Getting a home loan is a complex process, but that process can’t even start until you know what kind of loan you’re in the market for, and choosing the right one isn’t just about interest rates. Each different type of mortgage is built around different repayment timelines, down payment ranges, and borrower risk profiles.  Knowing how various types of home loans work helps you match financing to specific milestones.

Whether you’re saving for your starter home, building equity, or converting a fixer-upper into long-term value, you’ll need to know the right type of loan for each application. In this article, we’ll go over the major loan categories available through lenders like HSB and talk about some of the pros, cons, and ideal uses for each. By the end, you’ll have a crystal clear understanding of which loan option will best align with your budget, lifestyle, and future financial goals. 

Mortgage Categories at a Glance
The U.S. mortgage landscape will typically be split into two categories: conventional loans and government-backed loans.

Conventional loans will follow guidelines set by entities like Fannie Mae and Freddie Mac, which rely on private-sector underwriting and generally require higher credit scores with better rates. Government-backed programs like FHA, VA, and USDA all carry federal insurance, which allows lenders to accept less money down, lower credit scores, or higher debt-to-income ratios.

Conventional Home Loans
Conventional home loans fall into two main categories: fixed-rate mortgages, which lock in a consistent interest rate and payment for the life of the loan, and adjustable-rate mortgages, which offer a lower initial rate that resets periodically based on market indexes. Across both fixed and adjustable products, conventional loans generally require at least a small down payment and a relatively good credit score, though exact thresholds vary by lender and loan specifics.

Let’s take a closer look at the two categories.

Fixed-Rate Mortgages
Fixed-rate mortgages lock in a specific interest rate for the entire term of the loan, which is typically between 15 and 30 years. One of the biggest benefits of these loans is the consistency in the principal and interest payments. Fixed-rate loans are perfect for buyers who expect to own the home for many years, or who just want far more predictable budgeting for their mortgage as the years go on. 

Adjustable Rate Mortgages
Adjustable-rate mortgages start with a fixed rate for a short period, usually 3 or 5 years, but generally no longer than 7, before the interest rate resets each year according to the market index plus a specified margin. Regulatory caps limit how much the rate can adjust each period over the life of the loan, so while they do fluctuate, the movements won’t typically be catastrophic. Borrowers who plan to refinance before the introductory window is up can benefit from the lower starting rate, but they’ll need to be comfortable with dealing with changing rates in the future. 

Government-Backed Home Loans
Government-backed programs carry federal insurance, enabling lenders to accept lower down payments or more flexible credit profiles. At The Harvard State Bank, you can explore these options through a trusted mortgage officer.

FHA Loans
FHA loans are insured by the Federal Housing Administration, and allow down payments as low as 3.5% and far more lenient credit requirements. Mortgage insurance premiums will apply for the life of the loan, but borrowers can benefit from much more competitive rates even with scores in the mid-600s.

VA Loans
VA loans are available to eligible veterans, active-duty service members, and surviving spouses. VA loans don’t require any down payment, and have no ongoing mortgage insurance, but funding fees will vary according to down payment and service history. The qualifying standards for VA loans include a minimal residual income threshold rather than a specific credit score cutoff. 

USDA Loans
These are loans designed for rural and some suburban areas. USDA loans offer a 100% financing amount with income limits that are based on your household size. Applicants will need to pay a guarantee fee upfront, as well as an annual fee, but the monthly principal payments and interest payments often undercut conventional alternatives by a significant margin.

Each of these programs relies on specific eligibility rules and documentation requirements. Working with a local mortgage officer will help you determine which path best aligns with your unique credit profile, cash reserves, and long-term goals.

Jumbo & Specialty Loans
In some cases, your financing needs may exceed the conforming limits for conventional loans, or if you have specific, unique goals, some specialty products may bridge that gap.

For properties above the established Fannie Mae or Freddie Mac limits, jumbo loans can finance larger amounts, but will typically require much larger down payments, stronger credit scores, and cash reserves significant enough to absorb several months of payments. 

Construction loans are for building new homes or buying properties that may need substantial renovations. They disburse funds in draws tied to work milestones, with interest-only payments during construction eventually transitioning to a permanent mortgage once the project is officially completed. 

While a home equity line of credit, or HELOC, isn’t a mortgage per se, it does let you borrow up to 85% of your home’s value. You’ll pay interest only on the amount you use, and flexible repayment schedules let you draw funds as needed.

Matching Loan Types to Your Financial Goals

Your ideal loan depends on your ownership timeline, equity needs, and risk tolerance.

• Short-Term Ownership (3–7 years): An ARM can lower initial payments and save on interest if you plan to refinance or move before rate adjustments kick in.
• Long-Term Stability: A fixed-rate mortgage locks payments for 15 or 30 years, simplifying your budget and shielding you from rate increases.
• Building Equity Quickly: Higher payments on a shorter-term fixed loan accelerate principal reduction. For larger purchases, a jumbo loan funds more expensive homes, while equity builds as you pay down the balance.
• Veteran or Rural Buyer: VA and USDA programs offer low or zero down-payment options with competitive rates and minimal mortgage-insurance costs.

The Right Loan, The Right Plan
Choosing the home loan type that’s right for you will hinge on understanding the structure, costs, and eligibility requirements for each. From fixed-rate security to ARM flexibility, along with plenty of specialty options, each one will align with specific goals and scenarios. Matching your priorities to the right mortgage will empower you to approach the market with confidence and financial backing.

The Harvard State Bank is here to help make homeownership a seamless process. Whether you’re a first-time homebuyer or looking to refinance, we’ll help you find the loan that fits your needs. Our local specialists and lending options ensure you have the expert support you need to realize your dreams.

Get started today!
Apply online at www.webhsb.com or reach out to one of our branches to schedule a meeting. Call us at (815) 943-4400. You can also contact our team directly:

Tom Raine: traine@thehsb.com
April McMullen: amcmullen@thehsb.com