There is a wide variety when it comes to home loan options and how you can structure your mortgage. For the majority of people, however, there are four main types of home loans to become familiar with before deciding which financing route to choose for your home purchase.

The four main home loan types are: Conventional Loan, FHA Loan, VA Loan, and USDA Loan.

Which one is best for you? What are the pros and cons? Check them out below.

Conventional Home Loan

Conventional loans are the most popular home loan because there are fewer required fees and fewer rules to qualify. Unlike other loan types, they are not backed by the federal government. Fannie Mae and Freddie Mac usually buy and guarantee these loans. Conventional loans have a wider range of pay off periods, but typically have a 30-year or 15-year duration term.

PROS

The majority of home buyers are eligible
More options and flexibility with how the loan is structured
Higher loan limits
Limited restrictions on property type

CONS

Credit score has to be 620 or higher
Requires anywhere from a 3% to a 20% down payment
Higher interest rates

FHA Home Loan

Federal Housing Administration (FHA) loans have made homeownership in the United States more accessible by lowering the down payment amount and credit score requirements. For this reason, FHA loans are popular among first time home buyers. FHA loans are backed by the federal government through the Federal Housing Administration.

PROS

Many lenders only require a credit score of 500 or higher to qualify
Down payment can be as little as 3.5%
Potentially an option even if you have had a bankruptcy or other financial issue on record

CONS

Requires Mortgage Insurance Premiums (MIP) for the life of the loan
Lower limits on the amount you can borrow
Strict property standards and occupancy requirements

VA Loan (Our Favorite!)

Veterans Affairs (VA) Loans are exclusively for Active Duty and former military members and their families. You must have served in the U.S. military for 90 days of Active Duty during war time or 181 days during peace-time, or a widow of a military member that has not remarried. VA Loans are also backed by the federal government which helps lenders reduce risk and lower interest rates for borrowers.

PROS

No down payment required
No PMI premiums
Interest rates usually lower than other loan types
No fees for paying the loan off early
No minimum credit score requirement by the VA, many lenders will accept lower credit scores

CONS

Must meet VA loan requirements to be eligible
Requires a VA funding fee (this can be reduced via the down payment and even eliminated for certain borrowers)
Strict property standards and occupancy requirements

USDA Loan

Despite the name, U.S. Department of Agriculture (USDA) loans are not just for farmers. They are intended for rural development. You must meet income-eligibility, use the home as your primary residence, and be a U.S. citizen. Like FHA and VA, they are also backed by the federal government.