Choosing the right type of mortgage can save you thousands of dollars and make homeownership more accessible. Let's explore the five main types of mortgages and help you determine which one is best for your situation.
Quick Overview
Quick Comparison Table
| Feature | Conventional | FHA | VA | USDA | Jumbo |
|---|---|---|---|---|---|
| Down Payment | 3-20% | 3.5% | 0% | 0% | 10-20% |
| Credit Score | 620+ | 580+ | No minimum* | 640+ | 700+ |
| Loan Limits | Up to $766,550 | Up to $498,257 | Up to $766,550 | Location-based | Above conforming |
| PMI Required | If <20% down | Always (MIP) | Funding fee only | Guarantee fee | Often not required |
| Best For | Most buyers | Low down payment | Veterans/Military | Rural buyers | Luxury homes |
Conventional Loans
Conventional loans are mortgages not backed by the federal government. They're offered by private lenders and follow standards set by Fannie Mae and Freddie Mac. This is the most common type of mortgage in America.
Who It's For
- •Buyers with good to excellent credit (typically 620+, but 740+ for best rates)
- •Those who can afford 3-20% down payment
- •Borrowers with stable income and low debt-to-income ratio
- •Anyone buying a primary residence, second home, or investment property
Pros
- ✓ Lower rates for borrowers with good credit
- ✓ Can be used for any property type
- ✓ PMI can be removed at 20% equity
- ✓ Higher loan limits than FHA
- ✓ Fixed or adjustable rate options
Cons
- ✗ Stricter credit requirements
- ✗ Larger down payment needed for best rates
- ✗ PMI required if less than 20% down
- ✗ More documentation required
Conventional Loan Tips
FHA Loans
FHA loans are insured by the Federal Housing Administration, making them less risky for lenders and more accessible for borrowers with lower credit scores or smaller down payments. They're extremely popular with first-time homebuyers.
Who It's For
- •First-time homebuyers or those with limited savings
- •Borrowers with credit scores as low as 580 (or 500 with 10% down)
- •Those who can only afford 3.5% down payment
- •Buyers with past credit issues (bankruptcy, foreclosure) recovered from
Pros
- ✓ Only 3.5% down payment required
- ✓ Lower credit score requirements
- ✓ More lenient debt-to-income ratios
- ✓ Gift funds allowed for down payment
- ✓ Assumable by future buyers
Cons
- ✗ Mortgage insurance for life of loan (if 3.5% down)
- ✗ Upfront mortgage insurance premium (1.75%)
- ✗ Lower loan limits than conventional
- ✗ Property must meet FHA standards
- ✗ Only for primary residences
FHA Mortgage Insurance
VA Loans
VA loans are guaranteed by the Department of Veterans Affairs and available exclusively to eligible veterans, active-duty service members, and surviving spouses. They offer the best terms of any loan type—no down payment and no PMI.
Who It's For
- •Active-duty military members
- •Veterans with qualifying service
- •National Guard and Reserve members with 90+ days active service
- •Surviving spouses of service members who died in service or from service-related disability
Pros
- ✓ 0% down payment required
- ✓ No PMI or mortgage insurance
- ✓ Competitive interest rates
- ✓ No minimum credit score (lender sets requirements)
- ✓ Limited closing costs and seller can pay
- ✓ Can be used multiple times
Cons
- ✗ Upfront funding fee (2.15-3.3% of loan)
- ✗ Only for eligible service members/veterans
- ✗ Property must meet VA standards
- ✗ Primary residence only
Best Loan for Eligible Buyers
USDA Loans
USDA loans are backed by the U.S. Department of Agriculture to promote homeownership in rural and suburban areas. Like VA loans, they require no down payment.
Who It's For
- •Buyers purchasing in eligible rural or suburban areas (97% of U.S. land!)
- •Low to moderate income households (typically under 115% of area median)
- •First-time or repeat buyers with limited savings
Pros
- ✓ 0% down payment required
- ✓ Low mortgage insurance rates
- ✓ Competitive interest rates
- ✓ More lenient credit requirements
- ✓ Seller can pay closing costs
Cons
- ✗ Property location restrictions
- ✗ Income limits apply
- ✗ Upfront and annual guarantee fees
- ✗ Longer approval process
- ✗ Primary residence only
Check Eligibility
Jumbo Loans
Jumbo loans exceed the conforming loan limits set by Fannie Mae and Freddie Mac ($766,550 in most areas for 2024). They're used for luxury homes or in high-cost markets like San Francisco or New York.
Who It's For
- •Buyers purchasing luxury or high-value homes
- •Those in expensive real estate markets
- •Borrowers with excellent credit (typically 700+)
- •High-income earners with substantial assets
Pros
- ✓ Borrow more than conforming limits
- ✓ Buy luxury or high-cost-area homes
- ✓ Competitive rates (if credit is excellent)
- ✓ No PMI with 20% down (usually)
Cons
- ✗ Stricter qualification requirements
- ✗ Larger down payment (10-20%)
- ✗ More extensive documentation
- ✗ Higher interest rates than conforming
- ✗ Larger cash reserves required
Which Loan Is Right for You?
Quick Decision Guide
If you're a veteran or active military:
Choose VA Loan — unbeatable terms with 0% down and no PMI
If you're buying in a rural/suburban area:
Check USDA Loan eligibility — 0% down if you qualify
If you have excellent credit and 20% down:
Go Conventional — best rates and most flexible terms
If you have limited savings or lower credit:
Choose FHA Loan — only 3.5% down, forgiving requirements
If you're buying a luxury/expensive home:
You'll need a Jumbo Loan — prepare for strict requirements
Don't Decide Alone
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