Loan programs

Loan types

Not every loan works the same way. Here's a quick reference for the major loan types, plus a couple of specialized options worth knowing about.

Conventional

Not government-backed — typically underwritten to Fannie Mae or Freddie Mac guidelines. Down payments can be as low as 3% for qualifying first-time buyers, though 5% is more common. If you put down less than 20%, you'll pay private mortgage insurance (PMI), which you can ask to remove once you've paid the loan down to 80% of the home's original value. Removing it based on appreciation is possible too, with stricter rules (see MIP & PMI). Can be used for a primary residence, second home, or investment property — the only loan type here with that flexibility.

FHA

Insured by the Federal Housing Administration, which makes lenders more willing to approve borrowers with lower credit scores or higher debt-to-income ratios. Down payments as low as 3.5% with a 580+ credit score. Requires mortgage insurance — a Mortgage Insurance Premium (MIP) — both an upfront premium and an ongoing annual one. Primary residence only, with narrow exceptions.

VA

Available to eligible veterans, active-duty service members, and certain surviving spouses. No down payment required in most cases, and no monthly mortgage insurance — instead, a one-time VA funding fee applies (waived entirely for borrowers with a qualifying VA disability rating). Primary residence only.

USDA

For eligible rural and some suburban areas, with household income limits based on your location and family size. No down payment required. Instead of monthly mortgage insurance, USDA loans carry an upfront guarantee fee plus a smaller annual fee. Primary residence only.

Non-QM loans

A Non-Qualified Mortgage (Non-QM) doesn't meet standard agency guidelines — but that's by design. These programs exist for borrowers who have the ability to repay but don't fit the traditional documentation box, like the self-employed or those with a recent credit event. Non-QM loans typically carry higher rates and larger down payment requirements (10-30%) and are not federally insured. Common types include:

• Bank Statement Loans: income is verified using 12-24 months of business bank statements instead of tax returns. Eligible deposits are business deposits, transfers, and checks — cash deposits, interest/dividend income, and deposits from outside normal business operations are excluded. Transfers between the business's own accounts may be eligible if documented with an explanation. A business expense ratio (roughly 15-50%, varying by whether it's a product or service business) is subtracted from total eligible deposits, then divided by the number of months in the statement period. The number of W-2 employees may affect the actual ratio used in underwriting — this is an estimate, not a guaranteed figure.
• Asset Depletion: qualifies borrowers using liquid assets rather than income — common for retirees or investors with significant wealth but limited active income. Total eligible assets are divided by a set number of months (this divisor varies by lender/program) to produce a monthly qualifying income figure.
• Recent Credit Event: for borrowers with a recent bankruptcy or foreclosure who haven't yet cleared the standard waiting periods (see the Credit section of this guide) but can otherwise demonstrate ability to repay.

The core difference between Bank Statement and Asset Depletion: one qualifies you on cash flow through an active business, the other on wealth already accumulated.

DSCR

A Non-QM loan type that qualifies the property, not your personal income — based on whether the rental income it generates covers its own mortgage payment (its Debt Service Coverage Ratio). Popular with real estate investors, especially self-employed borrowers or anyone whose personal income documentation doesn't tell the full financial picture.

Jumbo loans

A jumbo loan is simply financing above the conforming loan limit — the maximum amount Fannie Mae and Freddie Mac will back. For 2026, that's $832,750 in most counties, up to $1,249,125 in higher-cost areas. Anything borrowed above that threshold needs jumbo financing, which comes with its own underwriting rules since it can't be backed by those agencies.

The two-appraisal rule

On higher-value purchases, some lenders require two separate appraisals rather than one — most commonly triggered around a $1.5 million loan amount, though the exact threshold varies by lender and program.

First-time homebuyer

This term gets used constantly in mortgage marketing, but the official definition is broader — and more forgiving — than most people assume.

What actually counts as "first-time"

Under HUD's widely-adopted definition, a first-time homebuyer is anyone who hasn't held ownership in a principal residence during the 3-year period ending on the date of purchase — not someone who has literally never owned a home. If you owned a home 4+ years ago, sold it, and have been renting since, you qualify again as a first-time buyer for most programs.

A few additional situations also qualify under HUD's rule, even with more recent ownership history:

• A single parent who has only owned a home with a former spouse while married
• A displaced homemaker who has only owned a home with a spouse
• Someone who has only owned a manufactured home not permanently affixed to a foundation
• Someone who has only owned a property that didn't meet local building codes and couldn't be brought into compliance for less than the cost of building a permanent structure

Individual lenders and programs can apply their own definition, so it's worth confirming which standard applies to a specific incentive rather than assuming you don't qualify.

What's available to first-time buyers

• Lower down payment conventional programs — Fannie Mae HomeReady and Freddie Mac Home Possible both offer down payments as low as 3%, for buyers earning up to 80% of their area's median income. You don't have to be a first-time buyer to use them.
• Down payment assistance programs — thousands exist nationwide at the state, county, and city level, and many require first-time buyer status as a condition of eligibility (see Down payment assistance programs below for how these work)
• Mortgage Credit Certificates (MCCs) — a federal program administered through state housing finance agencies that lets qualifying buyers claim a portion of their mortgage interest as a direct dollar-for-dollar tax credit, not just a deduction
• IRA early withdrawal exception — up to $10,000 (lifetime limit) can be withdrawn from an IRA for a first home without the usual 10% early withdrawal penalty. From a traditional IRA, the withdrawal is still taxed as income. From a Roth IRA, your contributions always come out tax- and penalty-free, and up to $10,000 of earnings is also tax-free if the account has been open at least 5 years. The IRS uses its own definition of first-time buyer here: no ownership of a main home in the past 2 years, and the money must be used within 120 days.
• State and local property tax reductions — some states offer a temporary property tax exemption or reduction specifically for first-time buyers

Most down payment assistance and state programs also require completing a HUD-approved homebuyer education course before closing — this is a standard requirement, not a red flag.

Down payment assistance programs

Not a loan type on their own — these are programs that pair with the loan types above to help cover your down payment and, sometimes, closing costs. They generally take one of a few forms:

• Grants — money you never repay, sometimes with a short forgiveness period tied to on-time payments
• Forgivable second mortgages — a second loan that's fully forgiven if you stay in the home for a set number of years (commonly 5-10)
• Deferred ("silent") second mortgages — 0% interest, no monthly payment, but due in full when you sell, refinance, or move out
• Repayable second mortgages — a lower-interest loan you repay alongside your primary mortgage

Thousands of these programs exist, mostly run at the state, county, or city level — eligibility, dollar amounts, and terms vary widely depending on where you're buying. Most require income limits and a homebuyer education course, and not every program pairs with every loan type. Ask your loan officer what you may qualify for in your area.

Renovation loans

Buying a home that needs work? These loans finance the purchase and the repairs together.

Home rehab / renovation loans

If a home needs work — anything from cosmetic updates to major structural repairs — a renovation loan lets you finance the purchase (or refinance) and the repair costs together in a single loan, rather than juggling a mortgage and a separate contractor loan. The loan amount takes the planned improvements into account. On a purchase, it's generally based on the lower of the purchase price plus renovation costs, or the home's appraised value after the work is done.

FHA 203(k) — two versions

• Limited 203(k): for non-structural repairs and updates, capped at $75,000 in total renovation costs (raised from $35,000 in November 2024). A HUD consultant isn't required, though you can choose to use one.
• Standard (Full) 203(k): for structural work or any project over $75,000 — room additions, foundation repairs, moving walls. Requires a HUD-approved 203(k) consultant to oversee the project.

Both require the property to be your primary residence, 1-4 units, and follow standard FHA credit/down payment guidelines. Repair funds are held in escrow and released in draws as work is completed and inspected — similar to how a construction loan works.

Conventional alternatives

Fannie Mae's HomeStyle Renovation and Freddie Mac's CHOICERenovation work similarly, but as conventional loans — no permanent mortgage insurance the way FHA requires, and HomeStyle can be used on a primary residence, second home, or investment property, not just a primary home. Which program fits best depends on your credit profile, down payment, and the scope of the work — worth discussing directly with your loan officer.

MIP & PMI: when it goes away

Mortgage insurance protects your lender, not you — but whether and when it goes away depends entirely on which loan type you have. Here's how each one actually works.

Conventional — PMI (Private Mortgage Insurance)

Required when your down payment is under 20% (LTV above 80%) at the time you close. By law, it automatically terminates once your loan balance reaches 78% of the home's original value, based on your original amortization schedule — assuming you're current on payments, no request needed. You can also request removal earlier, in writing, once your balance reaches 80% of the home's original value — you'll need to be current, have a good payment history, and have no second mortgage. If your home has appreciated, Fannie Mae's rules require a new valuation showing your loan at 75% or less of the current value if you've had the loan 2 to 5 years, or 80% or less after 5 years. It's generally not available in the first 2 years unless you've made substantial improvements. Separately, PMI must terminate at the midpoint of your loan term regardless of LTV, if it hasn't already.

FHA — MIP (Mortgage Insurance Premium)

Two parts: an upfront premium (1.75% of the loan amount, financed in) and an ongoing annual premium paid monthly. Whether the annual premium ever goes away depends entirely on your original down payment:

• Less than 10% down: MIP lasts for the life of the loan. No amount of paying down your balance or home appreciation removes it — refinancing out of FHA is the only way to eliminate it.
• 10% or more down: MIP ends automatically after 11 years — no request or new appraisal needed.

One refinance nuance worth knowing: if you refinance from FHA into another FHA loan within 3 years, HUD credits a prorated portion of your original upfront MIP toward the new loan's upfront premium (the credit shrinks each month and disappears at the 3-year mark). This credit does not apply if you refinance into a conventional loan instead — but eliminating MIP entirely usually outweighs losing that partial credit.

VA — no ongoing mortgage insurance

VA loans never carry monthly mortgage insurance at all. Instead, there's a one-time VA funding fee due at closing (or financed into the loan). The rate depends on your down payment and whether it's your first time using VA benefits:

You don't pay the funding fee if you receive VA compensation for a service-connected disability, or are eligible for it but receive retirement or active-duty pay instead. Surviving spouses receiving Dependency and Indemnity Compensation, active-duty Purple Heart recipients, and service members with a pre-discharge disability rating issued before closing are also exempt. Since there's no recurring monthly cost here — just this one-time fee — there's nothing to "remove" later the way there is with FHA MIP or conventional PMI.

USDA — annual fee

USDA loans carry an upfront guarantee fee plus a smaller ongoing annual fee, both of which function similarly to mortgage insurance. Like FHA's life-of-loan scenario, this annual fee generally continues for as long as the loan is outstanding — refinancing into a conventional loan, once you have enough equity, is the way to eliminate it.

Does refinancing to eliminate it actually make sense?

Not automatically — it's worth running the real numbers before deciding. A refinance to remove MIP or the USDA annual fee generally makes the most sense when:

• You have, or are close to, 20% equity in the home
• Current interest rates make sense for a new loan — even if MI disappears, a meaningfully higher rate can offset or erase the savings
• The monthly savings from dropping MI will outweigh your refinance closing costs within a reasonable timeframe