What Are the Different Types of Home Loans Available?


Many people mistakenly believe they can’t afford to buy a home because they don’t really know what their options are. Fortunately, home loans are not one-size-fits-all. There are a variety of different mortgages available to suit your budget and preferences.

family in new home

So before you start visiting open houses, take some time to familiarize yourself with the different home loans that are available. Going into the home buying process informed could help you save a lot of money on your down payment, interest, and fees.

The 8 Types of Home Loans Available

Understanding the different types of home loans available will help you choose the option that’s best suited for you. Let’s look at a brief overview of the eight types of home loans available in 2020.

1. Conventional Loans

A conventional loan is a mortgage that’s not issued by the federal government. There are two different types of conventional loans you can choose from: conforming and non-conforming loans.

A conforming loan falls within the guidelines laid out by Frannie Mae and Freddie Mac. You’ll take out a conforming loan through a private lender like a bank, credit union, or mortgage company. Since the government doesn’t guarantee the loan, conventional loans typically come with more stringent lending requirements.

According to the CFPB, the maximum loan amount for a conventional loan is $484,350. However, it may be as high as $726,525 in counties with a high cost of living. You’ll have to take out primary mortgage insurance (PMI) if you don’t have a 20% down payment.


  • Can be used to purchase a primary home or an investment property
  • Tends to cost less than other types of loans
  • You can cancel your PMI once you reach 20% equity in your home


  • Must have a minimum FICO score of 620 or higher
  • Harder to qualify for than government-backed loans
  • You’ll need to have a low debt-to-income ratio to qualify

2. Conventional 97 Mortgage

A conventional 97 mortgage is similar to a conventional loan in that it’s widely available to a variety of borrowers. The main difference is that with this type of loan, you only have to pay a 3% down payment.

The program is available for first-time and repeat homeowners. However, it must be your primary place of residence, and the maximum loan amount is $510,400.


  • Widely available to most borrowers
  • Only requires a 3% down payment
  • Available for first-time and repeat homebuyers


  • Cannot be used to purchase investment properties
  • The maximum loan amount is $510,400
  • Requires a minimum FICO score of 660 or higher

3. FHA Loans

FHA loans are backed by the Federal Housing Administration and are a popular option for first-time homebuyers. To qualify, you need to have a 3.5% down payment and a minimum credit score of 580.

If you have a credit score of 500 or higher, you can qualify for an FHA loan with a 10% down payment. These flexible requirements make FHA loans a good option for borrowers with bad credit.

To qualify for an FHA loan, you must have a debt-to-income ratio of 43% or less. These loans can’t be used to purchase investment properties, and your home must meet the FHA’s lending limits.

These limits vary by state, so you’ll need to check the FHA’s website to see what the guidelines are for your area.


  • Loans come with low down payment options
  • A good option for borrowers with bad credit
  • Available for first-time and repeat homeowners


  • Loans can’t be taken out for investment properties
  • If your credit score is below 580 a 10% down payment is required
  • You must have a debt-to-income ratio below 43%

4. FHA 203(k) Rehab Loans

An FHA 203(k) rehab loan is sometimes referred to as a renovation loan. It allows homeowners to finance the purchase of their home and any necessary renovations with a single loan.

Many people purchase older homes to fix them up. Instead of taking out a mortgage and then applying for a home renovation loan, you can accomplish both within a single mortgage.

A rehab loan is similar to an FHA loan in that you’ll need a 3.5% down payment. However, the credit requirements are stricter, and you’ll need a minimum credit score of 640 to qualify.


  • Allows you to buy a home and finance the remodel within one mortgage
  • Requires a minimum 3.5% down payment
  • Easier to qualify since the FHA backs your loan


  • Credit requirements are more stringent than typical FHA loans
  • You must hire approved contractors and cannot DIY the renovations
  • The closing process takes longer than other types of mortgages

5. VA Loans

The Department of Veteran Affairs guarantees VA loans. These loans are designed to make it easier for veterans and service members to qualify for affordable mortgages.

One of the biggest advantages of taking out a VA loan is that there’s no required down payment and no PMI. And there are no listed credit requirements, though the lender can set their own minimum credit requirements.

To qualify for a VA loan, you must either be active duty military, a veteran or honorably discharged. You’ll need to apply for your mortgage through an approved VA lender.


  • No down payment required
  • No PMI required
  • Flexible credit requirements


  • Must be a veteran to qualify
  • Some sellers will not want to deal with a VA loan

6. USDA Loans

A USDA loan is a type of mortgage that’s available for rural and suburban homebuyers. It’s a good option for borrowers that are having a hard time qualifying for a traditional mortgage.

USDA loans are backed by the U.S. Department of Agriculture, and they help low-income borrowers find housing in rural areas. There’s no down payment required, but you will need a minimum credit score of 640 to qualify.

You will need to meet the USDA’s eligibility requirements to qualify for the loan. But according to the department’s property eligibility map, over 95% of the U.S. is eligible.


  • No down payment required
  • A good option for low-income borrowers
  • Available to first-time and repeat homebuyers


  • A minimum credit score of 640 is required
  • Housing is limited to rural and suburban areas

7. Jumbo Loans

A jumbo loan is a mortgage that exceeds the financing guidelines laid out by the Federal Housing Finance Agency. These loans are unable to be purchased or guaranteed by Fannie Mae or Freddie Mac.

A jumbo loan is financing for luxury homes in competitive real estate markets, and the limits vary by state. In 2020, the FHFA raised the limits for a one-unit property to $510,400, which is an increase from $484,350 in 2019.

If you’re hoping to buy a home that costs more than $1 million, you’ll need to take out a super jumbo loan. These loans provide up to $3 million to purchase your home. Both jumbo and super jumbo loans can be difficult to qualify for and require excellent credit.


  • These loans make it possible to purchase large homes in expensive areas
  • Typically comes with flexible loan terms


  • Jumbo loans and super jumbo loans come with higher interest rates
  • You’ll need a good credit history to qualify

8. Adjustable Rate Mortgages (ARM)

Unlike fixed-rate loans, adjustable rate mortgages (ARM) come with interest rates that fluctuate from month to month. Your interest rate depends on the current market conditions.

When you first take out an ARM, you will typically start with a fixed rate for a set period of time. Once that introductory period is up, your interest rate will adjust on a monthly or annual basis.

An ARM can be a good option for some borrowers because your interest rate will likely be low for the first couple of years you own the home. But you need to be comfortable with a certain level of risk.

And if you choose to go this route, you should look for an ARM that caps the amount of interest you pay. That way, you won’t find yourself unable to afford your mortgage payments when the interest rates reset.


  • Interest rates will likely be low in the beginning
  • If you pay the loan off quickly, you could pay a lot less money in interest


  • Your monthly mortgage payments will fluctuate
  • Many borrowers have gotten into financial trouble after taking out an ARM

Bottom Line

As you can see, there are many different home loans for you to choose from. The type of mortgage that’s best for you will depend on your current income and financial situation.

If you’re not sure where to start, consider working with a qualified loan officer. They can assess your situation and recommend the option that will be best for you.

Jamie Johnson
Meet the author

Jamie Johnson is a freelance writer who has been featured in publications like InvestorPlace and GOBankingRates. She writes about a variety of personal finance topics including student loans, credit cards, investing, building credit, and more.