Browse
Log in / Register
Share
Understanding the different types of home loans is the first critical step in the homebuying process. The best mortgage for you depends on your financial profile, down payment amount, and how long you plan to own the home. Conventional loans are a popular choice for those with strong credit, while government-backed loans like FHA and VA loans offer flexible terms for eligible buyers. This guide breaks down the main mortgage categories—conventional, jumbo, government-insured, fixed-rate, and adjustable-rate—to help you make an informed decision.
A conventional loan is a mortgage not insured by any government agency. These loans are widely available and often have competitive interest rates, but they typically require a higher credit score and a larger down payment compared to government-backed options.
Conventional loans are divided into two categories: conforming and non-conforming.
Conforming Loans: These adhere to loan limits set by the Federal Housing Finance Agency (FHFA) and guidelines from Fannie Mae and Freddie Mac, government-sponsored enterprises that buy mortgages from lenders. For 2025, the baseline conforming loan limit for a single-family home is $806,500, with a higher ceiling of $1,209,750 in high-cost areas. To qualify, you generally need a minimum FICO score of 620 and a down payment as low as 3%. If your down payment is less than 20%, you will be required to pay for Private Mortgage Insurance (PMI), which protects the lender if you default. PMI is typically automatically removed once your loan-to-value ratio reaches 78%.
Non-Conforming Loans: These do not meet the standards of Fannie Mae or Freddie Mac, offering more flexibility but with terms that vary significantly by lender. The most common type of non-conforming loan is a jumbo loan.
A jumbo loan is a type of conventional mortgage that exceeds the conforming loan limits. You would need this type of loan to finance a high-priced property. While they offer flexibility, such as sometimes waiving mortgage insurance, they come with stricter qualification requirements.
Jumbo loans typically require:
Interest rates on jumbo loans are usually higher than those for conforming loans. Based on our experience assessment, shopping around with multiple lenders is crucial when considering a jumbo mortgage.
Government-backed loans are insured by federal agencies, reducing risk for lenders and making homeownership accessible to borrowers who might not qualify for conventional financing. The three primary types are FHA, VA, and USDA loans.
| Loan Type | Insuring Agency | Ideal For | Min. Down Payment | Key Requirement |
|---|---|---|---|---|
| FHA Loan | Federal Housing Administration | Buyers with lower credit scores or smaller down payments. | 3.5% | Minimum FICO score of 580 (500 with 10% down). |
| VA Loan | Department of Veterans Affairs | Eligible veterans, active-duty service members, and surviving spouses. | 0% | Certificate of Eligibility (COE); no mortgage insurance. |
| USDA Loan | U.S. Department of Agriculture | Low-to-moderate income buyers in designated rural/suburban areas. | 0% | Income and property location restrictions apply. |
It's important to note that FHA loans require both an upfront and an annual Mortgage Insurance Premium (MIP), which can make them more expensive over the long term than a conventional loan if you have a strong credit profile.
Beyond the loan source, you must choose between a fixed or adjustable interest rate structure.
Fixed-rate mortgages maintain the same interest rate for the entire loan term, typically 15 or 30 years. Your principal and interest payment remains stable, which is ideal if you plan to stay in your home for a long time. The trade-off is that initial rates are generally higher than those for ARMs.
Adjustable-rate mortgages (ARMs) start with a lower introductory interest rate for a set period, after which the rate adjusts periodically based on market indexes. Common structures include the 5/1 ARM and 7/1 ARM, where the rate is fixed for the first five or seven years, then adjusts annually.
ARMs can be a good fit if you plan to sell or refinance before the initial fixed period ends. However, you assume the risk that your rate and payment could increase significantly in the future. Before choosing an ARM, ensure you understand the rate caps that limit how much your interest can change.
In summary, the key to selecting the right mortgage is to align the loan product with your financial health and homeownership goals.
Consulting with a reputable lender to get pre-approved is the best way to understand which specific loan programs you qualify for and how they fit your budget.
