5 types of mortgage loans for homebuyers

How to choose the right type of mortgage loan

While most buyers opt for a 30-year, conventional mortgage, these loans aren’t the only option — and they may not be the best one, depending on your plans and financial situation. 

As you choose your mortgage type, consider these factors:

• Your financials: Conventional loans typically require a credit score of at least 620, while you may be able to get an Federal Housing Administration, or FHA, loan with a credit score as low as 500. You may be able to get a VA loan — backed by the Department of Veterans Affairs — without making a down payment, while conventional loans require at least 3% down. Generally speaking, government-backed loans may be a better fit if your credit or savings could be a challenge. 
• Your local housing market: If you’re looking at homes worth more than about $830,000 — $832,750 to be exact — in most of the United States, you’ll need a special type of mortgage called a jumbo loan. In some, more expensive markets, the cut-off is $1,249,125.
• Your future plans: Do you plan to move in the short term? If so, you might choose an adjustable-rate mortgage, or ARM, over a fixed-rate loan.

Once you’ve weighed these questions, compare mortgage lenders and start talking to loan officers. They can help you pinpoint the best fit and then how to get that mortgage.

Types of home loans

1. Conventional loan

Conventional loans, the most popular type of mortgage, come in two flavors: conforming and non-conforming.

• Conforming loans: A conforming loan meets, or “conforms” to, a set of standards around loan size, as well as borrower credit and debt, set by the Federal Housing Finance Agency (FHFA). Conforming loans may be purchased by Fannie Mae and Freddie Mac. Because lenders know they can sell these loans, they tend to charge lower rates for them.
• Non-conforming loans: These loans do not meet one or more of the FHFA’s standards. One of the most common types of non-conforming loans is a jumbo loan, a mortgage that exceeds the conforming loan limit. Non-conforming loans can’t be purchased by Fannie and Freddie, so they’re riskier prospects for lenders.

Pros of conventional loans

• Almost all lenders offer them
• Can be used to finance primary residences, second or vacation homes and investment or rental properties
• Require as little as 3% down for a conforming, fixed-rate loan
• May be less expensive in the long term

Cons of conventional loans

• Need a credit score of at least 620 to qualify
• Need to pay private mortgage insurance (PMI) premiums if putting less than 20% down

Who are conventional loans best for?

If you can qualify for a conventional loan, it’s typically best to choose one. These loans actually require lower down payments than FHA loans, have more flexibility than government-backed loans — for example, you can use a conventional loan to buy a vacation home or other non-primary residence — and they tend to charge fewer fees than some government loan programs. Even if you must pay private mortgage insurance for putting less than 20% down, you can cancel this payment once you reach 20% equity in your home. Fees related to government-backed loans tend not to be cancellable.

2. Jumbo loan

Jumbo mortgages are home loans that exceed the FHFA’s conforming loan limits. In 2026, that means any loan of more than $832,750, or $1,249,125 in higher-cost areas. Because these loans can’t be sold on the secondary market, they’re riskier for lenders, and lenders often have more stringent qualifying criteria for them than for conventional loans.

Pros of jumbo loans

• Competitive interest rates, nowadays similar to those on conforming loans
• Often the only option in areas with high home values

Cons of jumbo loans

• Not available from every lender
• Often require a credit score of at least 700
• Often require at least 10% or 20% down
• May mandate that you retain substantial savings after paying the upfront costs of your mortgage

Who are jumbo loans best for?

If you’re looking to buy in an area with high home values, a jumbo loan is often your only option. However, if you might struggle to qualify for one or simply aren’t sure you want to take on the expense, keep in mind that you could actually come out ahead if you continue to rent, especially if you’re able to invest money you might otherwise have spent on maintenance and taxes.

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3. Government-backed loan

The U.S. government isn’t a mortgage lender, but it does play a role in making homeownership accessible to more Americans by backing three main types of mortgages:

• FHA loans: You can qualify for an FHA loan with a credit score as low as 580 and a 3.5% down payment, or a score as low as 500 with 10% down. However, FHA loans also require upfront and monthly mortgage insurance premiums that last for the entire loan term.
• VA loans: VA loans are for eligible members of the U.S. military — active duty, veterans, National Guard and Reservists — as well as surviving spouses. VA loans typically don’t require a down payment, but you’ll need to pay a funding fee of 1.25% to 3.3% of the loan amount at closing.
• USDA loans: Guaranteed by the U.S. Department of Agriculture (USDA), USDA loans help moderate- to low-income borrowers buy homes in rural, USDA-eligible areas. These loans don’t have a credit score or down payment requirement, but they do charge guarantee fees both upfront and for the life of the loan.

Pros of government-backed loans

• Much more flexible credit and down payment guidelines
• Often assumable, meaning that if you sell the home, a buyer can take on the rate and terms of your loan
• Sometimes have lower rates than conventional loans
• Often have slightly looser requirements for who can give you financial assistance toward your purchase

Cons of government-backed loans

• Cost of fees can be higher than for conventional loans, especially you roll them into your loan balance instead of paying upfront
• Can have eligibility limits, lower loan limits and limits on how you can use the property
• The lower your down payment, the higher the risk of becoming underwater on your mortgage.

Who are government-backed loans best for?

If your credit or down payment savings prevent you from qualifying for a conventional loan, but you can afford to buy a home, a government-backed loan can be a good option. That said, FHA loans in particular come with fees that can be difficult or impossible to remove. Even if you start with a FHA loan, you may consider refinancing to a conventional one later to save money. On the other hand, if you qualify for a VA loan, you’re more likely to save money with one compared to a conventional loan.

For example, let’s review the upfront, monthly and total costs for conventional, FHA and VA borrowers, all of whom take out a 30-year mortgage for a $360,000 home and make the minimum down payment.

• Assumptions

  • A $360,000 home purchased with a 30-year mortgage at the average rate for each product on 7/23/26, according to Bankrate: 6.65% (conventional), 6.48% (FHA) and 6.51% (VA).

  • Each borrower made the minimum down payment: 3% (conventional), 3.5% (FHA) and 0% (VA).

  • The conventional borrower has a 700 credit score, the VA borrower has a 620 credit score and the FHA borrower has a 580 credit score.

  • The conventional borrower pays a mortgage insurance premium that’s 0.78% of their loan amount, or $235 per month and the FHA borrower pays a premium that’s 0.55% of the loan amount, or $165 per month.

  • Closing costs for the conventional loan of $4,528 (the national average in 2025, according to data provider Lodestar) and that the borrower pays the FHA MIP premium (1.75% of loan amount) and the VA funding fee (2.15% of the loan amount) at closing.

   

Note that if your credit score is lower — say 620 — and doesn’t improve over the life of your loan, FHA MIP may save you money relative to the total cost of PMI. The math also changes if you choose to roll your upfront mortgage insurance premium or funding fee into your loan balance rather than paying it up front. This means you’ll pay interest on it. Use Bankrate’s mortgage calculator to run your own numbers.

4. Fixed-rate mortgage

Fixed-rate mortgages maintain the same interest rate over the life of your loan, which means the portion of your monthly payment covering principal and interest always stays the same. Fixed-rate loans typically come in terms of 15 years or 30 years. Most borrowers choose 30-year loans.

Pros of fixed-rate mortgages

• Easier to budget for

Cons of fixed-rate mortgages

• Usually have higher interest rates than introductory rates on adjustable-rate loans

Who are fixed-rate mortgages best for?

If you’re planning to stay in your home for some time and looking for a predictable monthly payment — notwithstanding homeowners insurance premiums and property tax increases — a fixed-rate mortgage is right for you.

5. Adjustable-rate mortgage (ARM)

In contrast to fixed-rate loans, adjustable-rate mortgages come with interest rates that change over time. Typically, you’ll get a lower, fixed introductory rate for a set period. After this period, the rate increases or decreases at predetermined intervals for the remainder of the loan term. A 5/6 ARM, for example, has a fixed rate for the first five years, and then the rate increases or decreases based on economic conditions every six months until you pay it off. Once you’ve reached the adjustable phase of your loan, keep in mind that your rate can increase up to a predetermined ceiling, but it likely won’t decrease below the introductory rate you paid — even if market rates are lower.

Pros of ARMs

• Lower introductory rates
• Build equity more quickly in early years

Cons of ARMs

• Ongoing risk of higher monthly payments
• Tougher to plan your budget as rates change
• Can be harder to qualify for and often require 5% down payments

Who are adjustable-rate mortgages best for?

If you don’t plan to stay in your home beyond a few years, an ARM could save you money on interest, especially if you’re getting a jumbo loan. However, if you plan to stay in your home longer term, remember that there’s more potential for you to be hurt by market rate increases with an ARM than for you to benefit from market rate decreases. And while you can refinance out of an ARM, there’s no guarantee what rates will be like when you do.

Other types of home loans

In addition to these common kinds of mortgages, there are other types you might encounter:

Construction loans

If you want to build a home, you can’t use a regular mortgage to finance it, as there’s nothing to back the loan yet. Instead, you’d use a construction loan. Construction-to-permanent loans, which convert to a traditional mortgage once you actually move into the residence, are one of the more popular types.

Best if: You’re building your own home and can afford a higher down payment.

Piggyback loans

A piggyback loan, also referred to as an 80/10/10 loan, involves two loans: one for 80% of the home price, another for 10%. Both loans involve their own down payments and closing costs, and the second loan often has a substantially higher interest rate than the first. Before considering a piggyback loan strategy, do the math to ensure it makes financial sense.

Best if: You’re trying to avoid taking out a jumbo loan or paying mortgage insurance.

Home renovation loans

Home renovation loans combine the costs of purchasing and repairs into one mortgage.

Best if: You’re buying a home that needs major work.

Physician loans

Physician loans allow doctors and other medical professionals to qualify for a mortgage even with large amounts of medical school debt. If you qualify for a physician loan, you typically won’t have to make a down payment or pay PMI, but you will face more restrictions than with a conventional loan — for example, you typically must buy a primary residence. Keep in mind that many physician loans are adjustable-rate loans.

Best if: You’re a medical professional buying a primary residence.

Non-qualifying loans

Non-qualifying (non-QM) mortgages don’t meet certain standards set by federal law, so they offer more lenient credit and income requirements, but they might also come with higher down payments and interest rates.

Best if: You have unique circumstances, such as inconsistent earnings, foreign income or a declaration of bankruptcy.

Additional reporting by Mia Taylor