Mortgage Options Explained: Find the Right Loan Type

Overview of Mortgage Types

Mortgage loans are organized into categories based on the size of the loan and whether they are part of a government program. This structure helps borrowers understand which loans may be available to them and what trade-offs to expect.

The main categories covered on this page are conventional loans, which are not government-insured; government-backed programs such as FHA, VA, and USDA loans; and jumbo loans, which exceed standard limits. Each type has distinct eligibility requirements, down payment options, and insurance or fee structures.

Sources: Consumer Financial Protection Bureau

Overview of Common Mortgage Products

Here is a quick summary of the main mortgage products you will encounter:

Conventional loans are not insured or guaranteed by the government and can be used for primary residences, second homes, or investment properties.

FHA loans are insured by the Federal Housing Administration and are often used by first-time buyers because they allow lower credit scores and smaller down payments.

VA loans are backed by the Department of Veterans Affairs and offer 0% down financing to eligible service members, veterans, and some surviving spouses.

USDA loans are backed by the U.S. Department of Agriculture and are for low- to moderate-income borrowers in eligible rural and suburban areas, also with 0% down.

Jumbo loans exceed the conforming loan limits set by Fannie Mae and Freddie Mac, and they typically come with stricter credit and down payment requirements.

• Conventional: not government-insured, flexible property types.
• FHA: low down payment, mortgage insurance required.
• VA: 0% down, no PMI, funding fee may apply.
• USDA: 0% down, income and location limits.
• Jumbo: exceeds conforming limits, higher credit and down payment demands.

Sources: Consumer Financial Protection Bureau, Charles Schwab, Veterans United Home Loans, Capital Bank, Homebase Credit Union

Fixed-Rate vs. Adjustable-Rate Mortgages

A fixed-rate mortgage has an interest rate set when you take out the loan, and that rate stays the same for the entire term. With a fixed-rate loan, your interest rate and monthly principal and interest payment remain unchanged, though your total monthly payment can still change if property taxes, homeowners insurance, or mortgage insurance change.

An adjustable-rate mortgage (ARM) has an interest rate that can change, usually in relation to an index interest rate. Most ARMs have two periods: an introductory period with a fixed rate, and a second period where the rate adjusts based on market conditions. ARMs typically start with a lower interest rate than fixed-rate mortgages, but your monthly payment can increase substantially after the introductory period—in some cases, payments could even double. Most ARMs include rate caps that limit how much the rate can change at each adjustment and over the life of the loan.

When comparing the two, consider how long you plan to stay in the home. A fixed-rate mortgage offers predictability, while an ARM can offer lower initial payments but carries the risk of higher payments later.

• Fixed-rate: rate and principal-and-interest payment stay the same for the life of the loan.
• Adjustable-rate: rate can change after an initial fixed period, often with caps on adjustments.
• ARMs often start with lower rates, but payments may rise significantly.

Sources: Consumer Financial Protection Bureau, Charles Schwab, Bank of America

15-Year vs. 30-Year Loans

The loan term affects your monthly payment and total interest cost. A 15-year mortgage typically has higher monthly payments but lower total interest cost compared to a 30-year mortgage. Conversely, a 30-year mortgage usually has lower monthly payments but higher total interest cost. Choosing between them involves balancing monthly budget with long-term savings.

Sources: Consumer Financial Protection Bureau

Conventional Loans

A conventional loan is any mortgage not insured or guaranteed by the government, such as FHA, VA, or USDA programs. Conventional loans can be used for a primary residence, a second home, or an investment property. They often come with more flexible terms but may require a higher credit score and a larger down payment compared to government-backed options.

For conforming conventional loans, the 2026 limit for a single-family home is $832,750, with higher limits in high-cost counties. Down payments may be as low as 3% for some conforming loans, though 20% is typical to avoid private mortgage insurance (PMI).

• Not government-insured or guaranteed.
• Can be used for primary, second home, or investment property.
• PMI required if down payment is less than 20%.

Sources: Consumer Financial Protection Bureau, Charles Schwab, Capital Bank

FHA Loans

FHA loans are insured by the Federal Housing Administration and are often used by first-time home buyers. They allow lower credit scores and smaller down payments than conventional loans. With a credit score of 580 or higher, you can put down as little as 3.5%. If your credit score is 500–579, you may still qualify with a 10% down payment.

FHA loans require mortgage insurance premiums, which include an upfront premium and an annual premium. There are also loan amount caps that vary by location.

• Insured by the Federal Housing Administration.
• Down payment as low as 3.5% with a 580+ credit score.
• Requires mortgage insurance premiums (upfront and annual).

Sources: Consumer Financial Protection Bureau, Charles Schwab, Veterans United Home Loans, Capital Bank

VA Loans

VA loans are backed by the Department of Veterans Affairs and are available to active-duty service members, veterans, and some surviving spouses. A major benefit is the ability to finance 100% of the home's value—no down payment required. VA loans do not require private mortgage insurance, but they typically charge a funding fee, which can be financed into the loan.

While the VA does not set a minimum credit score, lenders often require a score around 620.

• Backed by the Department of Veterans Affairs.
• Available to eligible service members, veterans, and some surviving spouses.
• 0% down payment; no PMI; funding fee may apply.

Sources: Consumer Financial Protection Bureau, Charles Schwab, Veterans United Home Loans, Homebase Credit Union

USDA Loans

USDA loans are backed by the U.S. Department of Agriculture and are designed for low- to moderate-income borrowers purchasing homes in eligible rural and suburban areas. These loans do not require a down payment. However, they have income limits and property location requirements, and mortgage insurance is required.

• Backed by the U.S. Department of Agriculture.
• For low- to moderate-income borrowers in eligible rural/suburban areas.
• 0% down payment; income and location limits apply.

Sources: Charles Schwab, Capital Bank, Homebase Credit Union

Jumbo Loans

Jumbo loans are non-conforming loans that exceed the conforming loan limits set by Fannie Mae and Freddie Mac. For 2026, the conforming loan limit for a single-family home is $832,750, so any loan above that is considered jumbo (with higher limits in high-cost areas). Mortgage insurance is usually required.

• Exceeds conforming loan limits.
• Down payment often 10-20% or more.
• Credit score requirements are often very high.

Sources: Charles Schwab, Capital Bank

FHA, VA, and Conventional Loan Comparison

The table below summarizes key differences among three common loan types. Down payment, credit score, and mortgage insurance are among the most important factors to consider.

Sources: Veterans United Home Loans, Capital Bank

Key Factors in Choosing a Mortgage

Choosing the right mortgage type depends on your financial situation, homeownership goals, and the amount you can afford for a down payment and monthly payments. Consider these factors:

Your credit score: Higher scores can open the door to more loan types and better terms. FHA loans are more forgiving of lower scores, while conventional and jumbo loans typically require higher scores.

Down payment: Some loans, like VA and USDA, allow 0% down, while others may require a minimum of 3% or more. A larger down payment can reduce or eliminate mortgage insurance.

Loan amount: If you need to borrow more than the conforming limit, a jumbo loan is necessary, but it comes with stricter requirements.

Long-term vs. short-term plans: A fixed-rate mortgage provides stability, while an ARM might offer lower initial payments if you plan to sell or refinance within a few years. A 15-year term can save on total interest if you can handle higher monthly payments.

Sources: Consumer Financial Protection Bureau, Charles Schwab, Veterans United Home Loans, Capital Bank

Cost Comparison Table

The table below provides a side-by-side look at representative criteria for several loan types. Values reflect general guidance from the cited sources; actual terms vary by lender and market conditions. Note that rates are not compared here; for current mortgage rates, see our rates page.

Sources: Charles Schwab, Capital Bank