Buying a home is important. And, based on your location, it is also relatively expensive. But in most cases, you find yourself stuck and unable to access a mortgage loan to purchase your desired house.


However, there are different types of mortgage loans you can easily qualify for and have access to, even with a low credit score.


In this article, we’ll discuss different types of mortgage loans that you should know. This will help you make an informed decision whenever you need a mortgage loan.

Different Types of Mortgage Loans

Conventional Loan

Conventional loans are a mortgage loan type not backed by federal government mortgage agencies. If you have a good credit score. You can consider this loan option. There are two subtypes of conventional loans. These are:


  • Conforming, and
  • Non-Conforming 
Conforming Loan

Conforming loans follow a set of already established loan standards. These loan standards were set up by the FHFA( Federal Housing Finance Agent). These Standards cut across individual debit, credit, and loan limits.


So, if you want to take a conforming Loan in 2022, you cannot get more than $647,200 at once. This is the limit set by the FHFA. However, the limit set varies based on your location. The former limit mentioned is for residents of the US. But if you live in areas such as Hawaii, Alaska, Virgin Islands, the loan limit is higher. This is because the cost of living in these areas is generally higher. So, you can access up to $970,800 in conforming mortgage loans.


However, in order to access the conforming loan, you need to have a credit score up to 620, and your debt-to-income ratio must be within the 36%-50% range.

Fixed-Rate Mortgage

Non-Conforming Loans

Unlike conforming loans, these types of loans do not follow or conform to the FHFA standards. These loans are targeted at borrowers who want to buy more expensive homes.

Conventional Loan: Pros 

  • You can use the conventional loan to secure a property for investment. Or to purchase your primary or second home. 


  • Although the interest rate attached to taking a conventional loan is slightly higher, your total borrowing cost is often lower compared to other mortgage loans

Conventional loans: Cons

  • The minimum credit score required to obtain a conventional loan is 620 


  • You must have a debt-to-income ratio of not more than 43%-50%


  • You need to tender significant documents that can be used to verify your income, employment status, and your assets to access this loan. 

Jumbo Loan

If you need to purchase a home with a selling price higher than the conforming loan set by the FHFA, then the Jumbo loan is most likely your best choice.


Jumbo mortgage loans are not under the FHFA borrowing limits. This means you can access higher loans more than the stated $647,200 or $970,800 available under conventional loans.


If you are living in cities with a higher cost of living, like New York City, San Francisco, and Hawaii, Jumbo loans are your best mortgage loan option.



  • You have access to higher loan limits


  • If you live in high-end places, the Jumbo loan might be your only option to secure homeownership with the least mortgage interest.


  • In order to access this loan, you need to make a downpayment of at least 10-20%


  • Like the conventional loan, it requires a high FICO score of 700 or more to be eligible for this loan


  • Your debt-to-income ratio must not be above 45%


  • You need a higher documentation Verification to access this loan.


Government-Insured Loans



Do you have a lower credit score, and you are not eligible for either the conventional or Jumbo loan? Or you do not have enough documentation and cash reserve to secure a loan? Then, you should consider one of the Government-Insured loans.


However, the US Government does not issue loans. But, the Government makes homeownership loans more accessible to its citizens. In this regard, there are three government agencies established to support mortgages. So, if you default on your home loan, these agencies compensate your loan lender on your behalf. These agencies are:





FHA Backed Loans 

These types of mortgage loans often have a friendly interest. And if you have a credit score of about 580 or higher, you only need to have about 3.5% of your loan amount to get an FHA loan. However, if your credit score is lower than 580, which is between the range of 500-579, you’ll need to have up to 10% of your mortgage loan as a down payment.


Furthermore, you can access an FHA loan with a debt-to-income ratio of 43% or lower. And with an FHA mortgage, you do not have to pay for private mortgage insurance(PMI). 


However, you’ll pay for a different type of mortgage insurance. This costs lesser than PMI. You’ll only need to pay 1.75% of your mortgage at closing and an annual 0.45%-1.05% of your mortgage.



Generally, the USDA-backed loan is for low to middle-class income earners or families who want to buy a home located in a rural or suburban area. The income limit needed to qualify is lower than other loans mentioned above. However, the limit depends on your residence in the United States.


The most interesting thing about the USDA loan is that there’s no downpayment required to access a loan. In addition, it comes with lower interest rates. However, you’ll need a credit score of 640 and a debt-to-income ratio of 41% to access this loan.


Furthermore, you’ll need to pay for mortgage insurance. This cost lesser than the PMI as well. This is a breakdown of your insurance payment. You’ll pay 1% of your initial loan at closing and an annual 0.35% of your loan balance.

VA Loan

Backed by the US Department of Veterans Affairs, this loan is specifically for members of the military and their families only. Like the USDA loan, it requires no downpayment and has l ower interest rates. However, you’ll need a minimum credit score of 660 and a debt-to-income ratio of 41%.


In addition, the VA loan has a support program for military families. This is the VA Cash Out Refinance.

What is the VA Cash Out Refinance?

This program gives you access to cash out your loan and refinances in order to access a larger loan. That is, you can replace your current loan with a new one under different loan terms, i.e., longer loan terms and different interest. 


If you need help paying for an existing loan closing costs, you can opt for the refinance to access extra cash to pay these costs. However, there are certain VA Cash Out Refinance requirements to be met to access this loan.




While the Jumbo loan is the best if you are living in high-end cities, the USDA is a better option for low to middle-class people in rural or suburban areas (low-end areas). The VA cash-out refinance backed by the US DVA allows military families to access extra loan cash by refinancing.


By Swati