Conventional loans

 This has been the most popular loan type, and is most useful if you think you are going to stay in your home for a long period of time (at least five years). A conventional loan usually requires at least a 10% down payment.

If you are going to buy your first home, it can often be difficult to save a significant down payment. There are a number of loan programs specifically tailored for this situation. One government program is administered by the Federal Housing Administration and is known as an FHA loan. The FHA actually guarantees this type of loan, so that lenders get paid back if the borrower defaults. FHA loans can require only a 3% down payment, or possibly even less. FHA loans have limitations on size, and are more expensive because they require mortgage insurance, which adds to the overall cost of the loan. With FHA loans, many of the closing costs (including the initial mortgage insurance premium) can be added to the loan amount, reducing the need for more cash at purchase time.

Many conventional loans require that down payment funds come from income savings or from the sale of another property. These programs often require proof of the source of down payment funds. An FHA loan allows gift funds to be use for the down payment, and no verification of source is required. The source of the donor is restricted to family members and a few types of organizations.