There are six common types of mortgages used to purchase a home: conventional, jumbo, Federal Housing Administration (FHA), Department of Veterans Affairs (VA), United States Department of Agriculture (USDA) and 203(k).
1. Conventional Mortgage
Conventional mortgages are the most common type of home loan. They aren’t insured by any government agency; instead, they’re funded by traditional banks, mortgage finance companies and credit unions.
Conventional mortgages are often more difficult to qualify for than government home loans, like an FHA loan, but they typically cost less.
2. Jumbo Mortgage
A jumbo mortgage is a loan that exceeds the lending limits set by the Federal Housing Finance Agency (FHFA). They’re used to buy expensive properties and are often reserved for borrowers with strong finances and high credit scores. You’ll typically need to put down a larger down payment with a jumbo loan as well.
The FHFA limit for 2023 is $726,200, meaning you can use a jumbo loan to purchase a home worth more than that in many parts of the country. In high-cost areas, the FHFA limit rises to $1,089,300.
3. FHA Loan
FHA loans are insured by the Federal Housing Administration and issued by approved lenders. They’re intended for homebuyers with low income or those unable to qualify for a conventional loan.
The main benefit of FHA loans is that they have less stringent qualification requirements than conventional loans. Borrowers with a credit score of at least 580 can qualify with a down payment as low as 3.5%. If you have enough to put down at least 10%, you can qualify with a credit score as low as 500. However, depending on how much you put down, you’ll be required to pay mortgage insurance premiums for 11 years or the entire life of the loan.
4. VA Loan
If you’re an active-duty service member or a veteran of the U.S. Armed Forces (or a spouse of one), you might qualify for a mortgage backed by the VA.
As long as you still have full entitlement, you won’t have to make a down payment on a VA loan. Those with remaining entitlement must abide by VA home limits.
Like FHA loans, the VA doesn’t issue these loans directly. You’ll need to go through an approved VA loan lender.
Related: What Is a VA Loan?
5. USDA Loan
USDA loans are intended for low- to moderate-income buyers in rural areas designated as eligible by the USDA. There are no down payment or private mortgage insurance (PMI) requirements, but you have to pay a one-time upfront guarantee fee and a recurring annual fee to cover the cost of the loan.
Related: What Is a USDA Loan?
6. 203(k) Loan
A 203(k) loan is insured by the FHA and is intended for those buying a home in need of significant renovations and repairs. A 203(k) loan covers the purchase of the home and the improvements needed. You can’t buy a vacation home or investment property with this type of loan.
