Choosing a home loan is a big decision. The type of loan you get can impact your down payment, monthly payments, and equity in the home. And there are multiple types of mortgage loans to choose from.

  • Mortgage loans may be categorized as either fixed-rate, in which the interest rate does not change during the term of the loan, or adjustable-rate, in which the rate may fluctuate semi-annually/annually, depending on your loan terms and changes in market rate conditions. 
  • The most common types of home loans are conventional, jumbo, and government-backed loans (which include FHA loans secured by the Federal Housing Administration, VA loans secured by the Department of Veterans Affairs, and USDA loans secured by the Department of Agriculture). 
  • To choose the right mortgage type for you, consider factors like your ability to qualify for different loan types, your tolerance for mortgage payment changes over time, the cost of your monthly mortgage payment, and the overall cost of the loan. 

Buying a home is a financial right of passage for many Americans. The first step for many prospective home buyers is to learn as much as possible about the process, including exploring all the different mortgage loan options. 

While the different types of mortgage loans may seem confusing at first, this article will help you make sense of the varied options and determine which one(s) may be a good fit for you.   

In this article, you will learn:

  • The five main types of mortgage loans.
  • Other possible options for home loans.
  • The two categories of home loans.
  • How to choose the right home loan for you.

The 5 Main Types of Home Mortgage Loans

There are five main types of mortgages:

  1. Conventional mortgages
  2. Jumbo loans
  3. FHA loans
  4. VA loans
  5. USDA loans

1. Conventional Mortgages

A conventional mortgage is any mortgage that is not backed by the government (we’ll discuss government-backed loans shortly). Conventional loans are the most common mortgage loan type in America.[4]

Terms of 10, 15, 20, and 30 years are common. A conventional loan can be either conforming (in which the loan meets industry standards for packaging loans into securities that can be traded on the stock market) or nonconforming (in which the loan does not meet industry standards for bundling into securities).[5]

As with all types of mortgage loans, the criteria for qualifying for a conventional loan vary by lender. Having said that, here are the general requirements for a conventional loan:[6]

2. Jumbo Loans

Jumbo loans are loans for homebuyers looking in a higher price range. These loans exceed the loan maximums set by Fannie Mae, Freddie Mac, and the Federal Housing Finance Agency.[7] Because these loans exceed the maximums set by these agencies, these agencies cannot buy them from the loan originators. This means that the originator is taking a greater risk by lending an amount this large. Because of this increased risk, jumbo loans may have stricter qualifying criteria, higher down payments, and/or higher interest rates.

3. FHA Loans

FHA loans are government-backed loans, in which the FHA (Federal Housing Administration) insures a portion of the loan.[8] This program was designed to make homeownership accessible for buyers who don’t meet the requirements to qualify for a conventional loan. By insuring the loan against borrower default, the FHA enables lenders to offer down payments as low as 3.5%, with potentially lower closing costs and more flexible qualification requirements.[9] This is why FHA loans often work well for first-time homebuyers looking for lower down payments and more lenient credit score requirements. Keep in mind that FHA loans require payment of mortgage insurance premiums.

4. VA Loans

VA loans are government-backed loans offered exclusively to active military service members, veterans, reservists, National Guard members, and unmarried surviving spouses as a benefit for their service.[10]

VA loans offer lower interest rates, limited closing costs, and the potential for qualified buyers to get a loan with zero down payment and no PMI.[12] However, VA loans require payment of a VA Funding Fee.

5. USDA Loans

USDA loans are government-backed loans that encourage low- to moderate-income buyers to consider homes in areas with lower population density.[13] In an effort to promote the development of rural areas, the US Department of Agriculture (USDA) qualified buyers to purchase an eligible home with zero down payment.[15] However, USDA loans require an upfront Guarantee Fee as well as an annual fee, which is similar to a conventional loan’s PMI.

  Conventional Loan Jumbo Loan FHA Loan VA Loan USDA Loan
Down Payment At least 3% Typically 10–20%+ (varies by lender) At least 3.5% As low as 0% for eligible borrowers As low as 0% for eligible borrowers
Mortgage Insurance Private mortgage insurance (PMI) typically required if the down payment is less than 20% Not required, but higher rates and stricter reserves often apply Upfront Mortgage Insurance Premium (UFMIP) and annual MIP required No monthly mortgage insurance, but VA funding fee applies Upfront guarantee fee and annual fee required
Maximum Loan Amount Higher maximum amount (especially in high-cost areas) Exceeds conforming loan limits Lower maximum amount (set by FHA limits) No official cap for eligible borrowers with full entitlement (lenders still set limits) Based on local income limits and property eligibility
Inspection and Appraisal Requirements Typically require an appraisal to confirm the value of the property Typically require an appraisal to confirm the value of the property Require an appraisal by an FHA-approved appraiser to ensure property meets HUD minimum standards VA appraisal required to assess value and minimum property requirements USDA appraisal required to confirm value and property condition standards
Refinancing Options Rate and term and cash-out Rate and term and cash-out (lender-specific) Rate and term, cash-out, and FHA Streamline VA Interest Rate Reduction Refinance Loan (IRRRL) and cash-out refinance Rate and term and USDA Streamline options
Ideal For Borrowers with stronger credit scores and/or higher income and savings Buyers with strong finances purchasing high-priced homes above conforming limits First-time buyers, those with lower credit, and those able to make smaller down payments Eligible military service members, veterans, and certain surviving spouses Low- to moderate-income buyers purchasing in eligible rural areas

Are There Other Types of Mortgages Available?

The five mortgages we’ve just discussed may be the main types of mortgage loans, but they aren’t the only home loan options available for borrowers. Here are a few of the other types of mortgages you may come across.

  • Physician loans. Physician loans are designed for doctors, medical interns, and residents. They offer higher loan limits than conventional loans with no PMI required. They also allow gifted funds to be used for down payment and closing costs.
  • Home equity loans. Home equity loans are second mortgages, which allow homeowners to borrow against the equity in their homes.
  • Home equity lines of credit (HELOCs). HELOCs are second mortgages that allow homeowners to open a revolving line of credit to borrow against home equity.
  • Reverse mortgages. Reverse mortgages allow senior citizens to convert a portion of their home equity into income each month.
  • Construction loans. Construction loans help property owners cover the cost of developing raw land or renovating an existing structure.
  • Interest-only loans. Interest-only loans allow qualified borrowers to maintain lower monthly payments by excluding the principal loan balance from the initial mortgage payments. Instead, payments are applied only to the interest for the first several years of the loan.
  • Balloon mortgages. Balloon mortgages carry comparatively low monthly mortgage payments, followed by a single, large payment at the end of the loan. Balloon mortgages can be used by borrowers who plan to refinance or sell the property before the balloon payment is due.

How To Choose the Right Mortgage Type for You

When deciding on the right mortgage type for you, consider the following:

  • Your credit scores and financial profile. If you’re deciding between a conventional and an FHA loan, conventional loans typically (though not always) provide favorable rates and terms for buyers with strong credit scores and finances.
  • How much of a down payment you can afford. Different loan types offer different down payment minimums.
  • Mortgage rates. Different home loan types offer different interest rates, so it's important to compare rate offers.
  • Monthly payments and overall costs. It’s important to weigh the monthly payments for the loan types you may qualify for against the total cost of the loan over the period you plan to own the home.
  • The purchase price. Higher-priced homes may require a jumbo loan. 
  • Military eligibility. If you qualify for a VA loan, you may find that this loan type offers more favorable rates and terms than other options. 
  • Rural eligibility with USDA-aligned income levels. Qualifying for a USDA loan may offer lower interest rates and/or lower down payments than other loan types.

2 Home Loan Rate Options

Mortgage loans generally fall into one of two categories:[1]

  1. Fixed-rate mortgage loans
  2. Adjustable-rate mortgage loans

Fixed-Rate Mortgages

With a fixed-rate mortgage, the interest rate remains unchanged for the entire term of the loan. In a 30-year fixed mortgage, for example, the interest rate would remain the same for the whole 30 years (unless the loan was refinanced to a new loan or the home was sold before the end of the loan term).

The primary benefit of a fixed-rate mortgage is that you know exactly what your interest rate will be throughout your loan.[2] If you lock in your rate while rates are low, you can potentially save a lot of money over the term of your loan. If mortgage interest rates decrease during the term of your fixed-rate mortgage, you may be able to refinance to get the lower rate.[3]

Adjustable-Rate Mortgages

With an adjustable-rate mortgage (also referred to as ARMs), the interest rate fluctuates along with market rates at different points during the loan term. ARMs can be structured using different time frames, for example, starting with an initial rate that remains unchanged for a period of five or ten years and then fluctuating after that initial period.

The primary benefit of most ARMs is that the initial interest rate is typically lower than the interest rate for a fixed-rate mortgage.[2] Because the rate typically changes with the market, it is possible for the rate to go down, but it is also possible for the rate to go up. The borrower carries the risk of potential future increases, although some lenders cap the rate increases.

Simplify Your Home Loan Search

With so many different types of home loans available, it can be hard to know which one is the best fit. A mortgage loan officer can help you compare options based on your unique circumstances and goals. Reach out today for personalized guidance by calling 1-855-744-2668.