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A conventional mortgage is a home loan that is not insured or guaranteed by the government. Unlike FHA, VA, or USDA loans, conventional mortgages are provided by private lenders such as banks, credit unions, and mortgage companies.

Key features

• Down payment: typically 3% to 20%. Under 20% usually requires private mortgage insurance (PMI).
• Credit score: generally 620 or higher; a higher score improves your rate.
• Interest rates: fixed-rate or adjustable-rate (ARM), based on credit, down payment, and market.
• PMI: required under 20% down, and can be canceled once you reach 20% equity.
• Terms: 15-year and 30-year fixed are most common; ARMs also available.
• Flexibility: works for primary residences, second homes, and investment properties.

Benefits

For strong credit and a sizable down payment, conventional loans can offer lower rates and monthly payments than government-backed loans, with no upfront mortgage insurance premium and a wide variety of loan programs.

Considerations

Stricter qualification (higher credit and lower debt-to-income), PMI if you put less than 20% down, and rates that can be sensitive to market conditions.

An FHA mortgage is insured by the Federal Housing Administration (part of HUD). It's designed to help low-to-moderate-income borrowers who may have lower credit scores and less for a down payment.

Key features

• Lower down payment: as low as 3.5% of the purchase price.
• Flexible credit: scores as low as 580 for 3.5% down; 500-579 may qualify with 10% down.
• Mortgage insurance: an upfront MIP (financeable) plus a monthly annual MIP.
• Assumable: a buyer can take over your FHA loan, attractive when rates rise.
• Higher DTI allowed vs conventional, and set property standards (appraisal + inspection).

FHA loans are popular with first-time buyers but open to anyone who qualifies, and can be used for single-family homes, multifamily (up to four units), and certain condos and manufactured homes.

A VA mortgage, established by the U.S. Department of Veterans Affairs, helps veterans, active-duty service members, certain Guard and Reserve members, and eligible surviving spouses buy homes.

Key features and benefits

• No down payment: finance up to 100% of the home's value.
• No PMI: unlike conventional loans, saving you money every month.
• Competitive rates and more lenient credit thanks to the government guarantee.
• Assumable by another qualified veteran, plus a one-time funding fee (financeable).
• Streamlined refinance (IRRRL) to a lower rate with minimal paperwork.

Eligibility

Meet at least one service requirement (typically 90 consecutive days during wartime, 181 during peacetime, or six years in the Guard/Reserve), and obtain a Certificate of Eligibility (COE) from the VA. Surviving spouses may also qualify.

A USDA mortgage is backed by the U.S. Department of Agriculture's Rural Development program to help low- and moderate-income buyers purchase homes in eligible rural and suburban areas.

Key features

• No down payment: typically 100% financing.
• Income and location eligibility: based on household size and an eligible rural area.
• Competitive fixed rates with lower mortgage insurance than FHA.
• Credit flexibility and no set maximum loan amount (limited by your ability to repay and the appraisal).
• Primary residence requirement.

A jumbo mortgage exceeds the conforming loan limits set by the Federal Housing Finance Agency (FHFA). Limits are set annually and higher in expensive markets.

Key features

• Loan amount: above the conforming limit ($726,200 in most areas as of 2023, higher in high-cost areas).
• Eligibility: higher credit (often 700+), lower DTI, and substantial assets or reserves.
• Down payment: often 10-20% or more.
• Documentation: extensive financials; available as fixed or ARM.

Jumbo loans are often used for luxury homes or properties in competitive markets where prices exceed conforming limits.

A Debt Service Coverage Ratio (DSCR) mortgage is used by real estate investors for rental properties. DSCR measures the property's ability to cover its debt, comparing net operating income (NOI) to the loan's principal and interest.

How it works

• A DSCR of 1 means income just covers the debt; above 1 means the property earns more than needed, which lenders favor.
• Many lenders require a minimum DSCR, often around 1.25 to 1.35.
• Often non-recourse, and great for investors who may not have strong personal income but own income-producing property.
• May carry higher rates and require documentation of the property's income and expenses.

A bank statement mortgage is designed for self-employed borrowers or those with non-traditional income who may have trouble proving income with W-2s or tax returns. Lenders use your bank statements instead.

Key features

• Income verification: typically 12-24 months of personal or business bank statements to calculate average monthly income.
• Documentation: bank statements plus items like profit-and-loss statements or a CPA letter, instead of tax returns.
• Down payment: often 10-30%, with a good credit score usually required.
• Ideal for freelancers, contractors, and business owners with irregular income.