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Conventional Loans Explained The most common loan type — how conventional mortgages work and who qualifies. FHA vs Conventional Loans: A Complete Comparison A side-by-side comparison to help you decide which program fits your situation. How to Choose the Right Loan Program A structured approach to selecting the best loan program for your goals.

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Balloon Mortgages A balloon mortgage is a loan structured with relatively small periodic payments that do not fully amortize the principal, followed by a large lump-sum payment due at the end of a short initial term, typically five or seven years. Monthly payments are often calculated based on a 30-year amortization schedule, but the full remaining balance must be paid, refinanced, or resolved at maturity. Construction-to-Permanent Loans A construction-to-permanent loan is a single-close financing product that funds both the building of a new home and the long-term mortgage. During construction, the lender disburses funds in draws tied to build milestones while the borrower makes interest-only payments. Upon completion, the loan automatically converts to a standard permanent mortgage without a second closing, saving borrowers duplicate closing costs and eliminating requalification risk. Conventional Loans Explained A conventional loan is a mortgage that is not insured or guaranteed by a federal government agency. Conforming conventional loans meet the purchasing criteria of Fannie Mae and Freddie Mac, including adherence to loan limits, credit score minimums, and documentation standards. They offer flexible terms and competitive pricing for borrowers with solid credit profiles. Doctor/Physician Loans A doctor or physician loan is a specialized mortgage product designed for medical professionals, offering reduced or zero down payment requirements with no private mortgage insurance (PMI). These portfolio loans use favorable student loan debt-to-income calculations and accept employment contracts as income verification, addressing the unique financial profile of physicians early in their careers. Down Payment Requirements by Loan Type Down payment requirements range from 0% for VA and USDA loans to 3% for FHA and certain conventional programs, up to 10-30% for jumbo and non-QM products. The down payment amount directly affects mortgage insurance requirements, interest rate pricing, and monthly payment obligations. All down payment funds must be sourced and documented according to program-specific guidelines. FHA 203(h) Disaster Victim Loans The FHA 203(h) is a specialized Federal Housing Administration mortgage program exclusively available to victims of presidentially declared major disaster areas. It allows displaced homeowners and renters to purchase or rebuild a primary residence with no down payment and relaxed credit requirements, provided they apply within one year of the disaster declaration. FHA Loans Explained An FHA loan is a mortgage insured by the Federal Housing Administration that allows lenders to offer more flexible credit, income, and down payment requirements than conventional programs. The borrower pays a two-part mortgage insurance premium (1.75% upfront plus an annual premium) in exchange for access to lower down payments (3.5% with 580+ score), higher DTI allowances, and non-score-based insurance pricing. FHA vs Conventional Loans: A Complete Comparison FHA loans are government-insured mortgages with lower credit score and down payment thresholds but permanent mortgage insurance for most borrowers, while conventional loans conform to Fannie Mae/Freddie Mac guidelines with higher credit requirements but removable private mortgage insurance. The optimal choice depends on the borrower's credit score, down payment, how long they plan to hold the loan, and the property type. Fixed-Rate vs Adjustable-Rate Mortgages (ARM) A fixed-rate mortgage locks in the same interest rate for the entire loan term, providing payment certainty, while an adjustable-rate mortgage (ARM) offers a lower initial rate for a set period (typically 5, 7, or 10 years) before adjusting periodically based on a market index plus a fixed margin. The choice depends on the borrower's expected holding period, risk tolerance, and the current rate environment. How to Choose the Right Loan Program Choosing the right mortgage loan program requires evaluating a borrower's credit score, available down payment, military eligibility, property location and type, income documentation method, and expected hold period against the strengths and costs of each available program. No single program is universally best; the optimal choice depends on the borrower's specific financial profile and priorities. Interest-Only Mortgages An interest-only mortgage allows the borrower to pay only the interest on the loan for an initial period, typically 5 to 10 years. No principal is reduced during this phase. When the interest-only period ends, the loan converts to a fully amortizing schedule over the remaining term, resulting in significantly higher monthly payments. These loans are excluded from Qualified Mortgage status and are primarily offered through jumbo, portfolio, and non-QM lenders. Jumbo Loans Explained A jumbo loan is a mortgage that exceeds the conforming loan limits set by the FHFA, which means it cannot be purchased by Fannie Mae or Freddie Mac. Because lenders retain more risk on these loans, jumbo borrowers face higher credit score requirements (typically 700-720+), larger down payments (10-20%+), greater reserve requirements (6-12 months), and stricter debt-to-income limits compared to conforming loan programs. Loan Limits by County and Program Conforming loan limits, set annually by the FHFA, define the maximum loan amount Fannie Mae and Freddie Mac will purchase, with the 2025 baseline at $806,500 and a high-cost ceiling of $1,209,750 for single-unit properties . FHA, VA, and USDA each apply their own limit structures, and the applicable limit for a borrower's county directly affects which loan programs and pricing tiers are available. Non-QM Loans Explained Non-QM (non-qualified mortgage) loans are mortgage products that do not meet the CFPB's Qualified Mortgage criteria but still comply with the Ability-to-Repay rule. They use alternative income documentation methods such as bank statements, asset depletion, or property cash flow (DSCR) to serve borrowers whose legitimate financial profiles do not fit the standardized QM framework, including self-employed individuals, real estate investors, and foreign nationals. PMI and Mortgage Insurance Explained Private mortgage insurance (PMI) is required on conventional loans when the borrower puts less than 20% down, protecting the lender against default. FHA, VA, and USDA loans impose their own insurance or guarantee fees with different cost structures and cancellation rules. Understanding the differences in mortgage insurance across programs is critical for comparing true loan costs. USDA Loans Explained A USDA loan is a no-down-payment mortgage guaranteed by the USDA Rural Development program for moderate-income borrowers purchasing homes in eligible rural and suburban areas. The program features lower guarantee fees than FHA mortgage insurance, income limits set at 115% of the area median income, and credit requirements centered around a 640 score for automated underwriting approval. VA Loans Explained A VA loan is a mortgage guaranteed by the U.S. Department of Veterans Affairs, available to eligible veterans, active-duty service members, qualifying National Guard and Reserve members, and certain surviving spouses. The program offers no down payment, no private mortgage insurance, competitive rates, and flexible qualification standards. Borrowers pay a one-time VA funding fee (which is waived for disabled veterans).

Frequently Asked Questions

What is the difference between FHA and conventional loans?

FHA loans are government-insured with lower credit score requirements (580 minimum) and 3.5% down, but require mortgage insurance for the life of the loan. Conventional loans require higher scores (typically 620+) but allow PMI removal at 80% LTV.

What is a jumbo loan?

A jumbo loan exceeds the conforming loan limits set by the FHFA. In most areas the 2025 limit is $806,500 for a single-family home. Jumbo loans typically require higher credit scores, larger down payments, and more reserves.

Do VA loans require a down payment?

No. VA loans offer 100% financing with no down payment requirement for eligible veterans and active-duty service members. There is a VA funding fee that can be financed into the loan or waived for veterans with service-connected disabilities.

What is a non-QM loan?

Non-QM (non-qualified mortgage) loans do not meet the Consumer Financial Protection Bureau qualified mortgage standards. They serve borrowers who cannot qualify through traditional documentation, such as bank statement borrowers, foreign nationals, or investors using DSCR.

How do I know which loan program is right for me?

The best program depends on your credit score, down payment, property type, income documentation, and military service status. Comparing loan estimates from multiple lenders across different programs is the most effective way to identify the optimal choice.

Can I switch loan programs after I apply?

Yes, in most cases you can switch programs before closing, though it may require re-underwriting and could affect your timeline. Discuss options with your loan officer early in the process.

What are the current conforming loan limits?

For 2025, the conforming loan limit is $806,500 in most areas and up to $1,209,750 in high-cost areas. Limits are adjusted annually by the FHFA based on home price changes.