Loan Types and Programs

loan types

There are an infinite number of loan types out there, and lenders are constantly coming up with creative ways to wrangle in new homeowners. The type of home loan you choose can make or break you as a borrower, so make sure you fully understand it before making any kind of commitment.

These days you’ll probably come across ridiculous loan programs that seemingly allow anyone to qualify for a home loan. There are 1% start rate loans, often referred to as neg-ams or pick-a-payment programs, and 40-yr and 50-yr loans that stretch the mortgage payment out over what seems like a lifetime.

Most prospective homeowners these days seem to be interested in 100% financing, generally because they have don’t have the assets necessary for a down payment. Unfortunately, the proliferation of these types of home loan programs have increased the number of high-risk borrowers in the United States at an alarming rate.

That may explain the surge in mortgage defaults and foreclosures over the past several years.

But if you take the time to educate yourself on the many home loan types out there, you’ll effectively decrease your chances of defaulting on your mortgage. That said, let’s talk about the many different loan types and programs available today.

Before getting into specific loan programs, I want to highlight the types of loans available to potential homeowners.

Conforming Loans and Non-Conforming Loans

One way home loans are differentiated is by their GSE eligibility.  If the loan meets requirements set forth by Fannie Mae and Freddie Mac, it is considered a conforming loan. If the loan doesn’s meet all the underwriting requirements set forth by the pair of GSEs, it is considered “non-conforming.”

One of the main guidelines that determines whether a mortgage is conforming or not is loan amount.  Generally, a mortgage with a loan amount below $417,000 is considered conforming, whereas any loan amount above $417,000 is considered a “jumbo loan.” However, in Alaska and Hawaii the confirming limit is $625,500.Note that the conforming limit may change annually, and has risen quite a bit in the past few years as housing prices skyrocketed.

A jumbo loan may meet all of Fannie Mae and Freddie Mac’s loan underwriting guidelines, but if the loan amount exceeds the conforming limit, it will be considered non-conforming and carry a higher mortgage rate as a result.

If your loan amount is on the fringe of the conforming limit, sometimes simply dropping your loan amount a few thousand dollars can lower your mortgage rate tremendously, so keep this in mind anytime your loan amount is near the limit.

Conventional Loans and Government Loans

Mortgages are also classified as either “conventional loans” or “government loans.” Conventional loans can be conforming or jumbo, but are not insured or guaranteed by the government.

Then there are government loans, such as the widely popular FHA loan. This type of mortgage is backed by the Federal Housing Administration (FHA). Another common government loan is the VA loan, backed by the Department of Veteran Affairs. The max loan amount for these types of loans varies by county. There’s even a USDA home loan backed by the same folks that grade steaks!

Now that you know a bit about different home loan types, we can focus on home loan programs. As I mentioned earlier, there are a ton of different loan programs out there, and more seem to surface everyday. Let’s start with the most basic of loan programs, the 30-year fixed-rate loan.

Loan Programs

The 30-year fixed loan is as simple as they come. Most mortgages are based on a 30-year amortization, and the 30-year fixed is no different.

The 30-year fixed loan is just how it sounds, a loan with a 30-year term that is fixed for 30 years. What this is means is that the loan will take 30 years to pay off, and the rate will stay fixed during those entire 30 years. There isn’t much else to it.

Let’s say you secure a rate of 6.5% on a 30-year fixed loan with a loan amount of $500,000. You’ll have monthly mortgage payments of $3160.34 for a total of 360 months, or 30 years. You will be required to pay the same amount each month until the loan is paid off. So the total amount you would pay on a $500,000 loan at 6.5% over 30 years would be $1,137,722.40.

Monthly Payment: $3,160.34
Total Interest Paid over Life of Loan: $637,722.44
Interest Paid in 2006: $32,335.45
Interest Paid in 2007: $31,961.17
Average Monthly Interest Paid over Life of Loan: $1,771.45

You will also need to pay taxes and insurance on top of this mortgage payment, so keep that in mind when figuring out how much house you can afford.

This sounds steep, but most people don’t stay in a 30-year loan for 30 years. They either pay it down quicker by making higher monthly payments (biweekly mortgage payments), or they may sell or refinance the loan.

Another common and simple to understand loan is the 15-year fixed loan. This works exactly like the 30-year loan except the same fixed payment is made in half the time, 180 months or 15 years. Obviously the payment will be much higher, but you will pay less interest and gain more home equity in a shorter amount of time. People who have an ample amount of income usually prefer this type of loan to reduce the overall cost of financing a mortgage.

This is how it breaks down:

Monthly Payment: $4,355.54
Total Interest Paid over Life of Loan: $283,996.63
Interest Paid in 2006: $31,900.36
Interest Paid in 2007: $30,536.41
Average Monthly Interest Paid over Life of Loan: $1,577.76

The monthly payment is significantly higher, but the amount of total interest paid over the life of the loan is much less. Because you’re putting more money towards the equity of the home, you paying less interest each month, which you’ll see as the $1.577.76 figure as compared to the $1,771.45 you’d pay on a 30yr fixed loan. That’s nearly $200 a month that you would save in interest charges by electing to take a 15-year fixed mortgage.

Although the monthly payment is markedly higher than the 30 year fixed mortgage, the total interest paid during the 15 year loan is substantially lower. It may seem like the obvious choice, but it’s more complicated if you factor in tax deductions and the power of leverage. Not to mention if you can afford a monthly mortgage payment that high.

Learn about other types of mortgage programs including:

1031 exchange
Adjustable-rate mortgages
Alt-A mortgages
Bridge loans
Hard money loans
Home equity lines of credit
Interest-only home loans
Islamic mortgages
No cost loans
No documentation loans
Option arm mortgages
Reverse mortgages
Second mortgages
Stated income mortgages


  1. Carol August 26, 2015 at 6:45 am -

    Good morning, I purchased my home in 2006 in the height of the market and overpaid for my property. I recently wanted to sell my home and it turns out I still owe more than it’s worth. is there anything I can do to lower my interest rate. I do not and will not refinance at this time, since I have been in there for 9 years and want to sell it in a few years. This harp program is so unfair to a homeowner like me, as I meet the criteria for everything except my loan is not through fannie or Freddie mac. Thanks.

  2. Colin Robertson August 26, 2015 at 9:18 am -


    If your loan isn’t owned by Fannie/Freddie you could inquire with your servicer about their proprietary loan modification program.

  3. Kayla September 21, 2015 at 8:32 am -

    Hello. My husband and I are a young family looking to buy our first home since we recently had our first child. I was wondering if you could maybe suggest some good loans I could look into to help us with this process. My husband is our main source of income and I work here and there but mainly stay home with the baby. I feel like every time we’ve looked at a mortgage we haven’t been able to find something that can help us. Any suggestions would be extremely appreciated. Thank you.

  4. Colin Robertson September 22, 2015 at 12:38 pm -


    If your husband has good credit a conventional loan will probably be cheaper than an FHA loan. Also, if you can put down 20% you can avoid mortgage insurance, which can be quite costly. It’s a pretty broad question and also dependent on what you guys are looking for, such as fixed vs. variable rate, and so on. Best to do some research as to why you haven’t found something in the past to determine what you can do going forward to get approved. Good luck!

  5. Evelyn November 5, 2015 at 2:50 pm -

    Hello, my fiancé and I are looking into buying our first property, we currently live in an apartment that is going up for sale as a condo, we love this property and location its listed at 292k and we pay 1285 in rent which we have found it just about max in what we can afford with all bills plus the 1285. with credit scores in the high 600 and mid 700 is there a loan we can find that we could afford? Thank you!

  6. Colin Robertson November 9, 2015 at 3:44 pm -


    You may want to get pre-approved with a bank/broker to see what you can afford based on all your attributes, such as credit scores, income, assets, and so forth. They’ll be able to give you more exact estimates based on those figures.

  7. Carrie Guadarrama January 13, 2016 at 8:24 am -

    Hi Colin,
    We are first time home buyers and have already found a house that is bank owned. I have been in contact with one lender but how do I know I am getting an honest, good deal? I know there are a lot of different mortgages, how do I know what is best for us? We do not have a lot of money to put down and we have over a 640 credit score.


  8. Colin Robertson January 13, 2016 at 11:40 am -


    You can empower yourself by learning more about mortgages on sites like mine and elsewhere. You can also look at comparable properties on sites like Redfin/Zillow to see what they sell for to ensure you’re not overpaying.

  9. Liza April 26, 2016 at 11:32 am -

    Hello there,

    I am recently divorced and am looking to refinance my home. I’d like to avoid paying a PMI if possible. What types of loans can I get to accomplish this other than a VA loan since I’m not a veteran. I purchased my first home over 14yrs ago with a baloon loan, I do understand how this loan works and am not afaid to get another one if this still exists?

    Thank you,

  10. Colin Robertson April 28, 2016 at 3:10 pm -


    To avoid PMI you either put down 20% or you go with a loan that builds PMI into the rate…in other words, slightly higher rate in exchange for no PMI. But the lowest cost option is generally to put 20% down to truly avoid PMI.

  11. Hannah rupp June 8, 2016 at 7:02 pm -

    My boyfriend and I are buying our first home. You always see on the home improvement shows where they have say a $200,000 pre-approval and they buy a house for $100,000. Then they use the rest to fix up the house. Is there a certain score you need or a certain program we could look into? We will be getting a fixer since the area we want to stay in is college town and expensive for anything even slightly nice. Thanks!

  12. Colin Robertson June 9, 2016 at 10:03 am -


    There are loans, such as the FHA’s 203k loan, which allow home buyers to finance the purchase and renovation costs in one shot.

  13. Tricia June 17, 2017 at 1:31 pm -

    Hi. My husband is disabled. He is on disability. He has a bad heart and also cancer. He has a good credit score of 710, I on the other hand have a credit score that is 550 and should be getting better cause I paid some things off. I am a Senior Caregiver. We have as a household about 3k a month. We live in MS. We are trying to get a home, but don’t have any money for a down payment. We bought a factory defective mobile home and that took our savings. We do have a car note that is around 556 a month, but that’s all. Help we need a house quickly. The bank says we are approved for a USDA loan, if the seller agrees to pay the closing. Is that right? We really need advice bad!

  14. Colin Robertson June 19, 2017 at 9:54 pm -


    A USDA loan does allow for zero down payment and if the monthly payment is low enough, you might be eligible with your income. They are geared toward properties in rural areas, which might include the area in MS where you want to buy. Good luck!

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