Buying a house requires a lot of decision-making. You must settle on a budget, choose a home to buy, decide whether you'll hire a realtor, and determine if you'll take a loan or purchase the property in cash. While you might be eager to end the decision-making process there, there is yet another decision you must make if you choose to take a loan: the type of loan you must take.  

If you aren't aware, there are different kinds of home loans, and each one typically has various features. Each type varies in the loan amount, accessibility, and, most importantly, interest rate.  

Naturally, you would want to choose the kind of home loan with a low-interest rate, so which is the best option? Read on as this guide goes over the four home loan types with the best rates.  

1. 1. VA Loans

VA loans are arguably the type of home loan with the lowest rate available. The loan is insured by the U.S. Department of Veterans Affairs (VA), hence the name. Their interest rate is usually 0.5% or 1% lower than the interest rates of conventional loans, which is the most common home loan in many countries. Therefore, if a conventional loan has a rate of 6.5% in your country, chances are most VA loans available in the same country will have a rate of 6% or 5.5%.  

Surprisingly, the low-interest rate isn't even the biggest benefit of taking a VA loan but the possibility of zero down payment, which you can only find in two types of home loans. For your reference, the average down payment on loans is 5% to 20% of their principal.

However, only veterans and service members are eligible for VA loans; even then, the process can be challenging. This is why most veterans hire VA loan experts like Security America Mortgage to speed up the transaction.

1. 2. Federal Housing Administration Loans

A Federal Housing Administration (FHA) loan has one of the lowest interest rates due to how the loan works. Basically, when a borrower defaults, meaning they stopped paying, the FHA pays the unpaid balance to the lender, protecting them from losses. 

Due to the lower risk, lenders can offer mortgages with better terms. These include lower interest rates, down payment, and credit score requirements. As of 2022, the average FHA loan is accessible to those with as low as 580 credit score, 500 if you're willing to pay 10% down. Otherwise, you only have to pay a down payment of 3.5% of the total cost. Regardless, the interest rate usually comes at 6% to 6.5%, which is slightly higher than VA loans. 

1. 3. United States Department Of Agriculture Loans 

A United States Department of Agriculture (USDA) loan is a loan type that caters to people living in low- to middle-income households. Just like FHA loans, the USDA protects lenders from losses with their guarantee, which states that they'll pay 90% of the principal in the case of a default. This encourages lenders to offer better terms to those with credit scores as low as 580. 

USDA loans typically have an equal interest rate to conventional loans, usually around 6.5%. But the best part is that there's a possibility of zero down payment, just like VA loans. 

1. 4. Conventional Loan 

A home loan can be insured by one of two entities: a government agency or a private lender. The three previous home loan types belong to the former since the VA, FHA, and USDA are all government entities. A conventional loan is any mortgage not offered by a government agency but rather by an individual or a private lender.   

It has a decent interest rate, usually at 6.5%, though it may vary according to the country's economy. The main advantage of a conventional loan is the lack of government fees. 

If you aren't aware, government-insured home loans usually require borrowers to pay a mortgage insurance fee upfront and monthly moving forward. A conventional loan is the most common type of mortgage, though it's not necessarily the easiest to get as it requires a decent credit score. 

Conclusion

A mortgage's interest rate can significantly impact your financing over the next few years. Hence, it's only natural that you take your time choosing a loan with an excellent rate. But you must remember that the interest rate is just one consideration. You must also consider other features of the home loan, such as its maximum loan amount, required credit score, and down payment, among many things. A home loan expert at your side can also help.