22 Mortgage Programs to Buy or Refinance a Home

There are many mortgage programs to assist borrowers and homeowners in obtaining an affordable home loan.

Mortgages come in many different types, and it’s important to understand how they work before you settle on one. 

If you are searching for assistance, it is important that you understand the different programs and qualifying factors.

Below you will find a list of 22 different mortgages that are currently available along with a short description of the features of the loan. 

Conventional Mortgage

The term “conforming loan” generally refers to a conventional mortgage loan that adheres to the guidelines set by Freddie Mac. There are two types of conventional loans: conforming and non-conforming loans. 

A conventional mortgage is a home loan that isn’t guaranteed or insured by the federal government. They require higher credit score minimums and down payments than most government-backed loans, though they offer some flexibilities such as lower out-of-pocket costs and less stringent qualifying standards.

It may have either a fixed or adjustable rate. Your mortgage interest rate is directly tied to your FICO credit score; the higher your score, the lower your rate, and the lower your score, the higher your rate.

The maximum loan amount for a conforming loan varies from county to county, although it’s usually $484,350 or less.

Conventional Fixed Rate Mortgages

While the initial rate on a fixed-rate mortgage might be slightly higher than an FHA or VA loan, it won’t change over the life of your loan. And since it’s not insured by the federal government, you won’t pay any mortgage insurance premiums.

Fixed-rate mortgages have a set interest rate for the entire term of the loan, usually 15 or 30 years.

The advantage of a fixed-rate mortgage is that you know exactly what your monthly payment will be for the entire term of the mortgage. Monthly payments won’t change.

The disadvantage of fixed-rate mortgages is that if interest rates have dropped significantly since you got your mortgage, you could be paying a higher rate than current borrowers. In that case, you could refinance to take advantage of lower rates — but it could take several years to recoup closing costs with a savings in monthly payments.

Federal Housing Administration (FHA) loans

These loans are guaranteed by the Federal Housing Administration, which reduces risk for lenders. That allows lenders to offer more lenient qualification standards.

FHA requirements are generally flexible and lenders may look into compensating factors for borrowers who have less than perfect credit scores and/or past credit issues.

In general, borrowers must have a stable income and employment history to qualify for the loan amount, proof of U.S. citizenship, a minimum down payment, and purchasing a property for primary use – investment homes are generally not allowed.

FHA loans are also extremely popular among first-time home buyers and are much easier loans to secure than regular conventional mortgages. 

Because FHA loans are backed by the government, borrowers must pay an upfront mortgage insurance premium (MIP) that’s 1.75% of the loan amount and an annual premium — 1.35% for a 15-year loan and 1.30% for a 30-year loan.

Read more about FHA loans at this link.

U.S. Department of Agriculture (USDA) and Rural Housing Service (RHS) loans

Department of Agriculture Rural Development Loans USDA loans were created to encourage development in rural areas, so they’re available in any area with a population under 35,000. So if you’re looking to buy a house in the suburbs of an urban metropolis, you might be out of luck. But if you’re buying or building your home in an area that lies outside most cities and outside densely.

Any individual who plans on living in an eligible rural area as their primary residence may apply for a USDA Rural Development loan. However, the prospective buyer must be able to provide income verification and a credit history that shows their ability to repay the debt. This loan must also be used to finance a primary residence. Individuals who own another home cannot qualify for this type of assistance.

There are quite a few benefits that come along with this loan including no down payments at closing and mortgage insurance will not be required, allowing borrowers with less than perfect credit to qualify.

This means that a qualified borrower may be able to finance up to 100% of the property’s appraised value. The USDA loan does not have a limit for the maximum purchase price and home repairs may even be included in the loan. If you are looking to purchase a home that needs repairs, the USDA loan may allow you to include the repair costs in the mortgage.

U.S. Department of Veterans Affairs (VA) loans

A VA home loan is guaranteed by the Department of Veterans Affairs and is offered to US military veterans. This type of loan may also be provided to widows or widowers who were spouses of veterans and active military personnel. However, if they are remarried then they may not qualify for this loan.

VA loans offer similar benefits to FHA loans, including no down payment and more lenient credit score requirements than conventional mortgages (typically 620 or higher). 

This is one of the few remaining loans that are provided without a down payment and mortgage insurance. Normally, the borrower will have to pay for mortgage insurance if the down payment is less than 20 percent of the selling price.

The veteran will have to pay an additional amount known as the VA funding fee, which is 2.15 percent of the loan amount, if it is his first time getting a loan. He will not be required to pay this amount out of his pocket because it will just be added to the loan amount.

Adjustable-rate mortgage (ARM)

An adjustable-rate mortgage (ARM) is a loan in which the interest rate may change periodically, usually based upon a pre-determined index. An ARM loan may include an initial fixed-rate period that is typically 3, 5 or 10 years.

The interest rate then may change (adjust) each year thereafter once the initial fixed period ends. For example, with a 5/1 ARM loan for a 30-year term, your interest rate would be fixed for the initial 5 years and could fluctuate up or down each subsequent year for the next 25 years.

Once the initial fixed-period is completed, a lender will apply a new rate based on the index – the new benchmark interest rate – plus a set margin amount, to calculate the new rate.

ARMs are often a good choice for homeowners who plan to sell their house or refinance before the initial fixed-rate period ends.

When you apply for an ARM, it’s important to know what index and margin your lender will use and to understand how these factors will affect your monthly payment (and the total cost of your loan). If you don’t understand what’s in your ARM, ask questions and read the paperwork carefully before you sign anything!

Interest-Only Mortgage

Mortgage payments are generally made up of two parts: principal and interest. The principal is the amount you borrow, and the interest rate is a percentage of the amount borrowed that you pay back to the lender. In most cases, mortgage payments are calculated with equal monthly payments that include both the principal amount and interest.

However, if you choose an interest-only mortgage loan, your monthly payment will only cover the interest on your loan for a fixed period of time. After that period ends, your monthly payment will increase to begin paying off some of the principal amount you borrowed.

The interest-only period typically lasts for 5-10 years and the total loan term is 30 years.

 An interest-only mortgage is like a 30-year, fixed-rate mortgage with one big exception: For the first 5-10 years of the loan, you pay only interest each month on the amount you borrowed, without paying down any of the principal. After your initial 5-10-year period ends, your monthly payments increase because you have to start paying off the principal on the loan.

The lower monthly payments during the interest-only period may allow you to qualify for a larger mortgage amount than you could have with a traditional loan that requires both principal and interest payments during the entire term of your mortgage. However, in most cases, lenders don’t allow borrowers to borrow more than 80% of their home’s value on an interest-only mortgage.

Refinance Rate and Term

A rate and term refinance loan is the easiest type of refinance loan to understand. It’s also one of the most popular. It can help you get a better interest rate or change the term of your mortgage. For example, you might want to shorten the length of your 30-year mortgage by refinancing into a 20-year loan. Or you might want to reduce your monthly payments by getting a lower interest rate on your mortgage.

Rate and term refinances are also known as “no cash out” loans because you aren’t borrowing more money than you have left on your existing mortgage. So unlike with other types of refinancing, you won’t need an appraisal or credit check in order to get approved for this kind of loan. That means that a rate and term refi is usually easier and less expensive than other types of refinancing loans.

Cash-Out Refinance

A cash-out refinance replaces your current mortgage with a new, larger loan, paying you in cash the difference between the new amount and what you still owe on your old mortgage.

That money can be used for any purpose, but it is often used to pay off high-interest credit card debt. This is an especially attractive option when interest rates are low.

A cash-out refinance won’t save you money if you’ll be paying more interest over the life of the loan. 

The benefit of taking out a cash-out refi is that the interest rate on your new mortgage will likely be lower than the interest rate on the debts you’re planning to consolidate, so it may save you money overall. Plus, interest on the new mortgage may be tax-deductible if you itemize deductions on your return.

Second Mortgage

A second mortgage is a type of loan that allows you to borrow against the value of your home. Your home is an asset, and over time, that asset can gain value. 

In most cases, second mortgages are taken out in addition to your primary mortgage — the one you use to buy your home. This means you’ll end up with two separate loans: your first mortgage and your second mortgage.

A second mortgage can be a source of ready cash for homeowners with substantial equity in their homes. And because the interest rate on a second mortgage is usually lower than that on credit cards, people often choose them as a way to consolidate and pay off their higher-interest debt. 

They are also cheaper than personal loans, which tend not to require upfront collateral. Other uses include paying college expenses and paying medical bills.

Home equity line of credit (HELOC) or home equity loan (HEL)

Home equity loans and home equity lines of credit (HELOCs) are second mortgages among the most popular. 

Basically, a home equity loan is a fixed-rate personal loan that is secured by your house. 

A HELOC works more like a credit card. The lender approves you for a certain amount of credit based on a percentage of your home’s appraised value, minus the balance owed on your mortgage.

Reverse mortgage (RM) or home equity conversion mortgage (HECM)

A reverse mortgage is a loan for senior homeowners that allows borrowers to access a portion of the home’s equity and uses the home as collateral. The loan generally does not have to be repaid until the last surviving homeowner permanently moves out of the property or passes away. Since there are no monthly mortgage payments to make, interest is added onto the loan balance each month. This amount can grow over time if the interest rate is variable or if you do not pay off any part of it.

A Reverse Mortgage (RM) or Home Equity Conversion Mortgage (HECM) is a loan that uses your home equity as collateral and can be used to purchase a new home or refinance an existing mortgage. You can borrow up to 55% of your home’s value, minus what you still owe on the mortgage.

Reverse mortgages are available to senior homeowners 62 years of age and older who want to convert their home equity into cash.

For example, if your home is worth $250,000 and you still owe $150,000 on your mortgage, you can get a reverse mortgage for up to $55,000 (55% of $250,000). An ARM loan replaces your old mortgage with a new one at an interest rate of 1-4%. The RM lender pays you in cash the difference between the new amount and what you still owe on the old mortgage.

Construction loans

A construction loan is a temporary loan used during the building of a new home. As work progresses, the lender pays out the money in stages. Construction loans are typically short term with a maximum of one year and have variable rates that move up and down with the prime rate. The rates on this type of loan are higher than rates on permanent mortgage loans.

One advantage of construction loans over traditional loans is that they will fund all labor and materials needed to complete your project. If you’re building a new home, you’ll need some cash to cover upfront costs such as land acquisition, permits, design fees and other professional services.

The two main types of construction loans are single-close construction loans and construction-to-permanent loans.

A single-close construction loan provides you the security of knowing what your interest rate will be for the life of the loan. There is no risk that rates will rise during construction, and in fact, you can lock in your interest rate at application and even complete your permanent loan paperwork before construction begins. 

A construction-to-permanent loan is a type of mortgage you can use to finance both the building and the purchase of a new home. You can potentially save money on closing costs and avoid underwriting complications when you use one of these loans to finance your new house.

Construction-to-permanent loans are similar to construction-only loans in that they are sometimes referred to as one-time closing loans. These loans also require two separate closings, one to approve the loan and generate funds for construction costs, and another closing once the work is completed.

The construction phase of these loans is generally very short, with borrowers receiving permanent financing after only six months or so. However, this short phase comes at a cost, with interest rates often 1% to 2% higher than conventional fixed-rate mortgage rates. These higher interest rates are due to the fact that borrowers are taking on additional risk by having no equity in their new home when it’s being built.

The primary benefit of having a single loan for both construction and permanent financing is that there’s usually just one set of closing costs, which reduces the amount you have to pay out of pocket from what it would be if you had separate construction and permanent.

Manufactured home loan

A manufactured home is one that’s built in a factory and then moved to its permanent place at a specific location.

The two main types of manufactured home loans are for mobile homes in parks where the space is rented and for manufactured homes on land that are on permanent foundations.

Mobile homes in parks are considered chattel property, or personal property (like a car), which makes them different from conventional homes (real property). 

A chattel loan is a home-only loan (as opposed to a loan for the home and land together). Those loans are technically personal property loans — not real estate loans. This means you will be financing just the home itself and it remains personal property, versus a loan for real property (a standard “stick-built” home) which secures both the property and the improvements.

A manufactured home loan on land is similar to other types of mortgages. The key difference is that the manufactured home must meet certain standards set by the U.S. Department of Housing and Urban Development (HUD) and must be permanently affixed to a foundation approved by HUD. 

A manufactured home loan is a loan that is backed by either Fannie Mae or Freddie Mac, government-sponsored entities (GSEs), designed to help low-to-moderate income individuals qualify for a mortgage. Individuals seeking to qualify for a manufactured home loan must have a credit score of at least 620, meet income limits, and make a down payment of at least 3 percent.

The loan terms are much like those of a conventional mortgage — 30 years, fixed or adjustable rates — but the interest rate tends to be slightly higher. Manufactured homes loans can be used to purchase land and the home together, if the home’s foundation is certified as compliant with Federal Housing Administration (FHA) standards.

Jumbo loan or super conforming loan

A Jumbo loan, also known as a super-conforming loan or non-conforming loan, is a mortgage loan that exceeds the limit for loans backed by Fannie Mae and Freddie Mac. They’re only available on the secondary market through private lenders.

These loans are most commonly used by real estate investors to buy luxury or high-end real estate in areas like Los Angeles, San Diego, New York, and San Francisco — or to buy vacation homes or investment properties elsewhere in the country.

Because these loans aren’t backed by a government agency and are “non-conforming” (over $484,350), they have higher interest rates and require more scrutiny. You’ll need a higher credit score and will be expected to provide more documentation to qualify.

Jumbo loans also have significantly larger down payments than traditional conforming mortgages — 20% is typical, though some lenders require as much as 30%. If you’re buying a luxury home and need to borrow more than $484,350, this might be your best option.

Bridge Mortgage

Bridge mortgages are short-term loans that are designed to cover the time it takes for a borrower to secure permanent financing or remove an existing obligation. They are normally used to satisfy temporary, but urgent, financing needs. Bridge mortgages are usually taken out when a borrower is buying a new property and there is a delay in selling the old property. 

This form of mortgage financing is also known as a swing loan or gap financing.

Bridge loan rates from hard money lenders are higher than traditional loans from banks. Bridge loan rates will vary from lender to lender. But will generally be in the range of 8-10% interest for hard money bridge loans depending on various factors of the specific bridge loan scenario.

Piggyback mortgage loan

Some home buyers are unable to qualify for a mortgage with a large down payment or a high credit score. For these potential borrowers, a piggyback loan is an option that can help them buy a house. The piggyback mortgage is also known as an 80/10/10 or 80/15/5 loan in reference to the percentage of the total home price that is financed.

The first mortgage used in the Piggyback mortgage covers the majority of the home’s purchase price. The second mortgage makes up for any remaining down payment funds needed to complete the transaction. This second loan is referred to as a ‘piggyback loan’ because it sits on top of the initial or ‘first’ mortgage.

A piggyback loan can be a useful way to avoid private mortgage insurance (PMI), which is required on most conventional loans with less than 20% down. The second mortgage on a piggyback loan isn’t cheap either, but it’s usually much cheaper than PMI. Piggybacks are also easier to qualify for because the second mortgage doesn’t require any income documentation whatsoever.

There are other benefits to piggyback loans as well. For example, the interest rate on the second mortgage might be tax deductible if the money was used to acquire or improve your home rather than for other purposes. And that second mortgage rate will probably be lower than a fixed rate or HELOC (home equity line of credit) rate would be if you got that kind of financing by itself and not in addition to a regular mortgage.

Graduated payment mortgage (GPM)

A Graduated Payment Mortgage (GPM) is a type of fixed-rate mortgage in which the payments start low and then increase, usually every two years. The amount of the adjustment is determined by an index, plus a margin, such as 2 percent, over the life of the loan.

A GPM is typically used for borrowers who expect their income to rise in the future. The loans are structured with lower monthly payments in the early years than other fixed-rate loans.

The most common terms are 7/23 and 10/15. A 7/23 loan’s fixed interest rate and payments stay the same for seven years, then adjust every 23 years. A 10/15 loan has fixed interest rates for 10 years and payments that adjust every 15 years.

Renovation loans

A renovation mortgage loan allows home buyers to purchase a home and finance any needed repairs or upgrades into the same loan. These fixes can include items like insulation, new roofing, new appliances, new flooring, a new furnace, air conditioning unit or other improvements to your home. 

There are three main types of renovation loans: FHA 203(k) Loan, HomeStyle Renovation Mortgage and Fannie Mae HomePath Renovation Mortgage. Each has its own pros and cons, but all three allow you to borrow money for both the purchase of a home and the repairs that need to be completed as part of the purchase.

Here’s how it works:

You work with a lender to determine how much money you need and obtain pre-approval for a loan amount. Your home is appraised and inspected by an appraiser and contractor working together as a team. The appraiser estimates the value of the home after renovations are complete. 

After all loan paperwork is submitted, reviewed, approved and signed by all parties, closing occurs and funds are disbursed according to instructions provided in a HUD-1 settlement statement. The project starts immediately after closing. Loan disbursements are made according to the construction schedule established in the Work Write-Up provided by your contractor.

If your home or one that you are buying is in need of some repairs, but you have limited funds available to make those repairs yourself, a renovation mortgage loan may be the right option for you.

Non-QM Loans

A Non-Qualified Mortgage mortgage is any home loan that doesn’t comply with the Consumer Financial Protection Bureau’s (CFPB) existing rules on Qualified Mortgages. A Qualified Mortgage (QM) is a home mortgage loan that meets the standards set forth by the Federal government. 

The CFPB defined Qualified Mortgage Rule and designed to create safe loans by prohibiting or limiting certain high-risk products and features. QMs protect borrowers from risky lending practices and ensure that lenders have verified income.

Non-QM loans can fill the niche for those who don’t necessarily fit into the “qualified-mortgage box.” 

They can help you get a mortgage when you may not otherwise qualify. These loans are becoming more popular due to changing attitudes in the lending industry, and new borrowers are often surprised by the relaxed qualifying guidelines.

However, a Non-QM loan is not for everyone. They tend to be more expensive than standard mortgages, so if you can qualify for a regular loan, that’s likely to be your best bet. 

Mortgage alternatives to finance a home

Mortgage alternative 1 – Seller financing or Seller carryback

Seller financing or Seller carryback loan is when the seller takes back a mortgage from the buyer, rather than having the buyer obtain a loan from a bank. Sometimes this is done because the buyer cannot get a conventional loan. Sometimes it is done for convenience by both parties.

These loans can be a creative way to finance purchasing a property when banks have tight lending standards and the seller has equity in the property.

The seller may be willing to offer seller financing because they have equity in the home and have difficulty selling it in this market. They may also be unable to sell if they owe more than the market value of their home The homeowner is also unable to make their monthly payments, resulting in foreclosure on their property.

Sellers should be aware that if they do Seller financing, there are additional federal and state regulations that they must follow to protect themselves and their investment property.

If you are considering purchasing a home using Seller financing, you should consult with an experienced real estate attorney before making your purchase to make sure you understand your rights and obligations under the terms of the loan agreement.

Mortgage alternative 2 – Lease option or lease purchase plan

A lease option is an arrangement between the buyer and the seller to purchase a house after renting it for a specific period of time. A portion of the rent would be applied toward the purchase if the option is exercised. This is referred to as rent credit. 

Not all lease options are created equal. Some are more similar to rental agreements and offer very little opportunity for the renter to build any equity in the home. 

The best lease options give the renter/buyer an opportunity to treat the home as if it was their own, build some equity, and still have time to shop around for financing before taking on the contractual obligations of a mortgage.

This type of agreement can be ideal for people who might not otherwise qualify for a mortgage, or who want more time to prepare for homeownership. Because your monthly payments will generally be higher with a lease-option than with a straight rental, you should carefully consider whether you can realistically afford this type of agreement before signing on the dotted line.

If you’re thinking about entering into a lease option, make sure you understand what your rights and obligations will be during that agreement period.