Homebuyer Guide: Types of Loans

Buying a home is a major financial decision, and one of the first steps is choosing the right loan. With so many options available, it’s very important to understand how each type of home loan works and which one fits your specific needs. So let's break down the most common types of home loans to help you make an informed decision!

1. Conventional Loans

A conventional loan is not insured by the government and is offered by banks, credit unions, and mortgage lenders. These loans typically require:

♦ A credit score of 620 or higher

♦ A down payment of 3% to 20%

♦ A debt-to-income ratio (DTI) of 43% or lower

Best for: Buyers with strong credit and a stable income who can afford a down payment.

2. FHA Loans (Federal Housing Administration Loans)

An FHA loan is backed by the government and allows buyers to qualify with a credit score as low as 580 and a down payment as low as 3.5%. However, FHA loans require mortgage insurance premiums (MIP), which can increase the overall cost.

Best for: First-time homebuyers or buyers with lower credit scores.

3. VA Loans (Veterans Affairs Loans)

VA loans are an excellent option for eligible military members, veterans, and surviving spouses. These loans offer:

♦ 0% down payment

♦ No private mortgage insurance (PMI)

♦ Competitive interest rates

Best for: Military members, veterans, or eligible spouses looking for a no-down-payment mortgage.

4. USDA Loans (U.S. Department of Agriculture Loans)

USDA loans are designed for rural and suburban homebuyers and offer:

♦ 0% down payment

♦ Low interest rates

♦ Income-based eligibility requirements

Best for: Buyers in eligible rural or suburban areas who meet income limits.

5. Jumbo Loans

If you’re purchasing a high-value home, you might need a jumbo loan, which exceeds the standard loan limits set by Fannie Mae and Freddie Mac (was $726,200 in most areas for 2024). Jumbo loans require:

♦ A credit score of 700+

♦ A larger down payment (10-20%)

♦ Strong financial documentation

Best for: Buyers purchasing luxury or high-priced homes.

So which home loan is right for you?

To choose the best home loan, consider:

♦ Your credit score (Higher scores get better rates on conventional loans.)

♦ Your down payment ability (Need a low down payment? FHA or VA loans may be ideal.)

♦ Your location (USDA loans are great for rural homebuyers.)

♦ Your future plans (Are you buying a long-term home or an investment property?)

Not sure which loan is best for you? Let’s talk! Contact me today to explore your options.