Types of Mortgages: Complete Guide to Every Loan Option

The main mortgage types are conventional (best for 680+ credit, 5-20% down), FHA (best for lower credit, 3.5% down), VA (zero down for veterans), USDA (zero down for rural areas) and jumbo (for high-value homes). Fixed-rate loans offer payment stability while ARMs start lower but can adjust. Your best option depends on your credit score, down payment, location and military status.

Overview of Mortgage Types

Quick Comparison

Loan Type	Min Down	Min Credit	Best For
Conventional	3%	620	Good credit, wants PMI removal
FHA	3.5%	580	Lower credit, smaller down payment
VA	0%	None	Veterans and military
USDA	0%	640	Rural and suburban buyers
Jumbo	10-20%	700+	High-value properties

By Interest Rate Structure

Type	How It Works
Fixed-rate	Same rate for entire loan term
ARM (Adjustable)	Fixed initially, then adjusts periodically
Interest-only	Pay only interest initially, principal later

Conventional Loans

What They Are

Conventional loans aren’t backed by the government. They’re sold to Fannie Mae or Freddie Mac after origination.

Requirements

Requirement	Standard
Minimum credit	620 (740+ for best rates)
Minimum down	3% (20% to avoid PMI)
DTI limit	43-45%
PMI	Required under 20% down

Types of Conventional

Conforming: Meets Fannie/Freddie guidelines and loan limits ($766,550 in most areas)

Non-conforming: Exceeds limits or doesn’t meet guidelines

Conventional 97: 3% down option for first-time buyers

HomeReady/Home Possible: 3% down with income limits

Pros and Cons

Pros:

• PMI removable at 20% equity
• No upfront insurance premium
• More flexible property standards
• Higher loan limits than FHA

Cons:

• Higher credit score needed for best rates
• PMI more expensive with lower credit
• Stricter qualification than FHA

Best For

• Buyers with 680+ credit
• 10-20% down payment available
• Want to remove PMI eventually
• Buying non-FHA-approved properties

FHA Loans

What They Are

FHA loans are insured by the Federal Housing Administration. Lenders take less risk, so they offer easier qualification.

Requirements

Requirement	Standard
Minimum credit	580 (3.5% down) or 500 (10% down)
Minimum down	3.5%
DTI limit	43% (up to 50% with factors)
MIP	Required for life of loan (usually)

MIP Structure

Upfront MIP: 1.75% of loan (financed into loan)

Annual MIP: 0.55% (paid monthly)

Pros and Cons

Pros:

• Lower credit accepted (580 vs 620)
• Lower down payment (3.5%)
• More lenient DTI requirements
• Gift funds allowed for entire down payment

Cons:

• MIP for life of loan (under 10% down)
• Stricter property requirements
• Lower loan limits than conventional
• Seller may prefer conventional buyers

Best For

• Credit scores 580-679
• Smaller down payment
• Higher debt-to-income ratios
• First-time buyers with limited savings

VA Loans

What They Are

VA loans are guaranteed by the Department of Veterans Affairs. Available to veterans, active military and eligible surviving spouses.

Requirements

Requirement	Standard
Minimum credit	None (620+ typical lender requirement)
Minimum down	0%
DTI limit	41% (residual income is key factor)
Funding fee	2.15% first use (waived for some)

Who’s Eligible

• 90+ days active duty (wartime)
• 181+ days active duty (peacetime)
• 6 years National Guard/Reserves
• Surviving spouse of veteran who died in service

Pros and Cons

Pros:

• Zero down payment
• No monthly mortgage insurance
• Competitive interest rates
• No prepayment penalty
• Assumable loans

Cons:

• Funding fee (unless exempt)
• Must be primary residence
• VA appraisal requirements
• Limited to eligible borrowers

Best For

• Veterans and active military
• Want zero down payment
• Want to avoid monthly PMI
• Eligible surviving spouses

USDA Loans

What They Are

USDA loans are guaranteed by the U.S. Department of Agriculture for rural and suburban properties.

Requirements

Requirement	Standard
Minimum credit	640 (for automated approval)
Minimum down	0%
DTI limit	29% front-end, 41% back-end
Income limit	115% of area median income
Location	USDA-eligible rural area

Geographic Eligibility

About 97% of U.S. land qualifies. Many suburban areas 30+ miles from major cities are eligible. Check the USDA eligibility map.

Fee Structure

Upfront guarantee fee: 1% of loan

Annual guarantee fee: 0.35% (paid monthly)

Pros and Cons

Pros:

• Zero down payment
• Lowest mortgage insurance rates
• Competitive interest rates
• No maximum loan amount

Cons:

• Income limits apply
• Location restrictions
• Insurance for life of loan
• Longer processing time

Best For

• Buyers in rural/suburban areas
• Income within USDA limits
• Want zero down payment
• Low mortgage insurance costs

Jumbo Loans

What They Are

Jumbo loans exceed conforming loan limits. They’re not eligible for Fannie Mae or Freddie Mac purchase.

Requirements

Requirement	Standard
Minimum credit	700+ (720+ preferred)
Minimum down	10-20%
DTI limit	43%
Reserves	6-12 months of payments

Loan Limits (2024)

Area	Conforming Limit	Jumbo Threshold
Most counties	$766,550	Above $766,550
High-cost areas	Up to $1,149,825	Above local limit

Pros and Cons

Pros:

• No loan amount cap
• Competitive rates for qualified borrowers
• Can finance luxury properties
• Flexible terms available

Cons:

• Higher credit requirements
• Larger down payment needed
• More reserves required
• Stricter documentation

Best For

• High-value property purchases
• Buyers with strong financials
• Expensive markets exceeding conforming limits
• Second home or investment property

Fixed-Rate vs Adjustable-Rate

Fixed-Rate Mortgages

How it works: Rate never changes for entire loan term

Common terms: 15, 20 or 30 years

Monthly payment: Same every month

Term	Rate	Monthly (on $300K)	Total Interest
30-year	6.50%	$1,896	$382,633
15-year	5.75%	$2,496	$149,280

Adjustable-Rate Mortgages (ARMs)

How it works: Fixed initially, then adjusts based on market index

Common types: 5/1, 7/1, 10/1 ARM

Rate caps: Limit how much rate can change

ARM Type	Fixed Period	Then Adjusts
5/1 ARM	5 years	Annually
7/1 ARM	7 years	Annually
10/1 ARM	10 years	Annually

Which to Choose

Choose fixed if:

• Staying long-term (10+ years)
• Want payment stability
• Risk-averse
• Rates are historically reasonable

Choose ARM if:

• Moving or refinancing within fixed period
• Can handle potential payment increases
• Want lower initial payment
• Rates are high and expected to fall

Specialty Loan Types

Construction Loans

Purpose: Finance building a new home

Types:

• Construction-only (refinance after)
• Construction-to-permanent (converts to mortgage)

Requirements: Higher down payment, approved builder, detailed plans

Renovation Loans

FHA 203(k): Finance purchase plus repairs

Fannie Mae HomeStyle: Conventional renovation financing

Purpose: Buy fixer-uppers with one loan

Bridge Loans

Purpose: Short-term financing between selling current home and buying new one

Terms: 6-12 months, higher rates

Use case: When you need to buy before selling

Reverse Mortgages

Purpose: Convert home equity to income for seniors 62+

Types: HECM (FHA-insured), proprietary

Repayment: When you sell, move or pass away

Choosing the Right Mortgage

Decision Flowchart

Are you a veteran or active military?

• Yes → Consider VA loan first

Are you buying in a rural area with moderate income?

• Yes → Consider USDA loan

Is your credit score under 680?

• Yes → Consider FHA loan

Is the loan amount over conforming limits?

• Yes → You need a jumbo loan

None of the above?

• Conventional loan is likely best

By Credit Score

Credit Score	Best Options
760+	Conventional, VA (if eligible)
700-759	Conventional, VA, FHA
640-699	FHA, VA, USDA (if eligible)
580-639	FHA (3.5% down)
500-579	FHA (10% down)

By Down Payment

Available Down	Best Options
0%	VA, USDA (if eligible)
3-3.5%	Conventional 97, FHA
5-10%	Conventional
20%+	Conventional (no PMI)

Frequently Asked Questions

Which mortgage type has the lowest rates?

VA loans typically offer the lowest rates, followed by conventional for high-credit borrowers. FHA rates are competitive but MIP adds to the cost. Jumbo rates are usually 0.25-0.5% higher.

What’s the easiest mortgage to qualify for?

FHA loans are generally easiest due to lower credit requirements (580), higher DTI allowances and lenient guidelines. VA loans are also flexible for eligible borrowers.

Can I switch from FHA to conventional later?

Yes. Many FHA borrowers refinance to conventional once they have 20% equity and good credit. This eliminates the lifetime MIP of FHA.

What type of mortgage is best for first-time buyers?

Depends on your situation. FHA is popular for lower credit or smaller down payments. Conventional with 3% down is good for better credit. VA or USDA if you’re eligible for either.

Do all lenders offer all loan types?

No. Some lenders specialize in certain loan types. Credit unions may offer better conventional rates. VA-focused lenders may have better VA processes. Shop around.

Can I have more than one type of mortgage?

Yes. You could have a conventional loan on your primary home and a different type on an investment property. Each loan is evaluated separately.