The Ultimate List of Every Home Loan

Ready to buy a home? Chances are, you’ll need financing, which means loan shopping! It may not be the kind of shopping you enjoy, but doing so can save you thousands of dollars. The good news is there are many home loan programs. But, that doesn’t make it easier to sort through them. Here’s a quick guide to outlining all the home loan products out there. That way, you can make an informed decision when it comes to financing your new home.

What is a Home Loan?

A home loan, also known as a mortgage, is a type of loan used to purchase real estate or property. It allows individuals and families to borrow money from a lender to buy a home. The borrower then pays back the loan, plus interest, over a set period of time.

How Do Home Loans Work?

When you take out a home loan, you borrow money from a lender to buy a home. This typically involves a down payment (usually around 20% of the total cost of the home), and monthly mortgage payments that include both principal (the amount you borrowed) and interest (what the lender charges for loaning you the money). The time it takes to pay off a home loan can be 15, 20, or 30 years.

Types of Home Loans

The market offers a variety of home mortgage products and types to meet the diverse needs of homeowners and buyers. Here are all your choices.

Conforming Loans

Conforming loans meet Fannie Mae and Freddie Mac’s criteria–primarily, the loan amount. They are ideal for borrowers with good credit scores and some down payment savings. On the positive, they usually have lower interest rates. Conforming loans do have a maximum borrowing limit that resets every year and is partially tied to geographical regions. All conforming loans are also conventional loans.

Nonconforming Loans

These loans do not meet the requirements of Fannie Mae and Freddie Mac. They are suitable for borrowers who may not qualify for a conforming loan due to higher loan amounts or creditworthiness.

VA Loans

Backed by the Department of Veterans Affairs, these loans are specifically for service members, veterans, and eligible surviving spouses. VA loans have the advantage of zero down payment and no private mortgage insurance (PMI). Their rates are also usually more generous than the going market rate. However, borrowers do pay a funding fee.

USDA Loans

The United States Department of Agriculture (USDA) provides these loans. They are aimed at helping rural home buyers. USDA loans offer no down payment options for those who qualify. Their scope is limited to specific geographical areas deemed as “rural” under their guidelines.

FHA Loans

Federal Housing Administration (FHA) loans are popular among first-time home buyers because of their lower down payment requirements and less stringent borrowing criteria. Some borrowers can make a down payment as low as 3.5%. However, any borrower putting down less than 20% will need to pay private mortgage insurance (PMI). Only FHA-approved lenders can provide FHA loans. 

Conventional Loans

These are mortgage loans not insured by any government agency (like the FHA or VA) and are the most common type of mortgage. They work best for buyers with stronger credit histories and stable income. While all conforming loans are conventional, not all conventional loans are conforming.

Non-recourse Loans

With non-recourse loans, the borrower is not personally liable if they default. The lender can seize the collateral but not seek further compensation, even if the property’s value doesn’t cover the loan balance. So if a borrower defaults on the mortgage and the bank forecloses, the bank can’t also go after other assets, like retirement funds, to recoup any losses on their part. Non-recourse loans are not common and may come with more stringent terms and interest rates.

Jumbo Loans

Properties that require loan amounts exceeding the conforming loan limits are called jumbo loans. These loans are ideal for buying high-priced homes or those in highly competitive markets. They usually have stricter credit requirements. For example, you must put 30% down and have an excellent debt-to-income ratio. These loans are not backed by Fannie Mac or Freddie Mac. For those reasons, the terms can have higher interest rates.

Adjustable-rate Mortgages (ARM)

ARMs start with a fixed interest rate for a temporary period, after which they fluctuate each year based on market trends. These mortgages are suitable for those expecting to move or refinance shortly. The adjustable period varies by loan.

Fixed-rate Mortgages

Fixed-rate mortgages offer stability and predictability. They have the same interest rate for the entire loan term. This shields borrowers from rising rates. They come in varying loan terms, but most often are 15 and 30 years.

Home Equity Loan

Do you have a desire to open a business, buy an investment property, or renovate your home but are short on cash? A home equity loan can help. It is sometimes called a second mortgage. This loan lets homeowners borrow against their home’s equity. They do so at a fixed interest rate for a set term.

Home Equity Line of Credit (HELOC)

Homeowners with ample equity can use it to achieve their goals. An alternative to the home equity loan, a home equity line of credit is revolving credit where your home serves as collateral. It’s useful for funding large expenses, such as home improvements or education over time. In this case, the repayments and interest rates are variable. The borrower can keep making withdrawals as long as they keep making payments on the HELOC.

FHA 203(k)

Are you interested in buying a home that needs a little love? The FHA 203(k) can help you out. This loan, also known as a Rehab Loan, funds the purchase and rehabilitation of a property under a single mortgage. It is perfect for buyers interested in purchasing homes that need repairs totaling up to $35,000.

Fannie Mae HomeStyle Loan

This loan is like the FHA 203K. It is broader, allowing for all renovations, even luxury and recreational ones. The program is a conventional mortgage.

Bridge Loans

Sometimes homebuyers have gaps between buying and selling their homes. Bridge loans are a short-term financing option. They “bridge the gap” between a new mortgage and selling their old home. It is useful for those needing to move quickly without selling their previous property.

Construction Loan

A construction loan provides funds for building a new home. Unlike traditional home loans that provide a lump sum to purchase a ready-to-move-into house, construction loans release funds in stages, known as “draws,” as the construction progresses. This type of loan is typically short-term and requires the borrower to only pay interest on the portion of the loan disbursed during the construction phase. The principal is due when construction finishes

Construction-to-Permanent Loans

Sometimes, the best way to find your dream home is to build it yourself. But how do you fund that? Construction-to-permanent loans combine the benefits of a construction loan and a more conventional mortgage. The lender funds the construction in installments as usual, and the loan converts to a permanent mortgage once home construction is finished. They appeal to individuals looking to build a custom home but don’t want to undergo two closings.

Reverse Mortgage

Reverse mortgages are available to homeowners 62 or older. They allow seniors to turn part of their home equity into cash while still living in the home. The note becomes due after the homeowner is no longer occupying that residence. That can be through transferring property ownership, moving to a long-term care facility, or passing.

Sorting Mortgage Types

By understanding each loan type’s nuances, you can pick the best option for you. Remember, the best home loan for you depends on your budget, goals, and the property you want to buy. Take the time to do thorough research or consult with a financial advisor to ensure that you find the right financing for your dream home.