Raleigh Home Stretch: Mortgage & Real Estate with Michael Wolff

Get the local inside scoop

Loan Types: Compare Your Best Mortgage Options

Illustrated comparison of three mortgage types: fixed-rate (steady graph), adjustable-rate (wavy graph), and interest-only (rising graph) with colorful house icons on a white background for home financing education.
Loan Types in NC, VA, GA, FL, TN & CA — VA, FHA, Conventional & Jumbo, USDA, Construction, HELOCs, Reverse, Non-QM

Updated · By Michael Wolff

A clear, side-by-side guide to VA, FHA, Conventional (including Jumbo), USDA, Construction, HELOCs/2nds, Reverse, and Non-QM—who qualifies, typical costs, and what to do next.

Rate vs Cost Reality Check

Lowest rate ≠ lowest total cost. Points, mortgage insurance, funding/guarantee fees, closing credits, and how long you’ll keep the loan can make a slightly higher rate cheaper overall.

  • Short-term horizon (≤3–5 years): Lower fees and cheaper MI can beat a tiny rate drop that required big points.
  • Long-term horizon (7–10+ years): Paying points can win—if the breakeven beats your real timeline.
  • MI math: Conventional MI can drop off; FHA MIP rules differ; VA has no monthly MI; USDA has a low annual fee.
  • Cash & credits: Seller/lender credits can optimize cash-to-close even if the sticker rate is higher.

Bottom line: We’ll compare total 5-year and 10-year cost (payments + MI + fees − credits), not just the rate.

Quick Compare

Every borrower is different—credit, income, down payment, county limits, and property type all matter. This table is a starting point.
Loan Type Who It’s For Min Down Mortgage Insurance / Fee Credit Notes Highlights
VA Eligible Veterans/Active Duty/Reserves/Spouses 0% (with eligibility) VA Funding Fee (waived if exempt) Flexible; residual income test matters No monthly MI; common-sense guidelines; competitive rates
FHA Low-to-moderate income, limited down payment 3.5% (credit-qualified) Upfront & monthly MIP More forgiving on past credit Popular for first-time buyers, assistance programs, and house hacking
Conventional & Jumbo Stronger credit or higher down payment (high-cost/jumbo too) 3% (first-time) / 5%+ otherwise; Jumbo often higher Private MI if < 20% down (cancellable) Pricing improves with score/LTV; Jumbo may need stricter DTI & reserves MI can drop off; Jumbo has similar rules with tighter cushions
USDA Rural-eligible areas + income limits 0% (eligible property/location) Guarantee fee + annual fee (typically low) Sensible, steady credit needed Often lowest monthly. other than VA, in eligible ares
Construction-to-Perm Build/remodel (one-time close) Varies (often 5–10%+) Depends on Conv/VA/FHA variant Stricter UW + builder approval One approval/closing; interest-only during build
HELOC / 2nd Mortgage Homeowners tapping equity for projects, debt, or reserves 0–10%+ depending on lender No MI; HELOCs often variable-rate Equity, DTI, and credit drive approval/limit Keep a low-rate 1st; or pair 80/10/10 to reduce MI
Reverse (HECM) Age 62+ homeowners wanting payment flexibility None if enough equity; purchase options exist HECM insurance applies Financial assessment + counseling required No required monthly payment; LOC growth feature
Non-QM Outside agency guidelines (DSCR, bank statements, ITIN, etc.) Typically 10–20%+ No agency MI; pricing/fees vary Alt docs; compensating factors matter Flexible for investors & self-employed

Want a custom side-by-side with real numbers?
Start Pre-Approval         Ask a Question

VA Loans

Best for: Eligible service members, Veterans, and certain surviving spouses.
Down payment: 0% (with available entitlement).
Key costs: VA Funding Fee (exemptions apply for qualifying disabilities or Purple Heart on active duty).
Why VA wins: No monthly MI, flexible credit, strong seller concessions, competitive payments.

VA Refinance Paths

  • IRRRL (Streamline): Potentially lower rate/payment with reduced documentation. No appraisal needed, no income documents, and low cost.
  • VA Cash-Out: Convert equity to cash (subject to LTV/entitlement and underwriting).

Deep-dive guide: VA Loans: Eligibility & Entitlement

FHA Loans

Best for: Buyers with limited down payment or rebuilding credit.
Down payment: 3.5% with qualifying credit.
Mortgage insurance: Upfront MIP + monthly MIP; duration depends on down payment/LTV.
Why choose FHA: More forgiving on credit history; competitive rates; common first-time path.

  • Gift funds permitted.
  • FHA Streamline is available for current FHA borrowers.
  • Property must meet FHA safety/soundness standards.

Conventional & Jumbo

Best for: Well-qualified buyers or those with 20% down seeking cancellable MI.
Down payment: 3% (first-time) or 5%+; Jumbo often requires larger down payments.
MI: Private MI if < 20% down; can be removed once required equity is reached.
Advantages: Pricing improves with higher scores and lower LTV; broad appraisal/property options.

Jumbo specifics: Similar underwriting logic to Conventional but typically with stricter DTI limits, larger cash reserve requirements, and potentially higher down payments depending on price point, occupancy, and property type.

USDA Loans

Best for: Buyers in USDA-eligible rural/suburban areas who meet income caps.
Down payment: 0% (if eligible).
Fees: Guarantee fee (financed) + low annual fee (often lower than FHA MI).
Why USDA: Low monthly cost structure can beat FHA/Conventional when eligible.

  • Property must be in an eligible location (USDA maps).
  • Household income must be within area limits.
  • Primary residence and standard condition/appraisal rules apply.

Construction-to-Permanent (One-Time Close)

Best for: Building a custom home or major renovation.
How it works: Close once, draw funds during build (interest-only), then convert to a long-term fixed mortgage at completion.
Underwriting focus: Plans/specs, budget, builder approval, contingency and borrower reserves.

  • One appraisal + one closing vs. separate construction and end loan.
  • Available as Conv/VA/FHA variants (program-specific requirements apply).
  • Clear draw management and builder oversight requirements.

HELOCs & 2nd Mortgages

Best for: Tap equity while keeping a low-rate first mortgage intact—or pair with a smaller first (e.g., 80/10/10) to reduce MI.
Structures: HELOC (revolving, often variable-rate, draw/repay periods) and Closed-end 2nd (fixed-rate installment).
Key drivers: Equity/CLTV, DTI, credit score, and property type. Limits and pricing can reset as rates change.

  • Great for renovations, debt consolidation, emergency reserves, or bridging to a later refinance.
  • Works alongside a purchase first mortgage (combo loan) to target 80% LTV on the first.
  • No mortgage insurance on the second; rate/terms vary by product and profile.

Reverse Mortgages (HECM)

Best for: Homeowners age 62+ seeking to eliminate required monthly mortgage payments or add a standby line of credit.
Design: FHA-insured HECM with mandatory independent counseling and financial assessment.
Benefits: No required monthly mortgage payment; line-of-credit growth can increase available funds over time.

  • Must maintain taxes, insurance, and property condition; primary residence only.
  • Available for refinance or for purchase (HECM for Purchase).
  • Heirs keep remaining equity after payoff at maturity, if applicable.

Non-QM Loans

Best for: Borrowers who don’t fit agency rules—self-employed using bank statements, investors using DSCR (rent coverage), foreign nationals/ITIN, asset-depletion, interest-only, or unique property types.
Docs & pricing: Alternative documentation and risk-based pricing; larger down payments and reserves often required.

  • Bank statement loans: Use deposits to gauge income (12–24 months typical).
  • DSCR loans: Qualify using rental income vs. payment; great for investors.
  • Asset-depletion: Convert verifiable assets into qualifying income streams.

Refinance Options

  • Rate/Term: Reduce payment, change term, remove MI (with equity), or add a co-borrower.
  • Streamline paths: VA IRRRL, FHA Streamline, USDA Streamlined-Assist (for current program borrowers).
  • Cash-Out: Convert equity to cash for renovations, debt consolidation, or investment (subject to LTV/occupancy/program rules).
  • Second-lien strategy: Keep a low-rate first; add a HELOC/2nd for targeted needs.

Ready for a custom plan?
Start Pre-Approval      Ask a Question

Frequently Asked Questions

Which loan type gives me the lowest total monthly cost?
It depends on down payment, credit score, debt ratio, property taxes/insurance, and eligibility. VA and USDA can be lowest for eligible borrowers; Conventional with 20% down eliminates MI; FHA can win on rate for certain credit tiers. I’ll run real numbers for your target homes and counties.
Can I switch loan types after pre-approval?
Yes—if your profile or home choice changes (price, location, appraisal, condo vs. single-family), we can re-run options and re-issue letters quickly.
How do seller concessions work?
Each program caps concessions differently (e.g., VA allows up to 4% in certain concessions). We’ll align your offer strategy with program rules so you don’t leave benefits on the table.
Do I need 20% down to avoid mortgage insurance?
No. VA has no monthly MI. USDA has a small annual fee. Conventional MI can be much cheaper than expected and can fall off later. The right path depends on your credit score, price point, and timeline.
What’s different about Jumbo compared to standard Conventional?
Jumbo generally mirrors Conventional guidelines but with tighter debt-to-income limits, larger cash reserve requirements, and potentially larger down payments depending on loan size, occupancy, and property type.
When does a HELOC or 2nd make more sense than a full refinance?
When you have a low-rate first mortgage you want to preserve. A second lien lets you tap equity without resetting the entire first loan.
Are Reverse mortgages safe?
HECMs are FHA-insured, require independent counseling, and include consumer protections. As with any loan, suitability depends on goals, budget, and home maintenance obligations.
Who uses Non-QM?
Primarily self-employed borrowers using bank statements, investors using DSCR, or anyone whose profile sits just outside agency rules and needs alternative documentation.