Smartfi: Types of Home Loans

For you to become a homeowner, you need to go through some phases, like figuring out the kind of home you want, among other things. If you need to take a home loan, then this is also one phase that is very important and should be thought of way before any other thing.

The process of getting a loan is quite easy but you still need to know what would suit you first before you begin the process. You can visit Smartfi to learn more about the process of getting a home loan. This is because there are several types of home loans and for you to make the right choice you have to know the options available to you.

Considering each type individually is the best way to weigh the options and make an informed choice. Below are 4 common types of home loans available to you.

Government-Insured Home Loan

While the United States government doesn’t lend mortgages, it has a part in ensuring more citizens become homeowners. 3 government agencies are used to achieve this:

1. Veteran Affairs

This agency provides members of the military (both veterans and those in active duty) and even their families with low-interest, flexible mortgages. There is usually no need for mortgage insurance or down payment here. Also, the closing costs are usually capped and the seller might be the one to pay them.

Lenders usually give relatively low rates on VA mortgages and some lenders do not mind accepting low credit scores.

2. Federal Housing Administration

With this type of mortgage, people without a big sum for down payment or perfect credit can become homeowners. The borrower would need to have a FICO score that is at least 580 for them to receive the maximum 96.5% FHA financing and a down payment of 3.5%.

Mortgage insurance is required to be settled upfront and another is to be paid yearly throughout the loan. This means 2 mortgage insurance are required and this can add to the total cost of the loan.

The person selling the home can also pay some part of the closing costs here.

3. U.S Department of Agriculture

This agency helps people who have low/moderate income to purchase houses in rural locations. However, the loan only applies to USDA eligible locations; you can visit to find out more about this. For a borrower to qualify for this mortgage, they need to meet a given income limit.

Sometimes, down payments aren’t required for borrowers that have low incomes. However, some extra fees alongside the annual fee and 1% of the full amount of the loan upfront fee are charged.

These loans are great for people with limited available cash for down payments or low credit scores as they typically may not be eligible for conventional loans.

Conventional Home Loan

Conventional home loans do not have any federal government backing. They typically come in two types:

1. Non-conforming

Loans that fall under this category usually don’t meet the standards of the Federal Housing Finance Agency (FHFA). Oftentimes, they are used for acquiring larger houses or offered to people that have subpar credit.

Some loans under this category are specifically made for people that have passed through some major financial misfortune like bankruptcy.

2. Conforming

As you can guess from the name loans under this category “conform” to the standards of FHFA. These standards range from different factors like your debt, credit, and mortgage size. Currently, the limit for conforming home loans is about 647,200 dollars in some areas and 970,800 dollars in more costly areas.

Either of the two types of conventional loans can be a suitable choice for anyone with a great credit score. The borrower should also able be capable of making a substantial down payment.

3. Fixed-rate

Fixed-rate home loans’ interest rates usually stay the same throughout the entire duration of the mortgage. This means that the monthly loan payment would remain the same throughout the mortgage.

Fixed mortgages come in either fifteen years or thirty years terms. However, some lenders can let borrowers choose a term from eight to thirty years.

4. Jumbo Loan

Loans under this category are suitably named as they are usually above the limits set by FHFA. These are more commonly given in more expensive locations like New York City, Hawaii, San Francisco, and Los Angeles.

Because the money being given is more, the lender’s risk is heightened. Hence, to qualify for this loan, the borrower would need to provide in-depth documentation.

This is typically the best choice for anyone that wants to finance an amount of money that is bigger than the current conforming limits. You can click here to learn more about the conforming limit for the year 2022.


Getting a loan is most likely among one of the phases involved in becoming a homeowner. However, there are several types of home loans, so it is important to consider the various types available before concluding on one. This article discusses 4 common mortgages to help you make an informed choice.