Mortgage options: loan types, gift funds and the disclosures to compare

The main loan types

A conventional loan is not insured or guaranteed by a government agency. A conforming loan stays within the limit set each year for loans that Fannie Mae and Freddie Mac can buy; the current Massachusetts limits are in our guide to the 2026 conforming loan limits. A loan above that limit is a jumbo loan, underwritten to the lender’s own standards.

With a conventional loan and less than 20% down, private mortgage insurance is usually required. Federal rules let you ask the servicer to cancel it on the date your balance is scheduled to reach 80% of the home’s original value, and the servicer generally must end it automatically when the balance is scheduled to reach 78%. FHA and VA loans follow different rules.

MassHousing and city programs add down payment help and their own income and purchase limits; see our guide to first-time buyer programs. Two- and three-family purchases have their own rules on rental income and owner occupancy, covered in the multi-family guide.

FHA and VA in practice

FHA allows a down payment as low as 3.5% and lower credit scores than most conventional loans. Every FHA loan carries mortgage insurance. CFPB notes that for borrowers with good credit and a 10 to 15 percent down payment, FHA tends to cost more than conventional, while for lower scores or smaller down payments it can be the cheapest option. Ask for quotes on both and compare total cost.

FHA is for a home you will live in. At least one borrower must occupy the property within 60 days of signing the mortgage and intend to stay at least one year. FHA also has its own loan limits, which vary by county.

VA loans are made by private lenders and guaranteed by the Department of Veterans Affairs for eligible veterans, servicemembers and surviving spouses. Eligibility starts with a Certificate of Eligibility. There is no down payment requirement as long as the price is not higher than the appraised value, no monthly mortgage insurance, and usually a one-time VA funding fee.

Non-QM and bank-statement loans

Federal rules require a lender to make a reasonable, good-faith determination that you can repay, and to verify the income or assets it relies on with reliable third-party records. Those records can include financial institution records, which is why a bank-statement loan for a self-employed borrower is a legitimate product. A Qualified Mortgage is a loan that also avoids risky features such as interest-only periods, negative amortization and most balloon payments, and stays within limits on points and fees. Non-QM loans fall outside that category.

Non-QM can fit a self-employed buyer whose tax returns show far less income than the business brings in after deductions, a buyer with income from several sources, or an investor. Expect to pay more for it than for a comparable conforming loan, and to put more down and hold more reserves. Read the note for features such as an interest-only period or a prepayment penalty.

If you are heading this way, prepare months ahead. Keep business and personal accounts separate and simple, avoid moving money between many accounts, pay the earnest money from an account the lender will review, and be ready to explain any large deposit. Before committing, ask a lender whether you would qualify for a conforming or FHA loan instead.

Buyers who are not U.S. citizens

Fannie Mae buys loans to non-U.S. citizens who are lawful permanent or non-permanent residents on the same terms available to citizens, and the lender is responsible for confirming legal presence. Expect to provide your green card, or your visa and employment authorization documents.

FHA changed in 2025. HUD Mortgagee Letter 2025-09 removed the non-permanent resident category, effective for FHA case numbers assigned on or after May 25, 2025. The current FHA handbook says citizenship is not required and lawful permanent residents may qualify on the same terms as citizens, and that a Social Security card alone does not prove immigration or work status.

Credit history is a separate question. Having no U.S. credit score does not by itself rule out a Fannie Mae loan: the lender first checks all three credit bureaus, and if no score can be produced it can document a nontraditional credit history; in some cases the automated underwriting system can instead rely on a cash-flow review of verified account assets. These loans must be for a principal residence and a purchase or limited cash-out refinance, and other limits apply, so ask the lender about this path first.

A buyer outside the lawful-residency categories above, such as one living abroad, or whose income and documents do not fit agency or FHA rules, usually looks at portfolio or non-QM programs, which set their own rules for foreign income, assets and credit references. Start early, because documents from abroad often need translation and take time to gather.

Gift funds

Gifts from family are common, and both Fannie Mae and FHA allow them with documentation. Both require a gift letter stating the amount, that no repayment is expected, and the donor’s name, address, phone number and relationship to you. Fannie Mae requires the letter to be signed by the donor; FHA requires it to be signed and dated by the donor and the borrower. Both also require proof of the transfer, either into your account before closing or directly to the closing agent.

Move the money early and in one clean step, by wire or check from the donor’s own account, and keep the donor’s statement showing the withdrawal. FHA does not accept cash on hand as the donor’s source. A gift that lands the week before closing with no paper trail is one of the most common reasons a file stalls.

Pre-approval, rate locks and the two disclosures

Lenders use “prequalification” and “preapproval” differently, so ask which one you have and what has actually been verified; our buyer checklist covers the difference. A rate lock holds your rate as long as you close within the lock period, typically 30, 45 or 60 days, and nothing in your application changes. Make sure it covers your closing date and ask what an extension would cost.

The lender must deliver or mail the Loan Estimate within three business days after receiving your application, and you must receive the Closing Disclosure at least three business days before closing. If the APR becomes inaccurate, the loan product changes or a prepayment penalty is added, a corrected disclosure starts a new three-business-day wait. Request Loan Estimates from more than one lender and compare total costs; our closing costs guide reads both forms line by line.