Understanding Mortgage Options: Loan Types, Rates, and Assistance Programs

One of the most important steps of buying a home is choosing the right mortgage. In this Home Buying 101 series, we’re helping you break down the basic mortgage options for home buyers so you can navigate the process with confidence.
Today, we’re diving into mortgage options for first-time buyers—including loan types, interest rates, less common types of loans, and how down payment assistance programs can make homeownership more affordable!

Understanding the different loan types helps you choose the right option for your budget and goals:

Conventional Loans:

Conventional mortgages are a popular choice for buyers with strong credit profiles—typically a credit score of 620 or higher. These loans offer flexibility and can waive private mortgage insurance (PMI) if you make a down payment of 20% or more

Unlike government-backed loans (such as FHA or VA loans), conventional loans are funded by private lenders and often follow the guidelines set by Fannie Mae and Freddie Mac, two government-sponsored enterprises. Thanks to their competitive interest rates, flexible terms, and broad availability, conventional loans are the most commonly used option for both home purchases and refinances.

FHA Loans:

FHA loans, backed by the Federal Housing Administration, are an excellent option for first-time buyers and those with lower credit scores. With a minimum credit score requirement as low as 580 and a down payment of just 3.5%, they make homeownership more accessible to a wider range of buyers.

Unlike conventional loans, FHA mortgages are insured by the government and issued by FHA-approved lenders. They are specifically designed to support low- to moderate-income families in achieving homeownership. One important drawback to note: FHA loans require mortgage insurance (PMI) for the life of the loan, unless the buyer refinances into a conventional loan later.
Despite this, FHA loans remain a popular choice for first-time buyers who may not yet meet stricter lending standards

VA Loans:

VA loans are mortgage loans guaranteed by the U.S. Department of Veterans Affairs, designed to offer significant benefits to eligible veterans, active-duty service members, and surviving spouses. These loans are issued by private lenders but backed by the VA, allowing for standout advantages like no down payment and no private mortgage insurance (PMI).

Because the VA guarantees a portion of the loan, lenders are able to offer more favorable terms, including competitive interest rates and more flexible qualification standards. VA loans are a powerful tool for those who have served, making homeownership more affordable and accessible.

USDA Loans:

USDA loans are government-backed mortgages offered by the U.S. Department of Agriculture to help buyers in eligible rural and suburban areas achieve homeownership. These loans offer 100% financing — meaning no down payment is required — and come with low interest rates and reduced mortgage insurance costs compared to conventional loans.

To qualify, buyers must meet certain income limits and the property must be located in a designated USDA-eligible area. USDA loans are a great option for moderate- to low-income buyers looking for affordable paths to homeownership outside of major metropolitan areas.

Choosing the right rate type impacts your monthly payment stability:

While most buyers choose conventional, FHA, VA, or USDA loans, there are a few other mortgage options for home buyers that can fit specific needs:

🏡 Bridge Loans
A bridge loan is a short-term loan that helps homeowners “bridge” the gap between buying a new home and selling their current one. It allows you to access equity in your existing home for a down payment on the new one. These loans are typically higher interest and designed for quick repayment once your first home sells.

🏡 Hard Money Loans
Hard money loans are typically offered by private lenders rather than traditional banks. They are secured by the property itself and often used for investment properties or homes that require significant renovation. They have higher interest rates and fees but are faster and easier to qualify for. These are generally short term loans and can be great for “fix n flips”.

🏡 Portfolio Loans
Portfolio loans are kept in-house by the lender instead of being sold on the secondary market. Because of this, lenders can offer more flexible qualifying guidelines — ideal for borrowers with unique income situations or nontraditional properties.

🏡 Construction Loans
If you’re building a custom home, a construction loan provides short-term financing for the building process. Once construction is complete, the loan is often converted to a traditional mortgage.

Saving for a down payment can feel overwhelming, but there’s help available!

Even if you have limited savings, you may still qualify for help that makes buying your home possible sooner than you think!

Understanding the mortgage options for home buyers is critical to making the right decision. By knowing the basics about loan types, rates, and assistance programs, you’re one step closer to moving into your dream home!

Need personalized advice? I’m happy to connect you with trusted local lenders who can walk you through your options.