Every borrower’s situation is different, which is why I take the time to understand your goals and recommend the best loan product for you. Below are the most common types of purchase loans available.
Conventional Loans
Conventional loans are the most common type of mortgage and are not backed by the government. They typically offer competitive rates and flexible terms for qualified borrowers.
Key Features:
- Down Payment: As low as 3% for first-time buyers, typically 5-20%
- Credit Score: Generally 620 or higher
- Loan Limits: Up to $806,500 in most areas (2024 conforming loan limit)
- PMI: Required if down payment is less than 20%, but can be removed once you reach 20% equity
- Terms: 15-year or 30-year fixed rates, or adjustable-rate options
✓ Pros:
- Competitive interest rates
- PMI can be removed
- Flexible property types
- No upfront funding fee
✗ Cons:
- Stricter credit requirements
- PMI required under 20% down
- Higher down payment than government loans
Best For: Borrowers with good credit, stable income, and at least 3-5% down payment.
FHA Loans (Federal Housing Administration)
FHA loans are government-backed mortgages designed to help borrowers with lower credit scores or smaller down payments become homeowners.
Key Features:
- Down Payment: As low as 3.5% with a credit score of 580+
- Credit Score: Minimum 580 for 3.5% down, 500-579 requires 10% down
- Loan Limits: Varies by county, typically lower than conventional limits
- Mortgage Insurance: Required for the life of the loan (if less than 10% down)
- Terms: 15-year or 30-year fixed rates
✓ Pros:
- Low down payment requirement
- More lenient credit requirements
- Seller can pay closing costs
- Gift funds allowed for down payment
✗ Cons:
- Mortgage insurance for life of loan
- Upfront mortgage insurance premium
- Property must meet FHA standards
- Lower loan limits
Best For: First-time homebuyers, borrowers with lower credit scores, or those with limited funds for down payment.
VA Loans (Veterans Affairs)
VA loans are available to eligible veterans, active-duty service members, and surviving spouses. They offer exceptional benefits including no down payment and no mortgage insurance.
Key Features:
- Down Payment: $0 – no down payment required
- Credit Score: No official minimum (lenders typically want 620+)
- Loan Limits: No maximum in most cases
- Mortgage Insurance: None required
- Funding Fee: One-time fee (can be rolled into loan, waived for disabled veterans)
- Terms: 15-year or 30-year fixed rates
✓ Pros:
- No down payment required
- No monthly mortgage insurance
- Competitive interest rates
- Seller can pay closing costs
- Reusable benefit
✗ Cons:
- Only for eligible veterans/military
- VA funding fee required (unless exempt)
- Property must meet VA standards
- VA appraisal required
Best For: Eligible veterans, active-duty service members, National Guard/Reserve members, and surviving spouses.
USDA Loans (Rural Development)
USDA loans are designed for low-to-moderate income borrowers purchasing homes in eligible rural and suburban areas. They offer 100% financing with no down payment required.
Key Features:
- Down Payment: $0 – no down payment required
- Credit Score: Typically 640 minimum
- Location: Property must be in USDA-eligible rural area
- Income Limits: Household income must not exceed area limits
- Mortgage Insurance: Upfront and annual fees required
- Terms: 30-year fixed rate
✓ Pros:
- No down payment required
- Low mortgage insurance costs
- Competitive interest rates
- Flexible credit guidelines
✗ Cons:
- Location restrictions
- Income limits apply
- Longer processing times
- Property must be primary residence
Best For: Borrowers purchasing in eligible rural/suburban areas who meet income requirements and want zero down payment.
Jumbo Loans
Jumbo loans exceed conforming loan limits and are designed for purchasing high-value properties. They require stronger financial qualifications but offer financing for luxury homes.
Key Features:
- Loan Amount: Exceeds $806,500 (2024 conforming limit in most areas)
- Down Payment: Typically 10-20% or more
- Credit Score: Usually 700+ required
- Debt-to-Income: Typically 43% or lower
- Reserves: Lenders often require 6-12 months of reserves
- Terms: 15-year or 30-year fixed rates, or ARM options
✓ Pros:
- Finance expensive properties
- Competitive rates for qualified borrowers
- Flexible terms available
- No mortgage insurance with 20%+ down
✗ Cons:
- Stricter qualification requirements
- Higher down payment needed
- More documentation required
- May have higher interest rates
Best For: Borrowers with strong credit, substantial income, and significant assets purchasing high-value properties.
Fixed-Rate vs. Adjustable-Rate Mortgages
Within most loan types, you can choose between fixed-rate and adjustable-rate mortgages (ARMs).
Fixed-Rate Mortgage:
- Interest rate stays the same for the entire loan term
- Predictable monthly payments
- Available in 15-year, 20-year, or 30-year terms
- Best when rates are low or you plan to stay long-term
Adjustable-Rate Mortgage (ARM):
- Interest rate is fixed for an initial period (5, 7, or 10 years), then adjusts periodically
- Lower initial rate than fixed-rate mortgages
- Payment can increase or decrease after initial period
- Best if you plan to sell or refinance before adjustment period
First-Time Homebuyer Programs
If you’re buying your first home, you may qualify for special programs offering:
- Down payment assistance
- Closing cost grants
- Lower interest rates
- Reduced fees
- Homebuyer education courses
Ask me about first-time homebuyer programs available in your area!
Which Loan Type is Right for You?
Choosing the right purchase loan depends on several factors:
- Your Credit Score: Higher scores open up more options with better rates
- Down Payment: How much can you put down upfront?
- Income & Employment: Stable income helps you qualify for better terms
- Property Type: Primary residence, investment, or vacation home?
- Location: Some programs have location restrictions
- Military Service: Veterans have access to excellent VA loan benefits
- Long-term Plans: How long do you plan to own the home?
How to Get Started
Ready to explore your purchase loan options? Here’s what to do next:
- Get Pre-Qualified: Find out how much you can afford
- Compare Options: I’ll help you understand which loan types fit your situation
- Gather Documents: Prepare financial documentation
- Start Shopping: Begin looking at homes within your budget
- Get Pre-Approved: Strengthen your offer with a pre-approval letter
Common Questions About Purchase Loans
Can I buy a home with less than perfect credit?
Yes! FHA loans accept credit scores as low as 580, and some programs go even lower. I can help you find options that work for your credit situation.
How much do I need for a down payment?
It depends on the loan type. VA and USDA loans require $0 down, FHA loans require 3.5%, and conventional loans can go as low as 3% for first-time buyers.
What’s the difference between pre-qualification and pre-approval?
Pre-qualification is a quick estimate, while pre-approval involves document verification and credit checks, giving you a stronger position when making offers.
Can I use gift money for my down payment?
Yes! Most loan programs allow gift funds from family members for down payment and closing costs. Proper documentation is required.
How long does it take to get approved?
Pre-approval typically takes 1-3 days. Full approval and closing usually take 30-45 days from application.
What closing costs should I expect?
Closing costs typically range from 2-5% of the purchase price and include appraisal, title insurance, origination fees, and other costs. Some can be paid by the seller or rolled into the loan.
Let’s Find Your Perfect Loan
Every borrower’s situation is unique. I’ll take the time to understand your goals and recommend the best loan option for your needs. Contact me today for a personalized consultation.
Phone: 480-330-1724
Email: todd@todduzzell.com
NMLS #: 1525192