Types of Mortgage Loans: Which Is Right for You?

It can feel overwhelming to decide between different types of mortgages, from conventional vs. government-backed loans to fixed-rate vs adjustable rate mortgages. But it’s worth spending time to learn about your options. We’ll cover the features and requirements of common loan types and provide tips for choosing the right mortgage for you.

What are the main types of mortgage loans?

Here's a look at different kinds of mortgages, including their eligibility requirements and estimated costs.

Conventional loan

A conventional loan is a mortgage offered by a private lender. While government-sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac often buy conventional loans from lenders on the secondary market, they do not directly guarantee or insure them against default. Conforming conventional loans must meet certain criteria set by GSEs, such as maximum loan limits that vary by county. 

“Conventional loans are often the better fit for borrowers with stronger credit profiles, lower debt-to-income ratios, and larger down payments,” says Jodi-Kaye Wade, loan officer and mortgage broker with Minnesota-based Edge Home Finance. “They can offer lower long-term borrowing costs, particularly because private mortgage insurance [if applicable] may eventually be removed once sufficient equity is established.”

Requirements

Conventional mortgage requirements include:

• A minimum 620 credit score with most lenders
• A maximum loan amount of $832,750 for a single-family home in most areas
• A minimum down payment of 3% or 5%, depending on the lender and loan product
• Verification of employment and a history of steady income
• A maximum debt-to-income ratio of 45% is generally preferred, but some lenders may accept a DTI as high as 50% with compensating factors such as a high credit score or large down payment.
• Private mortgage insurance premium payments if you put less than 20% down
• Cash reserves for second-home, multifamily, or investment properties

Lifetime payment amount

If you took out a $320,000 conventional loan with a 6.5% fixed interest rate and a 30-year loan term, you’d pay a total of $728,141 in principal and interest over the life of the loan.

FHA loan

FHA loans are backed by the Federal Housing Administration, which allows lenders to consider borrowers with lower credit scores and/or higher debt-to-income ratios. 

If you only have a small down payment or bad credit, you might get a lower rate on an FHA loan. But bear in mind, you would need to pay upfront and annual mortgage insurance premiums on an FHA loan no matter how much you put down. If you put at least 10% down, you can typically stop paying premiums after 11 years. 

Requirements

FHA loan requirements include:

• A minimum credit score of 500 with 10% down or 580 with 3.5% down
• A maximum debt-to-income ratio of 43% (or as high as 50% with compensating factors like cash reserves)
• Typically two years or more of employment history and stable income
• Intent to use the property as your primary residence
• A maximum loan amount within FHA mortgage limits for your county

Lifetime payment amount

If you took out a $320,000 FHA mortgage with a 6.4% fixed interest rate and a 30-year loan term, you’d pay $720,582 in principal and interest over the life of the loan. 

Keep in mind that in addition to principal and interest, you’d also pay an upfront and a yearly mortgage insurance premium (MIP). All FHA purchase loans include a one-time upfront MIP equal to 1.75% of the base loan amount. Depending on the size of your down payment, you would also pay an annual mortgage insurance premium for a certain number of years. In this example, the upfront mortgage insurance premium would be $5,600 and a minimum 3.5% down payment would result in an annual MIP of $1,760, or about $147 per month, for the duration of the loan.

VA loan

The Department of Veterans Affairs guarantees a portion of VA loans, which are available to veterans, servicemembers, and surviving spouses who meet certain requirements. Private lenders are able to offer VA loans with benefits including no down payment typically required and limited closing costs. There’s no mortgage insurance with a VA loan, but you do need to pay a one-time VA funding fee. However, you can often finance this payment into the loan amount and pay off over the loan’s term 

Requirements

To be eligible for a VA home loan, you must meet the VA’s service requirements and the lender’s financial requirements. Additionally, VA loans are intended for the purchase of a primary residence, and the property must meet minimum requirements for health and safety.

Financial requirements vary by lender. Generally speaking, lenders look for:

• A minimum credit score ranging from 550 to 620
• 2 years of employment history and stable income
• A maximum debt-to-income ratio of 41% (unless you show compensating factors)

Lifetime payment amount

A $320,000 VA loan with a 6.25% fixed interest rate and a 30-year loan term would cost $709,303 in principal and interest over the life of the loan.

Also, borrowers typically pay a one-time VA funding fee ranging 1.25% to 3.3% of the base loan amount, depending on the size of the down payment and whether it's their first use of a VA loan.

USDA loan

The U.S. Department of Agriculture offers home loan programs for low- and moderate-income borrowers in eligible rural (and some suburban) areas. The two main types of USDA loans are:

• Single Family Housing Direct Home Loans, also known as the Section 502 Direct Loan Program, which provides direct USDA financing. Interest rates may be as low as 1% with payment assistance.
• Single Family Housing Guaranteed Loan Program, also known as the Section 502 Guaranteed Loan Program, which facilitates loans from private lenders by offering USDA loan guarantees. Rates may be comparable to or lower than those of conventional mortgages.

To be eligible for either program, you must live in an eligible rural or suburban area, live in the home as your primary residence, and meet the program’s income requirements. USDA loans offer low interest rates and typically require no down payment. For guaranteed loans, there’s an upfront guarantee fee of 1% of the loan amount and an annual fee of 0.35% of the loan amount. 

Requirements

USDA loan requirements are complex and depend on the specific loan program, the median income in your area, and other factors. The best way to find out if you and your property qualify is to use USDA’s eligibility site. While USDA doesn’t set a strict minimum credit score requirement, bear in mind that you’ll typically need to provide additional paperwork if you have a credit score of less than 640. 

Lifetime payment amount

Interest rates for USDA loans depend on the specific loan program, which affects the lifetime payment amount. Using a $250,000 loan with a 30-year term as a starting point, estimates could look like: 

• When modified by payment assistance, Section 502 Direct Loan interest rates can be as low as 1%. Since that rate is ideal but not necessarily realistic, we’ll assume a rate of 3% — that would cost a total of $379,444 in principal and interest on a $250,000 loan. 
• With a Section 502 Guaranteed Loan with a 6.4% fixed interest rate, you’d pay $562,959 in principal and interest over the life of the loan. You’d also pay a $2,500 upfront guarantee fee (1% of the base loan amount) and an $875 annual guarantee fee (0.35%) of the loan amount. 

Jumbo loan

Jumbo loans are loans in amounts that exceed conforming loan limits, which are set annually according to a formula established under law. For most areas of the U.S., the conforming loan limit for a single-family home in 2026 is $832,750, but the limit is higher in certain high-cost areas. 

Because jumbo loans exceed conforming loan limits, they don’t meet the requirements to be sold to Fannie Mae and Freddie Mac. Without the backing of GSEs, lenders take on more risk when issuing jumbo loans, so they generally set stricter qualification requirements. 

Requirements

Requirements for jumbo loans vary by lender, but you typically need:

• A minimum credit score of 680-700
• A 10-20% down payment
• A lower maximum debt-to-income ratio (generally 43%) than some conventional loans, which may allow higher ratios with compensating factors such as high credit scores
• Adequate cash reserves to cover several months of mortgage payments, generally 6-12 months but as much as 36 months in some cases
• A history of a consistently high income

Lifetime payment amount

In the third quarter of 2025, the average jumbo loan borrower took out a $1,523,000 mortgage with a 6.4% interest rate, according to the Federal Housing Finance Agency. Over a 30-year term, you’d pay $3,429,527 in principal and interest. 

Fixed rate vs. adjustable rate mortgages

You generally have two options:

• Fixed rate: With fixed-rate mortgages, the interest rate stays the same over the life of the loan. Most homeowners choose this option.
• Adjustable rate (ARM): With an adjustable-rate mortgage, the interest rate can change over the loan term. Many ARMs begin with a low, fixed interest rate for the first several years. After the initial period, the rate changes according to a margin established in your loan contract. Some ARMs cap how much the rate can go up or down. 

Most borrowers choose fixed-rate mortgages because they offer predictable monthly principal and interest payments. In some cases, an adjustable-rate mortgage can be beneficial for homebuyers with certain ownership timelines. “An ARM may make sense for borrowers who expect to sell, refinance, or relocate before the adjustment period begins,” says Wade.

Planning to refinance an ARM before the initial rate period ends comes with some risk, however; your financial situation could change, property values could fall, or interest rates could increase, making a refinance costly and detrimental to your financial goals. Before taking out an ARM, make sure you can afford the higher monthly payments in case refinancing isn’t an option. 

If you're considering an ARM, it pays to take the long view. “Rather than focusing solely on today's rate, borrowers should think about their future plans,” says Wade. “The best mortgage isn't necessarily the one with the lowest initial payment; it's the one that aligns with their financial goals and expected timeline.”

How do you choose the right mortgage loan type?

Few things are one-size-fits-all, including mortgage loans. The right mortgage loan type for you will depend on your financial situation, your goals, and other factors. Here are some things to consider.

Eligibility requirements

Some loans are tailored to certain types of borrowers. For example, a low credit score could make it more difficult to qualify for a conventional loan. VA loans are available only to eligible service members and surviving spouses. You're unlikely to get a USDA loan if you earn more than the maximum income limit (varies by location) and don't live in an eligible area.

Check your credit score and calculate your debt-to-income ratio before you start comparing loans. Also keep in mind that some government-backed loans have specific conditions such as income restrictions and military status.   

Property type and use

Consider your housing goals. If you’re looking to renovate an older home, you may have government-backed and conventional options, but each has different requirements. For example, you can’t use an FHA 203(k) loan for luxury improvements. 

Timeline of ownership

“If you plan to sell or refinance within 5 to 7 years, an adjustable-rate mortgage can save you thousands in interest early on,” says Jason Jepson, co-founder at IncomeEngine. On the other hand, “If this is your 'forever home,' the peace of mind of a 30-year fixed-rate is worth the premium.” However, plans can change (as can your financial situation) and an ARM exposes you to increasing monthly payments once the rate adjusts.

Mortgage rates and fees

When choosing a loan type, consider the mortgage rate and loan fees, along with other costs such as mortgage insurance premiums. The ideal option for you depends on your financial profile, your timeline, and other factors. The lender you choose also matters —  compare your options carefully. 

Upfront vs. long-term borrowing cost

“Conventional loans require stronger credit and down payments but lack the lifetime mortgage insurance premiums found in many government loans,” says Jepson. “Government-backed loans are excellent for maximizing leverage and preserving cash, but they come with upfront fees."

If you’re having difficulty deciding, an HUD-approved housing counselor can help you evaluate your financial situation and develop a customized homebuying plan based on your budget. A housing counselor can also give you information about first-time homebuyer assistance programs in your area and help you compare mortgage loan options.