10 Best Mortgage Loan Types to Consider Now

There’s more than one way to get a mortgage. Knowing the different types can help you find the one that best fits you. From fixed-rate loans to government-backed options like FHA and VA loans, each type has its own benefits and purpose.

In this guide, we’ll explain the most common types of mortgage loans clearly. You’ll find out what makes each one different, who they work best for, and how to choose the right loan for your home-buying journey.

Ready to find your best fit? Keep reading!

1. Fixed-Rate Mortgages

Fixed-rate mortgages keep the same interest rate for the life of your loan. This means your monthly payments stay stable, making it easier to budget. Loan terms usually last 15 or 30 years.

Fifteen-year loans often have lower rates but higher monthly payments.

You’ll need a credit score of at least 620 to qualify. A down payment of 3% or more is also required. Lenders like borrowers with a debt-to-income ratio below 45%. While these loans offer stability, refinancing may be needed if market rates drop later.

Rates on these loans are typically higher than adjustable-rate mortgages (ARMs) at first.

2. Adjustable-Rate Mortgages (ARMs)

ARMs have interest rates that change over time. These loans start with a lower fixed rate for the first few years, like 5 or 7 years. After this initial period, the rate adjusts based on market conditions.

For example, a 5/1 ARM has a fixed rate for 5 years and adjusts annually thereafter.

You usually need a credit score of at least 620 to qualify. A minimum down payment of 5% is typical, and your debt-to-income ratio should stay under 45%. ARMs often have lower starting payments than fixed-rate mortgages.

But they can become unpredictable once the fixed term ends. If rates rise too much later, refinancing could help stabilize costs.

3. FHA Loans (Federal Housing Administration)

FHA loans help people buy homes with less money upfront. You can qualify with a credit score as low as 500 if you make a 10% down payment. With a score of 580 or higher, you only need to put down 3.5%.

These loans must be used for your primary residence and can cover single-family homes or multifamily properties with up to four units.

Loan limits depend on where you live, from $524,225 in most places to $1,209,750 in high-cost areas. FHA loans require mortgage insurance premiums. If your down payment is under 10%, insurance stays for the life of the loan; if it’s over 10%, it lasts for just 11 years.

You also have options like FHA 203K loans if you’re buying a home that needs renovations or upgrades!

4. VA Loans (Department of Veterans Affairs)

VA loans help military service members, veterans, and their families buy homes. You don’t need a down payment or private mortgage insurance (PMI). Unlike other home loans, they have no loan or income limits.

Lenders usually ask for a minimum credit score of 580.

You must meet specific service terms to qualify: 90 days during wartime, 180 days in peacetime, or six years in the Reserves/National Guard. Surviving spouses may also apply. These loans require you to use the property as your primary residence and meet VA standards.

A funding fee is typical unless you’re a disabled veteran, for whom it may be waived!

5. USDA Loans (U.S. Department of Agriculture)

USDA loans help buyers in rural areas purchase homes with no down payment. These government-backed loans require you to live in the house as your primary residence. Your income must be at or below 115% of your area’s median income to qualify.

The USDA website can confirm if the property is in an eligible area.

Lenders usually want a credit score of 580 or higher, though they prefer 640 for easier approval. Unlike FHA loans, there’s no mortgage insurance premium, but you pay an annual guarantee fee instead.

Your debt-to-income ratio should not exceed 41%. This loan works well if you need affordable housing and do not have much savings for a down payment.

6. Jumbo Loans

Jumbo loans help you buy expensive homes. These loans are for properties priced above conforming loan limits, which will be $806,500 in most areas by 2025. Unlike conventional home loans, they do not follow Fannie Mae or Freddie Mac guidelines.

You need strong finances to qualify. A credit score of 680-700 or higher is common. Lenders often require at least a 10% down payment, but many ask for 20% or more. Higher interest rates and stricter rules come with jumbo mortgages because lenders take on greater risk.

Some may also want proof of cash reserves before approving your application. Jumbo loans work for primary residences, vacation homes, or second properties but involve higher closing costs than other home loans.

7. High-Balance Loans

High-balance loans help buyers in high-cost areas where property prices exceed the conforming loan limit. These loans follow Fannie Mae and Freddie Mac guidelines but allow amounts up to $1,209,750 for 2025.

This is 150% of the standard limit.

They work well in expensive markets without requiring jumbo loans. You must meet credit score, income, and debt-to-income ratio requirements. Loan terms may differ slightly from those of typical conforming loans due to their size and location-based rules.

8. Home Equity Loans

Home equity loans give you a lump sum of money. You pay it back with fixed monthly payments at a set interest rate. The amount you can borrow depends on your home’s value minus what you owe on your first mortgage.

These loans work well for large expenses, such as home improvements or paying off high-interest debts. Loan terms usually range from 5 to 30 years, giving you flexibility in your repayment schedule. To qualify, your credit score must meet the lender’s requirements, and you need enough equity in your home.

9. Home Equity Line of Credit (HELOC)

A HELOC lets you borrow money using your home’s equity as collateral. It works like a credit card with a set limit, but it has a variable interest rate. You can take out funds whenever needed during the draw period, which usually lasts 5 to 10 years.

During this time, payments might only cover the interest.

The amount you can borrow depends on your equity and credit score. Rates may change based on market conditions, so monthly costs aren’t fixed. This option is excellent for ongoing or unexpected expenses, such as repairs or medical bills.

Be cautious, though; missing payments could lead to foreclosure risks on your primary residence.

10. Reverse Mortgages

Reverse mortgages let you access your home’s equity if you’re 62 or older. The most common option is the FHA-insured Home Equity Conversion Mortgage (HECM). You won’t need to make monthly payments, and repayment happens only when you sell the house, move out permanently, or pass away.

Your loan amount depends on your age, home value, and current loan limits. For 2025, the HECM limit is $1,209,750. Fees can include up to $6,000 in lender charges and mandatory FHA insurance: a 2% upfront premium plus a 0.5% annual premium.

Payouts aren’t taxed as income. Heirs never owe more than the home’s value and don’t inherit negative equity from this type of mortgage.

Other Specialized Loan Types

Some loans fit unique needs or situations, like paying interest-only at first. These options can offer flexibility, but they’re not for everyone.

Interest-Only Mortgages

Interest-only mortgages let you pay only the interest for a set time, usually 5 to 10 years. During this phase, your monthly payment stays low because it does not include principal repayment.

This may help if you expect your income to grow soon or want extra cash now.

After the interest-only period ends, payments increase as principal repayments start. You will face higher costs at this point, which could be a budget shock. These loans are not widely available and often come with restrictions on borrower qualifications or property types.

The loan balance remains unchanged during the initial phase, as no principal is paid down.

Balloon Mortgages

Balloon mortgages have short loan terms, often 5 or 7 years. They require a large final payment, known as the “balloon,” at the end of the term. Monthly payments are smaller during this period due to lower interest rates.

This type of mortgage is common in commercial real estate and for property investors.

These loans carry higher risk if you cannot pay off or refinance the balance when it’s due. Lenders may require strong credit scores and low debt-to-income ratios for approval. Without a solid repayment plan, they’re not ideal for long-term homeownership.

Consider your financial stability before choosing this option.

How to Choose the Right Mortgage Loan

Start by reviewing your credit score and income. A strong credit profile increases the likelihood of loan approval and lowers interest rates. Calculate how much you can afford for a down payment, as this will affect your monthly payments and your need for private mortgage insurance (PMI).

Check how long you plan to live in the home. Fixed-rate mortgages work well if you want stable payments over many years, while adjustable-rate mortgages (ARMs) might save money short-term if moving soon.

Compare government-backed loans, such as FHA loans for lower down payments, or VA loans if eligible. Speak with multiple mortgage lenders to compare rates, terms, and closing costs before applying.

The Bottom Line

Finding the right mortgage loan can feel simpler once you know your options. Each loan type offers unique benefits to suit different needs, budgets, and goals. Whether it’s a fixed-rate mortgage or a government-backed option like FHA or VA loans, there is something for everyone.

Take time to compare terms and rates before deciding. The perfect loan choice brings you closer to owning your dream home!

Sources

• rocketmortgage.com/learn/types-of-mortgages
• lendingtree.com/home/mortgage/types-of-mortgage-loans
• militarybyowner.com/resources/understanding-different-types-of-home-loans
• schwab.com/learn/story/types-of-mortgage-loans