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Types of Home
Loans
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Conventional loan: Best for borrowers with credit scores between 700-850
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Jumbo loan: Best for borrowers with excellent credit looking to buy a more expensive home. This will include any loan above $766,550.00
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Government-backed loan: Best for borrowers with credit scores between 620 and 700 and minimal cash for a down payment. This would be the FHA loan.
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VA Loan: This is also a government backed loan and any military member, past or present can obtain this loan. Credit scores from 580-850.
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Fixed-rate mortgage: Best for borrowers who’d prefer a predictable, set monthly payment for the duration of the loan – This is almost every loan we originate!
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Adjustable-rate mortgage: Best for borrowers who aren’t planning to stay in the home for an extended period, prefer lower payments in the short term and are comfortable with possibly having to pay more in the future
Conventional Loans
Conventional loans, the most popular type of mortgage, come in two flavors: conforming and non-conforming. Here’s what that means:
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Conforming loans: As the name implies, a conforming loan “conforms” to a set of standards put in place by the Federal Housing Finance Agency (FHFA), which includes guidelines around credit, debt and loan size. (For 2024, the conforming loan limit is $766,550 in most areas and $1,149,000 in higher-cost areas.) When a conventional loan meets FHFA standards, it’s eligible to be purchased by Fannie Mae and Freddie Mac, the two government-sponsored enterprises (GSEs) that back much of the mortgage market. Fannie and Freddie buy loans from lenders so that lenders have more capital to create more mortgages for more borrowers.
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Non-conforming loans: These loans do not meet one or more of the FHFA’s standards. One of the most common types of non-conforming loan is a jumbo loan, a mortgage in an amount that exceeds the conforming loan limit. Non-conforming loans can’t be purchased by the GSEs, so they’re considered a riskier prospect for lenders. These loans are purchased by other investors and yes, they are completely safe!
Jumbo Loans
Jumbo mortgages are home loans in an amount that surpasses FHFA’s conforming loan limits. In 2024, that means any loan over $766,550 and $1,149,000 in higher-cost areas. The guidelines for these loans are a bit more strict and credit scores are an important piece of the Jumbo Loan puzzle.
Government-backed Loans
The U.S. government isn’t a mortgage lender, but it does play a role in making homeownership accessible to more Americans by backing three main types of mortgages:
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FHA loans: Insured by the Federal Housing Administration (FHA), FHA loans can be had with a credit score as low as 580 and a 3.5% down payment. These loans do typically come with a lower interest rate than the Conventional loan product. While that’s certainly a benefit, FHA loans also require you to pay mortgage insurance premiums. These premiums help the FHA insure lenders against borrowers who default. In addition, you can’t borrow as much money with an FHA loan; its ceiling is lower than those on conventional conforming loans.
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VA loans: Guaranteed by the U.S. Department of Veterans Affairs (VA), VA loans are for eligible members of the U.S. military (active duty, veterans, National Guard and Reservists) as well as surviving spouses. There’s no minimum down payment, mortgage insurance or credit score requirement, but you’ll need to pay a funding fee ranging from 1.25% to 3.6% at closing which is included in the loan amount. If you are receiving any military disability, you do not need to pay this VA funding fee.
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USDA loans: Guaranteed by the U.S. Department of Agriculture (USDA) loans help moderate to low-income borrowers within certain income limits buy homes in rural, USDA-eligible areas. These loans have a credit score requirement and income threshold.
Fixed-rate Mortgages
Fixed-rate mortgages maintain the same interest rate over the life of your loan, which means your monthly mortgage payment (the loan principal and interest) always stays the same. Fixed loans typically come in terms of 15, 20 or 30 years, although some lenders offer flexible term lengths.
Adjustable-rate Mortgages
In contrast to fixed-rate loans, adjustable-rate mortgages (ARMs) come with interest rates that change over time. Typically with an ARM, you’ll get a lower, fixed introductory rate for a set period. After this period, the rate changes, either up or down, at predetermined intervals for the remainder of the loan term. A 5/6 ARM, for example, has a fixed rate for the first five years; the rate then increases or decreases based on economic conditions every six months until you pay it off. When your rate goes up, your monthly mortgage payment does as well, and vice versa.