There are seven common types of mortgages used to purchase a home: Regular Mortgages, Jumbo Mortgages, Federal Housing Administration (FHA), Department of Veterans Affairs (VA), United States Department of Agriculture (USDA), 203(k), and Non-Qualified Mortgages (Non-QM).
1. Traditional mortgage
Conventional mortgages are the most common type of mortgage. They are not guaranteed by a government agency and are funded by traditional banks, mortgage finance companies, and credit unions.
Conventional mortgages are often harder to qualify for than government mortgages such as FHA loans, but they usually cost less.
2. Jumbo mortgages
A jumbo mortgage is a loan that exceeds the loan limits set by the Federal Housing Finance Agency (FHFA). They are used to purchase larger properties and are often reserved for borrowers with strong financial standing and high credit scores. Jumbo loans also usually require a larger down payment.
The FHFA limit for 2024 is $766,550, meaning in many parts of the country you can use a jumbo loan to buy a home worth more than that. In more expensive areas, the FHFA limit rises to $1,149,825.
3. FHA Loans
FHA loans are insured by the Federal Housing Administration and issued by approved lenders. They are aimed at low-income homebuyers and those who don't qualify for a conventional loan.
The main advantage of an FHA loan is that it has less stringent qualification requirements than a conventional loan. Borrowers with a credit score of 580 or higher can qualify with a down payment as low as 3.5%. Those with a credit score as low as 500 can qualify if they can come up with a down payment of 10% or more. However, you will have to pay mortgage insurance premiums for 11 years or the entire life of the loan, depending on the amount of your down payment.
4. VA Loans
If you are an active-duty military member or veteran of the U.S. military (or your spouse), you may be eligible for a VA-insured mortgage.
As long as you remain fully eligible, there are no VA mortgage limitations, meaning you don't have to make a down payment. Anyone with remaining eligibility must follow the VA mortgage limitations.
The VA mortgage limit refers to the amount the VA will repay to the lender if you default on your loan payments. The VA does not limit the amount you can borrow to finance your home.
Like FHA loans, the VA does not issue these loans directly – they must go through an approved VA loan lender.
Related: What is a VA Loan?
5. USDA Loans
USDA loans are available to 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 do have to pay a one-time upfront guarantee fee and annual recurring fees to cover the loan costs.
Related: What is a USDA Loan?
6. 203(k) Loans
203(k) loans are insured by the FHA and are intended for people buying homes that need major renovations or repairs. A 203(k) loan covers the purchase of the home as well as any necessary renovations. You can't buy a vacation home or investment property with this type of loan.
7. Non-QM Loans
Non-qualified mortgages, or non-QM loans, are a type of mortgage aimed at self-employed buyers and those in special financial situations. These loans have more flexible credit and income requirements than qualified mortgages.