low-income applicants.
- Cash and charges
- Guaranteed financing can cover 100% of the eligible purchase. That does not make closing costs disappear.
Check the address and program; do not assume the buyer must be a farmer.
USDA: official program explanationCalVet
- Lender and backing
- California's Department of Veterans Affairs administers this state program.
- Eligibility focus
- Eligible veterans must meet the program's service, credit, and owner-occupied California property requirements.
- Cash and charges
- Federal VA benefits can be used within CalVet. Do not assume every CalVet transaction has one down-payment or fee arrangement.
State program and contract structure, not another name for federal VA.
CalVet: official program explanationConventional
- Lender and backing
- Not FHA-insured, VA-guaranteed, or USDA-backed purchase financing.
- Eligibility focus
- Conforming loans meet applicable Fannie Mae or Freddie Mac standards; nonconforming loans do not meet those standards.
- Cash and charges
- 20% down is not required for every conventional loan. PMI is usually required with less than 20% down on a conventional purchase.
Conventional and conforming are not synonyms.
Conventional: official program explanationThree separate choices
Program, term, and interest-rate type are different. “Conventional” does not mean “30-year fixed,” and a federal backing label does not by itself identify an amortization schedule. Read all three facts.
No down payment does not mean no cost
FHA: a qualifying low down payment does not eliminate mortgage insurance. FHA collects upfront and periodic premiums; the periodic premium is collected through monthly payments. Avoid treating the down payment as the buyer's full cash to close, or applying conventional PMI cancellation rules to FHA.
VA: a purchase may qualify for no down payment and no monthly PMI. The funding fee is a separate charge, with exemptions such as qualifying service-connected disability compensation. Its amount depends on the loan type, use history, and down payment. A borrower can finance the fee, but that does not mean every purchase closing cost can be added to the loan.
PMI: private mortgage insurance protects the lender against mortgage-default loss. It is not hazard insurance, title insurance, or protection against the borrower losing a job. Paying PMI does not excuse repayment.
Worked VA fee, not a rule for every borrower
For a stated $400,000 base purchase loan and a stated 2.15% first-use fee, the fee is $8,600. Financing only that fee gives $408,600. Apply the percentage to the base loan, not to the final total including the fee. An exempt borrower has a different result.
Two comparisons that need more than a label
USDA guaranteed versus direct
Guaranteed loans come from approved lenders; direct loans come from USDA and can include payment assistance. Their income and other conditions differ. In either case, check the actual eligible address rather than assuming any small California town qualifies. The program is for rural housing, not exclusively for farmers.
USDA's guaranteed program can provide 100% financing; its guaranty to the lender is not 100% of the loan. Borrower financing and protection against lender loss are different percentages with different purposes. Do not swap them in an answer.
CalVet versus federal VA
CalVet is a state program administered by California's Department of Veterans Affairs. DRE describes the department buying the veteran's selected property and selling it through a land contract. In that retained-title arrangement, distinguish the department's legal title from the purchaser's equitable title pending performance and conveyance.
Federal VA backing and that state contract structure answer different questions. Current California guidance says federal VA benefits can be used within CalVet. Do not infer identical down payments, charges, or title arrangements merely because two borrowers are veterans.
Conventional is the broader category
A conventional loan is outside the FHA, VA, and USDA insured or guaranteed purchase programs. A conforming conventional loan meets applicable Fannie Mae or Freddie Mac standards, including the loan limit. A jumbo loan exceeds the applicable conforming amount limit. Nonconforming is broader than jumbo: other failures to meet standards can also make a loan nonconforming.
For one-unit properties in 2026, FHFA's baseline conforming limit is $832,750, with a high-cost ceiling of $1,249,125. The ceiling is not every California county's limit. Check the county, number of units, and year. FHA limits belong to a separate program; do not reuse a conforming limit as an FHA limit.
For covered borrower-paid PMI mortgages, the usual statutory framework distinguishes a borrower's request at 80% of original value from automatic termination at the scheduled 78% point, subject to applicable conditions. Cancellation requires more than hitting a percentage: payment status, history, junior liens, and value evidence can matter. Exceptions and lender-paid insurance have different treatment; FHA follows its own rules.
Read the assumptions before calculating
Eligibility for a benefit is not the same as qualifying for a particular loan. A VA Certificate of Eligibility does not settle repayment ability. Full VA entitlement removes the VA loan-limit constraint, not the lender's approval decision. An appraisal shortfall still matters.
A front-end ratio compares the stated housing expense with gross monthly income. A back-end ratio compares housing plus the stated other monthly debt with gross monthly income. If both limits apply, housing must satisfy both. Use the expense definition supplied; do not silently substitute principal and interest alone when the problem includes taxes, insurance, or other housing charges.
For an exercise using 28% housing and 36% total debt, $8,000 gross monthly income allows $2,240 under the housing test. With $650 other monthly debt, the total-debt test permits $2,880 − $650 = $2,230 for housing. The lower amount is the answer. Those ratios are exercise assumptions, not universal lending limits.
When comparing real offers, consider the Loan Estimate's rate, APR, fees, insurance charges, cash to close, term, and payment terms. A smaller down payment alone does not establish the cheapest loan. This article teaches exam distinctions; it is not a personalized loan recommendation.
Ten questions that test the distinctions
Choose an answer before opening its review. These are original teaching examples, not official DRE questions or a prediction of your exam score.
Example 1 · Identify the government's role
An approved bank makes a purchase loan covered by FHA mortgage insurance. Which statement describes the arrangement?
- A.FHA makes the loan and the bank insures it
- B.The bank makes the loan and FHA insures it
- C.VA guarantees the loan because FHA is federal
- D.The loan is conventional because a bank funds it
Review example 1
Answer: B. The bank makes the loan and FHA insures it
- A: The roles are reversed. The lender advances the funds; FHA provides the mortgage insurance.
- B: The bank is the lender. FHA insurance supports the loan without turning FHA into the originating bank.
- C: Federal agency status does not interchange the programs. The stated insurance is FHA, not a VA guarantee.
- D: Private lender funding does not make an insured FHA loan conventional. The program backing matters.
Change one fact: Remove the FHA insurance and specify no VA or USDA backing. A lender-made loan could then be conventional; who advances the funds alone is not enough.
CFPB FHA overview: private lenders and government insuranceExample 2 · Keep the down payment separate from fees
For this exercise, an eligible buyer purchases a $400,000 home using a stated 3.5% down payment. What is the down payment alone, excluding mortgage insurance, closing costs, and other funds?
- A.$20,000
- B.$1,400
- C.$40,000
- D.$14,000
Review example 2
Answer: D. $14,000
- A: $20,000 is 5% of $400,000. The prompt supplies 3.5%, so a different program assumption cannot replace it.
- B: $1,400 results from multiplying by 0.0035, which is 0.35%. Convert 3.5% to 0.035.
- C: $40,000 is 10% of the price. That is not the stated down-payment rate.
- D: $400,000 × 0.035 = $14,000. This answers only the down-payment question, not the buyer's full cash requirement.
Change one fact: Ask for total cash to close instead, and the down payment is only one component. You also need the supplied fees, prepaid amounts, credits, and financing facts.
CFPB FHA overview: qualifying down payments as low as 3.5%Example 3 · Full entitlement does not replace underwriting
A veteran has full VA entitlement and wants to buy a home. Which conclusion follows from the absence of a VA loan limit for full entitlement?
- A.The lender must approve any price the veteran chooses
- B.The appraisal cannot affect the required down payment
- C.The lender still evaluates repayment ability and the property
- D.The veteran cannot use a loan above the county conforming limit
Review example 3
Answer: C. The lender still evaluates repayment ability and the property
- A: No VA entitlement cap does not require a lender to extend unlimited credit. Income, debts, credit, and property facts still matter.
- B: An appraisal shortfall can require the buyer to cover the difference. Full entitlement does not make price and value identical.
- C: Full entitlement removes the VA loan-limit constraint, not the lender's underwriting or appraisal requirements.
- D: The county limit is not a VA borrowing cap for full entitlement. Remaining entitlement presents a different analysis.
Change one fact: Change full entitlement to remaining entitlement after an unreleased prior use. County limits and available entitlement can affect the guaranty and whether a down payment is needed.
VA loan limits: full versus remaining entitlement and lender approvalExample 4 · Calculate the fee on the base loan
A first-use VA purchase borrower has a $400,000 base loan, no down payment, and no funding-fee exemption. Use the stated 2.15% fee. If only that fee is added to the base loan, what is the resulting loan amount?
- A.$408,600
- B.$413,200
- C.$400,000
- D.$414,000
Review example 4
Answer: A. $408,600
- A: The fee is $400,000 × 0.0215 = $8,600. Adding it once produces $408,600; no other financed cost is stated.
- B: $413,200 uses a 3.3% fee. That is the listed subsequent-use rate for this down-payment bracket, not the first-use rate supplied.
- C: $400,000 omits the financed fee. The prompt expressly states there is no exemption and the fee is added.
- D: $414,000 adds 3.5%, confusing the supplied VA fee with a different percentage. Use 2.15% of the base loan.
Change one fact: A qualifying funding-fee exemption would remove this charge. A different use history or down payment can change the applicable fee; do not reuse 2.15% in every VA problem.
VA funding fee: purchase table, base-loan calculation, financing and exemptionsExample 5 · A rural-looking address is not an eligibility finding
A buyer wants a USDA guaranteed loan for a house outside a California city. What should be checked before treating the property and buyer as eligible?
- A.Whether the buyer's occupation qualifies as agricultural employment
- B.Whether city boundaries place the home outside municipal jurisdiction
- C.Whether the buyer falls below the FHA county mortgage limit
- D.Whether the address and household meet USDA program eligibility
Review example 5
Answer: D. Whether the address and household meet USDA program eligibility
- A: The home-loan program does not require the borrower to be a farmer. Rural housing eligibility is a different question.
- B: Municipal boundaries alone do not establish USDA's geographic or borrower eligibility. Check the actual address and program requirements.
- C: An FHA mortgage limit belongs to a different program. It does not determine USDA household or property eligibility.
- D: These are relevant program checks. Being outside a city alone does not settle the address, income, or primary-residence requirements.
Change one fact: Keep the same buyer but move the property to an ineligible address. A suitable income level alone does not make that new property eligible.
USDA guaranteed program: applicant eligibility, eligible address and primary residenceExample 6 · Distinguish two USDA channels
An eligible low-income household receives financing made directly by USDA with payment assistance under its direct home-loan program. How does this differ from USDA guaranteed financing?
- A.Guaranteed loans are available only to veterans
- B.Guaranteed loans are made by approved lenders with USDA backing
- C.Direct financing is conventional because USDA advances funds
- D.Direct financing has no repayment or property requirements
Review example 6
Answer: B. Guaranteed loans are made by approved lenders with USDA backing
- A: Veteran eligibility concerns VA or CalVet, not a general restriction on the USDA guaranteed program.
- B: The distinction is who lends. USDA makes the stated direct loan; an approved lender originates guaranteed financing.
- C: A USDA direct loan is not conventional merely because funds are advanced directly. It belongs to a government program.
- D: Payment assistance does not remove the program's repayment, applicant, or property conditions.
Change one fact: For a USDA direct borrower, a later sale or end of occupancy can require repayment of all or part of the subsidy. Assistance is not necessarily a permanently forgiven grant.
USDA Section 502 direct program: payment assistance, eligibility and subsidy recaptureExample 7 · Separate state program from title arrangement
In the CalVet land-contract arrangement described by DRE, the department buys the selected property and sells it to the veteran through an installment contract. Before final performance and conveyance, which title distinction fits that arrangement?
- A.The veteran holds legal title and the department has no interest
- B.Federal VA holds legal title merely because the buyer is a veteran
- C.The department retains legal title and the veteran has equitable title
- D.Neither party has an interest until the final payment
Review example 7
Answer: C. The department retains legal title and the veteran has equitable title
- A: That describes neither the stated retained-title sale nor the department's position. Do not substitute an ordinary deed-and-loan closing.
- B: Federal VA backing does not by itself make federal VA the titleholder. The stem identifies California's department as the seller.
- C: The vendor retains legal title while the purchaser holds the equitable interest under the stated land contract, pending performance and conveyance.
- D: The contract does create present interests. Delayed conveyance is not an absence of any property interest.
Change one fact: A question about federal VA backing alone does not establish a land contract. Read the actual title and financing facts instead of assuming the two programs are identical.
DRE Non-mortgage Alternatives, printed pages 371–373: land contract, vendor and vendee title; CalVet structure in Finance page 213Example 8 · Conventional can be nonconforming
A lender makes a home loan without FHA insurance, VA guaranty, or USDA backing. Its amount exceeds the applicable conforming limit. Which description fits?
- A.A conventional nonconforming jumbo loan
- B.An FHA loan because its amount is unusually large
- C.A conforming loan because a private lender made it
- D.A CalVet loan because it exceeds a federal limit
Review example 8
Answer: A. A conventional nonconforming jumbo loan
- A: The absence of the stated government backing makes it conventional. Exceeding the applicable conforming amount limit makes this a jumbo nonconforming loan.
- B: Loan size does not create FHA insurance. The stem specifically excludes it.
- C: Private lender origination does not establish conformity. The amount exceeds the applicable limit.
- D: Exceeding a limit does not place a loan in California's veteran program. No CalVet arrangement is stated.
Change one fact: Bring the amount within the applicable limit. The loan still must meet the other conforming standards; size alone is not the complete conformity test.
CFPB conventional definition: conforming and nonconforming categories; current limits from FHFAExample 9 · Identify what mortgage insurance covers
A conventional purchase loan carries borrower-paid private mortgage insurance. Which risk does PMI primarily protect the lender against?
- A.Damage to the home from a covered fire
- B.The borrower's loss of employment income
- C.A defect covered by an owner's title policy
- D.Loss if the borrower fails to repay the mortgage
Review example 9
Answer: D. Loss if the borrower fails to repay the mortgage
- A: Fire damage concerns property insurance, not the lender's mortgage-default coverage under PMI.
- B: PMI is not the borrower's unemployment or income-replacement policy. The borrower can still lose the home after default.
- C: Title defects concern title insurance and its terms. PMI does not substitute for an owner's title policy.
- D: PMI protects the lender against qualifying default losses. The borrower pays for it, but that does not make it personal payment protection.
Change one fact: Change the question to physical damage from a covered fire. You would examine property insurance rather than mortgage-default insurance.
CFPB PMI explanation: lender protection, low down payments and continued borrower riskExample 10 · Apply both stated qualifying limits
For this exercise only, use a 28% housing limit and a 36% total-debt limit. Gross monthly income is $8,000 and other monthly debt is $650. What is the largest monthly housing expense satisfying both limits?
- A.$2,880
- B.$2,230
- C.$2,240
- D.$1,590
Review example 10
Answer: B. $2,230
- A: $2,880 is 36% of gross income before subtracting other debt. It is the total-debt allowance, not the housing allowance.
- B: The housing test allows $8,000 × 0.28 = $2,240. The total-debt test allows $8,000 × 0.36 − $650 = $2,230 for housing. The lower amount satisfies both.
- C: $2,240 meets the housing test but makes total debt $2,890, exceeding the $2,880 total-debt allowance by $10.
- D: $1,590 subtracts other debt from the front-end housing allowance. Other debt is subtracted in the total-debt calculation, not from both limits.
Change one fact: Change the stated ratios or other debt and recalculate both tests. These are exercise assumptions, not universal FHA or conventional underwriting rules.
CFPB loan options: repayment factors; 28/36 is explicitly an exercise assumption, not a sourced universal limitUse the official outline without inventing a quota
DRE lists government programs, loan types, and financing sources within Financing, approximately 9% of the salesperson exam. That weight describes the whole area, not a promise of a question on every program. This comparison is one part of financing: continue with notes, deeds of trust, foreclosure, credit laws, and loan brokerage.
The DRE reference chapters support the state-program and land-contract concepts. Current agency sources control the program and limit details here. Do not lift old rates, annual limits, or underwriting ratios from an older reference chapter. Check current program rules for an actual transaction.
DRE salesperson examination content: FinancingContinue with the complete financing lessonFrequently asked questions
What is the main difference between FHA and VA loans?
FHA insures eligible lender-made loans. VA guarantees eligible lender-made loans for borrowers with the required benefit eligibility. Compare their separate down-payment, mortgage-insurance, funding-fee, property, and underwriting requirements; neither backing promises approval.
Does FHA lend directly or require a first-time buyer?
FHA generally insures loans made by approved lenders rather than making the purchase loan itself. FHA is not limited to first-time buyers. A low advertised down payment does not remove borrower, occupancy, property, or lender requirements.
Does no down payment mean a VA purchase has no closing costs?
No. A qualifying purchase may need no down payment, but fees, prepaid amounts, an appraisal gap, or a funding fee can still matter. A qualifying exemption removes the VA funding fee, not every other possible purchase cost.
Does full VA entitlement mean an unlimited approved loan?
No. Full entitlement removes the VA loan-limit constraint, but a lender still evaluates credit, income, debts, and appraised value. Remaining entitlement can involve a different county-limit and guaranty calculation.
Are USDA home loans only for farmers?
No. Rural housing eligibility concerns the property's address and the household's qualifications, not a farming occupation. Check the USDA eligibility map, income requirements, and intended occupancy for the specific program.
How do USDA direct and guaranteed loans differ?
USDA makes direct loans to eligible low- and very-low-income applicants, potentially with payment assistance. Approved lenders make guaranteed loans backed by USDA. Direct-loan payment assistance can involve subsidy repayment when the borrower sells or stops occupying the home.
Is CalVet the same program as a federal VA loan?
No. CalVet is administered by California's Department of Veterans Affairs. DRE describes its land-contract purchase structure. CalVet can also use federal VA benefits, so the state program, federal backing, and title arrangement must be identified separately.
Does every conventional loan require 20% down?
No. Some conventional loans allow smaller down payments, usually with PMI. Conventional also does not mean conforming: a jumbo loan above the applicable conforming amount limit can still be conventional.
Are FHA mortgage insurance and conventional PMI interchangeable?
No. Both relate to mortgage risk, but they belong to different programs and rules. Do not apply conventional PMI cancellation thresholds automatically to FHA mortgage insurance. Neither is a replacement for hazard or title insurance.
Are 28/36 and 31/43 universal lending limits?
No. They may appear as stated exercise assumptions or particular underwriting benchmarks. Actual limits depend on the program, underwriting method, applicable rules, and lender requirements. Use the supplied figures in an exam calculation without presenting them as universal approval rules.
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