6 Types of Home Loans: Which Mortgage Is Right for You?

Six main types of home loans cover most buyers: conventional, FHA, VA, USDA, adjustable-rate, and jumbo. Each comes with different down payment minimums, credit requirements, and rules about who qualifies and what kind of property it can be used for.

Choosing a home loan starts with a buyer's specific situation — their credit score, down payment savings, income, and whether they qualify for a government-backed program through their military service or the location of the home. The home loan options that fit a first-time buyer with limited savings often look very different from what fits a buyer with strong credit and 20% down.

The right mortgage type can also change over time. A buyer might start with a low-down-payment option and refinance into a different loan type later, once they've built equity or improved their credit.

Conventional mortgages: pros, cons, and qualifications

A conventional loan is the standard type of home loan. According to NAR, a majority of first-time and repeat buyers use conventional loans when homebuying. 

Conventional loans aren’t backed by a government agency, which means the lender takes on the full risk if a borrower defaults. They often have stricter credit requirements—typically a credit score in the mid-600s or higher—which is why it can help to clean up your credit score before applying. Down payments can be as low as 3% for buyers who've been saving for a down payment but don't have a full 20% yet, though anyone putting down less than that will pay private mortgage insurance (PMI) until they build enough equity to have it removed.

Two often-overlooked conventional programs, HomeReady and Home Possible, are built specifically for lower- and moderate-income buyers. 

"They're 3% down conventional options built for lower-to-moderate-income buyers, and they can come with reduced PMI and pricing breaks most people don't realize they qualify for," says Ashley Harris, director of homebuyer education at Neighbors Bank. "A lot of buyers who assume FHA is their only low-down-payment route would actually be better served by one of these."

FHA loans: low down payment options for first-time buyers

The Federal Housing Administration insures FHA loans, which allow down payments as low as 3.5%. That flexibility makes FHA loans popular with first-time buyers, but it isn't automatically the cheapest option for buyers who qualify for something else.

FHA loans also require mortgage insurance no matter how much a buyer puts down, split into an upfront premium due at closing and an annual premium folded into the monthly payment. For most borrowers, that insurance sticks around for the life of the loan unless they refinance into a different loan type down the road—unlike a conventional loan, where private mortgage insurance can be canceled once a buyer builds enough equity.

VA loans: zero-down mortgages for military service members

VA loans are backed by the Department of Veterans Affairs and are available to eligible active-duty service members, veterans, and some surviving spouses. They allow qualifying buyers to finance a home with no down payment and no private mortgage insurance, though most borrowers pay a one-time VA funding fee unless they qualify for an exemption, such as a service-connected disability rating.

The VA itself sets no minimum credit score, though most lenders still look for something in the 620 range. VA loans are also assumable, meaning a future buyer with VA eligibility could take over the loan and its rate, which can matter if rates rise after purchase.

USDA loans: government-backed financing for rural buyers

USDA loans, backed by the Department of Agriculture, allow eligible buyers to purchase a home with no down payment in designated rural and suburban areas. The catch is that most buyers don't realize how many properties actually qualify.

"Most are shocked to learn that you can buy a regular home in a regular neighborhood with the USDA loan and that it's not just for farmland in the middle of nowhere," Harris says. "Over 97% of US land mass falls in a USDA eligible area, and many people are surprised to learn the household income caps are higher than they were expecting." 

Those income limits apply to the whole household, Harris adds—income from someone who isn't on the loan still counts against the cap.

Fixed-rate vs. adjustable-rate mortgages (ARMs)

A fixed-rate loan locks in the same interest rate for the entire term, whether that's a 30-year fixed loan or a shorter 15-year term, so the principal-and-interest portion of the payment never changes. An adjustable-rate mortgage, or ARM, typically starts with a lower rate for an initial fixed period — often five, seven, or 10 years — before adjusting periodically based on market conditions.

ARMs are usually labeled with two numbers, like 5/1 or 7/6 — how long the rate holds, then how often it adjusts after that. Rate caps limit how much it can rise at each adjustment and over the life of the loan, so payments can't climb without a ceiling. The real trade-off is timeline: an ARM suits a buyer planning to sell or refinance before the fixed period ends, while a fixed-rate loan suits one planning to stay put for decades.

Jumbo loans: financing high-value real estate

Jumbo loans cover amounts above the conforming loan limits set each year by the Federal Housing Finance Agency, which makes them necessary for higher-priced homes in expensive markets. 

Because jumbo loans aren't backed by Fannie Mae or Freddie Mac, lenders typically require a stronger credit profile, a larger down payment, and enough cash reserves to cover several months of payments. Buyers should also budget for closing costs that scale with the loan amount, since jumbo loans often carry higher fees in dollar terms even when the percentage stays similar.

Once a buyer has an idea of which loan type fits, running the numbers through a mortgage calculator or an affordability calculator can help translate loan type into an actual monthly payment and price range before starting to shop.

Frequently asked questions

Which type of home loan is best for a first-time homebuyer? 

There's no single best option, as it depends on credit score, savings, and location. FHA loans are popular with first-time buyers because of their low down payment and flexible credit requirements, but conventional programs like HomeReady and Home Possible, or a USDA loan in an eligible area, can sometimes cost less over time.

What is the most common type of mortgage loan? 

The conventional 30-year fixed-rate loan is the most widely used mortgage in the U.S., largely because it offers a predictable payment and doesn't require government program eligibility.

How does a government-backed loan differ from a conventional loan? 

Government-backed loans—FHA, VA, and USDA—are insured or guaranteed by a federal agency, which lowers the risk for lenders and typically allows for lower down payments or more flexible credit requirements. Conventional loans carry no such backing, so lenders set stricter qualifying standards.

Can I change my home loan type during pre-approval? 

Yes. A buyer isn't locked into a loan type during preapproval and can switch (from FHA to conventional, for example) if their financial picture changes or a different program turns out to be a better fit.

What credit score do I need for an FHA vs. conventional loan? 

FHA loans allow a credit score as low as 580 for the minimum 3.5% down payment, or as low as 500 with 10% down. Conventional loans typically require a score in the mid-600s or higher, though the exact minimum varies by lender.