Home loans: What are the differences and which one is right for me?

( NewsNation ) — Buying a house can feel overwhelming, and that includes finding a home loan that’s right for you and your family.

Separated by size and whether they’re part of a special government program, the kind of loan you receive informs its cost and how much money you’ll need for a down payment. Loan types may also dictate how much you’re allowed to borrow, meaning they could be a major factor in setting a price range while you browse the market.

Here’s a breakdown of common loan types and what they may mean for you.

Conventional home loans

These represent the majority of loans. Although they usually cost less than some other types of loans, they can also be harder to get.

There are two types of conventional loans: Conforming and nonconforming.

Conventional conforming loans are the most common. The loan amount must be $766,550 or less in most counties. It can also be as much as $1,149,825 in higher-cost areas, according to the Consumer Financial Protection Bureau (CFPB).

You’ll likely need mortgage insurance if you put down less than 20%.

A conforming jumbo loan applies to loans above $766,550. They’re only available in some areas, and the maximum loan amount varies by county.

Nonconforming loans are less uniform and often differ by lender.

Jumbo nonconforming loans up to $2 million usually require good credit and a high down payment.

Nonconforming loans also encompass loans of any size that don’t fall into another category. Sometimes intended for borrowers with poor credit, they tend to have high rates and may only allow you to pay toward interest.

The CFPB recommends borrowers eyeing nonconforming loans compare multiple offers and look into niche programs for people with unusual circumstances.

Government home loans

Government loans include Federal Housing Administration (FHA) loans and loans through the U.S. Department of Veterans Affairs (VA loans) or the U.S. Department of Agriculture (USDA or rural development loans).

FHA loans are regulated and insured by the FHA but offered through private lenders.

They allow for down payments as low as 3.5% and tend to be more open to borrowers with lower credit scores than most conventional loans. For that reason, FHA loans tend to be the most affordable option for people with lower credit scores and a small down payment, although maximum amounts will vary by county .

On the other hand, borrowers with good credit and a 10 to 15% down payment often pay more with an FHA loan than a conventional loan, according to the CFPB .

VA loans are available to veterans, service members and surviving spouses. The loans are provided by private lenders and backed by the federal government. They tend to have lower rates than conventional mortgages and don’t require a down payment or private mortgage insurance.

Although they don’t require monthly mortgage insurance premiums, they tend to mandate an upfront fee at closing, according to the CFPB.

Like FHA loans, VA loans are often more expensive for people with good credit and funds for a large down payment.

Government data shows the total number of VA-backed purchase loans fell by more than 20% last fiscal year — a sign that rising mortgage rates hit veterans hard despite their access to better loan terms.

USDA loans are similarly designed with lower-income borrowers in rural areas in mind. They’re often more affordable than FHA loans, however, since they don’t require down payments. Still, borrowers may be subjected to an upfront fee and ongoing mortgage insurance premiums to the USDA, according to the CFPB.

Special program home loans

Special program loans are available through state or local housing agencies and special-purpose credit programs.

State and local special program loans usually — but not exclusively — cater to low- to middle-income first-time homebuyers or public service workers.

Loans through special-purpose credit programs also service low- to middle-income borrowers but tend to focus on people looking to buy a house in a specific community.

You can explore the programs in your area using this CFPB tool.

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