The Loan You Choose Changes the Entire Deal

Most buyers think about the purchase price and the down payment. The loan product you use affects every other number in the transaction — monthly payment, total interest over the life of the loan, insurance requirements, and even which properties you can buy. Choosing the wrong loan can cost you tens of thousands of dollars over time.

Here's a clear comparison of the three loan types most relevant to buyers and investors in Southern Utah.

Conventional Loans

What They Are

Conventional loans aren't backed by a government agency. They're originated by private lenders and follow guidelines set by Fannie Mae and Freddie Mac. This is the most common loan type for buyers with good credit and some savings.

Key Terms

  • Down payment: 3%–20%. Putting down less than 20% requires private mortgage insurance (PMI)
  • Credit score minimum: 620, but you'll want 700+ for competitive rates
  • PMI: 0.3%–1.5% of the loan amount annually. Drops off automatically when you reach 78% LTV
  • Rates: Generally the best rates available for borrowers with 740+ credit and 20%+ down
  • Property types: Primary residence, second home, or investment property. Investment properties require 15%–25% down
  • Loan limits (2026): Check current conforming limits — Iron and Washington counties typically follow the standard limit

Best For

  • Buyers with 700+ credit and at least 5% down
  • Anyone planning to put 20%+ down to avoid PMI entirely
  • Second-home buyers (vacation property near Zion or Sand Hollow)
  • Investors buying rental properties (higher down payment required)

Watch Out For

  • Rate adjustments for lower credit scores add up fast — a 680 score pays significantly more than a 760
  • Investment property rates are typically 0.5%–0.75% higher than primary residence rates
  • Debt-to-income ratio limits (usually 45%–50% max) can restrict your buying power if you have existing debt

FHA Loans

What They Are

FHA loans are insured by the Federal Housing Administration. They're designed for buyers who don't have perfect credit or large down payments. The government guarantee lets lenders offer more flexible terms.

Key Terms

  • Down payment: 3.5% with 580+ credit score. 10% with 500–579 credit
  • Credit score minimum: 500 (with 10% down) or 580 (with 3.5% down)
  • Mortgage insurance: 1.75% upfront (can be financed into the loan) plus 0.55% annually for the life of the loan if you put less than 10% down
  • Rates: Often lower base rates than conventional, but the permanent MIP offsets this advantage
  • Property types: Primary residence only. Must be owner-occupied
  • Property condition: Must meet FHA Minimum Property Standards — no peeling paint on pre-1978 homes, functional utilities, safe access, adequate roof life

Best For

  • First-time buyers with limited savings (3.5% down on a $400K home = $14,000)
  • Buyers with credit scores between 580 and 700 where FHA offers better terms than conventional
  • House hackers buying a 2–4 unit property as their primary residence (FHA allows this with 3.5% down)

Watch Out For

  • Mortgage insurance premium (MIP) never drops off if you put less than 10% down — you'll need to refinance to remove it
  • Some sellers in Southern Utah are reluctant to accept FHA offers because of stricter appraisal requirements and perceived deal risk
  • Older homes in Cedar City may not meet FHA property condition standards without repairs
  • FHA loan limits cap your purchase price — check current limits for Iron and Washington counties

DSCR Loans (Debt Service Coverage Ratio)

What They Are

DSCR loans are designed specifically for real estate investors. Instead of qualifying based on your personal income (W-2s, tax returns), the lender qualifies the property based on its rental income relative to its debt payments. If the property generates enough income to cover the mortgage, you qualify.

Key Terms

  • Down payment: 20%–25% typically. Some lenders go to 15% with strong DSCR
  • Credit score minimum: Usually 660–680
  • No personal income verification — the property's income is what matters
  • DSCR requirement: Usually 1.0–1.25x. A DSCR of 1.25 means the property generates 25% more income than the monthly debt payment
  • Rates: Higher than conventional — typically 1%–2% above conventional investment property rates
  • Property types: Investment properties only. No owner-occupancy requirement
  • Loan terms: 30-year fixed, 5/1 ARM, interest-only options available

Best For

  • Self-employed investors whose tax returns don't show enough income to qualify conventionally (because of write-offs)
  • Investors who already have multiple conventional mortgages (conventional loans cap at 10 financed properties)
  • STR investors — some DSCR lenders will underwrite based on projected short-term rental income, not just long-term rental rates
  • Speed — DSCR loans often close faster because there's no income documentation to chase

Watch Out For

  • Higher interest rates mean higher monthly payments. Make sure your deal pencils at the DSCR rate, not a conventional rate
  • Prepayment penalties are common — often 3–5 years. If you plan to sell or refinance quickly, factor this in
  • Not all DSCR lenders accept STR income. Some only use long-term rental comps, which can significantly lower the DSCR and kill the deal
  • Points and fees tend to be higher than conventional loans — budget 1%–2% in origination costs

Side-by-Side Comparison

Feature Conventional FHA DSCR
Min Down Payment 3%–5% (primary) 3.5% 20%–25%
Min Credit Score 620 580 660
Income Verification Yes Yes No
Mortgage Insurance PMI (removable) MIP (permanent*) None
Investment Property Yes (15-25% down) No Yes
Owner Occupancy Not required Required Not allowed
Rate (Typical) 6.0%–7.0% 5.75%–6.75% 7.5%–9.0%
Best For Strong credit buyers First-time / low down Investors

*MIP is permanent with less than 10% down. With 10%+ down, MIP drops after 11 years.

Which One Should You Use?

The answer depends on three things: your credit score, how much cash you have for a down payment, and whether you plan to live in the property.

  • Living in it, good credit, 5%+ down? → Conventional
  • Living in it, limited savings or lower credit? → FHA
  • Investment property, strong personal income? → Conventional (investment)
  • Investment property, self-employed or maxed on conventional loans? → DSCR
  • House hacking a duplex or fourplex? → FHA (3.5% down, owner-occupied multi-unit)

If you're buying in Cedar City, Hurricane, or Southern Utah and aren't sure which loan product fits your deal, reach out. I work with lenders who specialize in all three and can connect you with the right one for your situation.