A Guide to the Most Common Types of Mortgages

Choosing a home is exciting. Choosing a mortgage can feel more confusing, mostly because there are so many options and acronyms. The good news is that most buyers end up choosing from a handful of common loan types. Understanding how each one works makes it much easier to find the one that fits your goals.

Fixed-Rate Conventional Loans

A conventional loan is not backed by a government agency. With a fixed rate, your interest rate and your principal and interest payment stay the same for the entire term, commonly 15 or 30 years.

• Best for: Buyers who want predictable payments and plan to stay in their home for a while
• Down payment: As low as 3% for eligible buyers
• Mortgage insurance: Required with less than 20% down, but it can be removed once you reach 80% loan-to-value

Fixed-rate loans are the most familiar choice for many buyers because they are simple to understand. A 30-year term keeps payments lower, while a 15-year term usually comes with a lower rate and much less total interest, but a higher monthly payment. Learn more on our conventional loan page.

Adjustable-Rate Mortgages (ARMs)

An ARM starts with a fixed rate for an initial period, often five, seven or ten years. After that, the rate adjusts periodically based on a market index, so your payment can go up or down. ARMs include caps that limit how much the rate can change.

• Best for: Buyers who expect to sell or refinance before the initial period ends, or who are comfortable with some payment uncertainty
• Watch for: How often the rate adjusts, the caps and the highest payment you could face

FHA Loans

FHA loans are insured by the Federal Housing Administration and are known for flexible qualification. You may be able to put down 3.5% with a credit score of 580 or higher.

• Best for: Buyers with smaller savings or credit that is still being built
• Mortgage insurance: An upfront premium of 1.75% of the loan amount, plus an annual premium paid monthly

See details on our FHA loan page.

VA Loans

VA loans are backed by the U.S. Department of Veterans Affairs and are available to eligible veterans, active-duty service members and some surviving spouses.

• Best for: Those who have served and qualify for the benefit
• Down payment: $0 down with full entitlement
• Mortgage insurance: No monthly mortgage insurance, though most borrowers pay a one-time funding fee

Jumbo Loans

A jumbo loan is used when the amount you borrow is above the conforming loan limit, which is $832,750 for a one-unit home in most areas and up to $1,249,125 in high-cost areas. Because these loans are larger, lenders typically expect stronger credit, a bigger down payment and more cash reserves.

• Best for: Buyers of higher-priced homes
• Watch for: Stricter documentation and reserve requirements

Other Options Worth Knowing

Depending on your situation, you might also consider USDA loans for eligible rural and suburban areas, renovation loans that bundle repairs into the purchase, or investment property financing for rentals. Each has its own rules.

How to Choose

Start by asking yourself a few questions:

1. How long do I expect to stay in this home?
2. How much can I comfortably put down?
3. Do I prefer a predictable payment, or a lower starting payment with some risk later?
4. Do I qualify for a special program, such as VA?

Then compare the total cost, not just the rate. Our loan program comparison lays the options side by side.

Find Your Fit With FLO Mortgage

There is no single best mortgage, only the one that fits your life and budget. A FLO Mortgage loan officer can review your situation and explain which programs you may qualify for. Contact us to get started.

This article is for general education and is not a commitment to lend. All loans are subject to credit approval, underwriting guidelines and program availability. FLO Mortgage, Company NMLS #1835856. Equal Housing Opportunity.