As a homebuyer, it can be overwhelming to determine which mortgage provides the best value, is within your reach and serves your long-term homeownership needs. Here, we’ve summarized the key features of 10 types of mortgage loans to help in your decision.
A conventional loan is any mortgage that’s not backed by the federal government. Conventional loans have higher minimum credit score requirements than other loan types — typically 620 — and are harder to qualify for than government-backed mortgages. Borrowers who make less than a 20% down payment are typically required to pay private mortgage insurance (PMI) on this type of mortgage loan.
The most common type of conventional mortgage is a conforming loan. It adheres to Fannie Mae and Freddie Mac guidelines and has loan limits, which often change annually to adjust for increases in home values. The 2023 conforming loan limit is $726,200 for a single-family home in most of the U.S.
Ideal for: Borrowers with a steady income and employment history, strong credit and at least a 3% down payment.
A fixed-rate mortgage is exactly what it sounds like: a home loan with a mortgage interest rate that stays the same for the entire loan term. The rate included on your closing disclosure is the same rate you’ll have for the length of your repayment term, unless you refinance your mortgage.
Two common fixed-rate options are 15- and 30-year mortgages. Unlike some other types of mortgage loans that have variable rates, fixed-rate loans offer more stability and predictability to help you better budget for housing costs.
An adjustable-rate mortgage (ARM) is a type of mortgage loan that has a variable interest rate. Instead of staying fixed, it fluctuates over the repayment term. One popular ARM option is the 5/1 ARM, which is considered a hybrid mortgage because it has both a fixed-rate period and a period where the rate adjusts on a recurring basis.
With a 5/1 ARM, the interest rate is fixed for an initial period of five years and then adjusts annually for the remainder of the loan term. ARMs usually start off with lower rates than fixed-rate loans but can go as high as five percentage points above the fixed rate when they adjust for the first time.
Ideal for: Borrowers who plan to move or refinance before the fixed-rate period on their loan ends.
A high-balance loan is another type of conventional loan. In a nutshell, it’s a loan with a balance that exceeds the standard conforming loan limit, but it is still considered to be conforming because it stays within the loan limit that the Federal Housing Finance Agency (FHFA) has set for localities it recognizes as high-cost areas.
The high-balance loan limit for single-family homes in 2023 is $1,089,300, which is 150% of the standard loan limit mentioned above.
Ideal for: Borrowers who want a conventional loan in an area where home prices are higher than average.
A jumbo mortgage is a larger conventional loan, typically used to buy a luxury home. Jumbo loan amounts exceed all conforming loan limits and often require a large down payment of at least 20%.
Jumbo loans differ from high-balance conforming loans in that jumbo loans don’t conform to the guidelines put in place by Fannie Mae and Freddie Mac. You may also qualify to borrow more with a jumbo loan than a high-balance loan — perhaps $1 million or more — if you’re eligible.
In recent years, jumbo mortgage rates haven’t been significantly higher or lower on average when compared with conforming conventional loans.
The Federal Housing Administration (FHA) backs these types of mortgage loans, which cater to borrowers with credit blemishes and limited down payment funds. You can qualify for an FHA loan with a 580 credit score and a minimum 3.5% down payment. If your score is between 500 and 579, you’ll need a 10% down payment. In 2022, the FHA loan limit in most U.S. counties is set at $420,680 for single-family homes. In high-cost areas, the FHA loan limit is $970,800.
FHA loans have mandatory mortgage insurance premiums. If you put down less than 10%, you’ll pay FHA mortgage insurance for the life of your loan — unless you refinance into a conventional loan after building at least 20% equity. Otherwise, you’ll only pay it for 11 years if you put down at least 10%.
Ideal for: Borrowers with lower credit scores and access to minimal savings for a down payment.
Military servicemembers, veterans and eligible spouses may qualify for a loan backed by the U.S. Department of Veterans Affairs (VA).
In the vast majority of cases, VA loans don’t require a down payment. While the VA doesn’t have a minimum credit score requirement, VA lenders may expect to see a minimum 620 credit score. Additionally, the VA no longer has loan limits for borrowers who have never used their VA loan benefits or have paid their existing VA loans in full.
The U.S. Department of Agriculture (USDA) insures USDA loans provided to low- and moderate-income buyers looking to purchase homes in designated rural areas. No down payment or mortgage insurance is required for these types of home loans, but there are income limitations.
Purchasing a home is an exciting milestone, but securing home financing can be complicated Different types of mortgages are available, each with their own eligibility guidelines, benefits, and drawbacks
In Virginia, some of the most common home loan programs include:
- Conventional loans
- FHA loans
- USDA loans
- VA loans
Understanding the key features and differences between these loan types will help you identify the best mortgage option for your needs as a Virginia homebuyer,
Conventional Loans
Conventional loans are a broad category of mortgages not backed by the government Some of the most popular are those offered by private lenders and the Virginia Housing Development Authority,
Eligibility
- Credit score requirements start around 620
- Lower down payments between 3-20%
- Must prove stable income and debt ratios
Benefits
- Qualify with lower credit scores than standard conventional loans
- Down payment assistance available
- Fixed and adjustable rates offered
Conventional mortgages offer more flexible qualifying guidelines than government programs. You’ll have multiple options through private lenders and Virginia Housing.
FHA Loans
FHA loans are government-insured mortgages backed by the Federal Housing Administration. Popular for first-time homebuyers.
Eligibility
- Minimum credit score of 580
- Down payments as low as 3.5%
- Must meet debt-to-income ratios
Benefits
- Low down payment requirements
- Allows gift funds for down payment
- More flexible credit standards
- Low mortgage insurance rates
FHA loans provide an affordable financing option if you have limited savings for a down payment. Credit scores as low as 580 may qualify.
USDA Loans
USDA loans help low-to-moderate income buyers in rural and suburban areas. No down payment required.
Eligibility
- No minimum credit score, but usually 600+
- No down payment required
- Income limits based on location
Benefits
- 100% financing available
- Low fixed interest rates
- Low upfront mortgage insurance
USDA loans offer exceptional affordability. If you’re purchasing in a rural area, be sure to explore this no down payment option.
VA Loans
VA loans help military service members, veterans, and surviving spouses finance home purchases.
Eligibility
- 620 minimum credit score
- No down payment required
- Service requirements must be met
Benefits
- 100% financing with no down payment
- No mortgage insurance required
- Lower interest rates
- Can be used more than once
VA loans give eligible buyers the ability to purchase with no money down and no mortgage insurance. Excellent terms for heroes who served our country.
Choosing the Right Loan
When selecting a mortgage, here are some key factors to consider:
- Down payment amount – Do you have 3-20% saved or need low/no down payment options?
- Credit score – Under 620 will limit choices. Over 740 gets the best rates.
- Location – Rural, suburban, or urban? Location determines available programs.
- Plans – How long will you stay in the home? Adjustable-rate mortgages favor short-term plans.
Setting a budget, reviewing your finances, researching loan programs, and talking to a lender will help identify the optimal loan type for your home purchase.
Compare Loan Options in Virginia
| Loan Type | Down Payment | Credit Score | Other Key Facts |
|---|---|---|---|
| Conventional | 3-20% | 620+ | Lower requirements through Virginia Housing programs |
| FHA | 3.5% | 580+ | Government-backed. Low down payment option |
| USDA | 0% | Typically 600+ | 100% financing for rural areas |
| VA | 0% | 620+ | No down payment or mortgage insurance for veterans |
This comparison shows the starting eligibility guidelines for key home loan programs in Virginia. Individual lender requirements may vary.
Down Payment Assistance Programs
Virginia offers down payment assistance (DPA) grant programs that help buyers cover the down payment:
-
Virginia Housing DPA Grant – 1% down payment grant for first-time buyers using Virginia Housing conventional, USDA, or VA loans. Up to $8,000 based on income limits.
-
Virginia Housing Plus Second Mortgage – 0% down payment second mortgage. Funds 1.5% above purchase price. For first-time and repeat buyers.
Low down payment options like these make getting into your first home more affordable.
Work With an Experienced Lender
The mortgage lender you choose is your guide through the entire home buying process. Be sure to select one experienced with the Virginia loan programs that best fit your financial situation.
Ask prospective lenders:
- Which types of loans do you offer?
- What are your credit score minimums for each program?
- Do you offer down payment assistance?
- How long is the pre-approval and closing process?
Finding the right lender-buyer pairing leads to a smooth mortgage experience from pre-approval to closing.
The Bottom Line
While mortgage options can seem overwhelming at first, understanding the different types of home loans in Virginia is key to choosing the right one for your needs and financial profile. Conventional, FHA, USDA, and VA programs all cater to different buyers through varied eligibility guidelines, benefits, and down payment offerings.
Doing your research, evaluating your budget and credit, and selecting an experienced lender will set you up to secure favorable home financing. Before you know it, you’ll be picking out paint swatches for your new Virginia home!
Buyers looking for a second home
Government-backed mortgage programs (FHA, VA and USDA loans) are reserved for homebuyers looking to finance the purchase of a primary residence, so you’ll need to zero in on conventional loans if you’re buying a vacation home. Remember: You’ll need to contribute at least a 10% down payment toward your second home purchase.
You can skip down payment and mortgage insurance requirements if you’re eligible for a VA loan. Military service members, surviving spouses and veterans may save thousands by choosing this loan type, plus there’s a cap on what you’ll pay out-of-pocket for closing costs.
Summary: What this means for you
If you’re buying a home for the first time and want a predictable principal and interest payment each month, focus on fixed-rate mortgage quotes while loan shopping. Additionally, if you have a few credit blemishes to work through and limited down payment funds, an FHA loan may work well for your financial situation.
Types of Mortgage Loans Explained | Buying a Home 101 | Conventional. FHA, VA Loans | Your Rich BFF
FAQ
What are the three types of mortgage loans?
How do I know if my mortgage is FHA or conventional?
What types of Home Loans are available?
Search all our content for answers to your questions. Or, speak to a lender and get personalized help. Learn about the different types of home loans, including conforming, FHA, VA, and USDA. See guidelines and find out which mortgage type is right for you.
Can you buy a home with a VA loan?
Because the home loans are government-backed, the VA has strict requirements on the type of home buyers can purchase with a VA loan: It must be your primary residence, and it must meet “minimum property requirements” (that is, no fixer-uppers allowed).
Are conventional home loans guaranteed in Virginia?
Unlike Virginia FHA, Virginia USDA, or VA loans in Virginia ⁵, conventional loans aren’t guaranteed or insured by the federal government. Instead, home buyers secure these loans through private entities like banks, credit unions, and mortgage companies. Are you considering a conventional home loan in Virginia?
What types of mortgages are available?
A variety of mortgage options exist, including conventional, fixed-rate and adjustable-rate mortgages, as well as government-backed and jumbo loans. The loan that will best suit your needs will depend on the type of mortgage applicant you are, whether you’re a first-time home buyer or you’re looking to downsize or refinance. 1.
What is a 3% down loan in Virginia?
A conventional loan with 3% down and no mortgage insurance. Offers government-backed loans (some with zero down payment) that can be combined with other Virginia Housing grants and loans. Required credit score varies by loan or grant program; lowest is 620. Haven’t owned and occupied a home in the past three years (except in certain areas).
Is a VA loan a good alternative to a conventional loan?
If you’ve served in the United States military, a Veterans Affairs or VA loan can be an excellent alternative to a conventional loan. If you qualify for a VA loan, you can score a sweet home with no down payment and no mortgage insurance requirements.