Finding the right mortgage for you can be daunting, especially as a first-time homebuyer. You want to ensure you’re getting the best deal, that it’s within your budget, and that it meets your lifelong dream of owning a home.

A mortgage is the most common home loan used to purchase a home. However, not all mortgages are created equal. To assist you in finding the best home loan for you, we’ve compiled a list of the top five types of mortgages.

Types Of Home Loans

Conventional Loan

The most common type of mortgage, the conventional loan, comes in two varieties: the conforming loan and the non-conforming loan.

Conforming loans: A loan that qualifies as a “conforming loan” meets a set of standards set by the FHA (Federal Housing Finance Agency). These standards include credit standards, debt standards, and loan limits. When a conventional loan qualifies, it can be bought by Fannie Mae or Freddie Mac, the GSEs that support most of the mortgage market.

Non-conforming loans: These loans are not conforming to at least one of the Federal Housing Finance Agency’s (FHFA) standards. A jumbo loan is a mortgage in excess of the loan limit. Since the GSEs cannot buy non-performing loans, lenders view them as more risky.

Who are conventional loans best for?

If you have good credit and can afford to put down a large down payment, a traditional mortgage is the best option. A 30-year fixed-rate mortgage is the most common type of mortgage used by homebuyers.

Jumbo loan

A jumbo mortgage is a home loan over the FHFA’s conforming loan limits. In 2024, this includes all loans over $766,550, or $1,149,8250 in costlier regions. Since these are larger loans that are not eligible for GSE purchases, they carry more risk. 

Who are jumbo loans best for?

Jumbo loans are the best option if you want to borrow against the purchase price of your home if it exceeds the latest loan limits.

Government-backed loan

The United States government is not a mortgage lender. However, it does support three types of mortgages that help make homeownership more affordable for more Americans:

FHA loans: FHA-insured loans can be obtained with less than 580 credits and a down payment of 3.5%, or less than 500 credits with a down payment of 10%. Mortgage insurance premiums are also included in the cost of FHA loans. Mortgage insurance premiums help FHA lenders protect themselves from borrowers who default. In addition, FHA loan limits are much lower than those of conventional conforming loans, meaning you won’t be able to borrow as much.

VA loans: VA loans are backed by the U.S. Department of Veterans Affairs. VA loans are available to eligible members of the United States Armed Forces and surviving spouses. There is no down payment requirement, no mortgage insurance requirement, and no credit score requirement. However, you will be charged a funding fee between 1.25% and 3.3% at closing.

USDA loans: USDA-guaranteed loans help moderate-to-low-income borrowers purchase houses in rural, USDA-eligible communities. Although there is no minimum credit score or required down payment for these loans, there are guaranteed costs.

Who are government-backed loans best for?

If you don’t qualify for a conventional loan because of your credit score or down payment, an FHA can be a great option. These options may also make it easier to qualify for a home loan if you’re buying in a more rural area or qualify for a VA loan.

Fixed-rate mortgage

With a fixed-rate mortgage, your monthly payment remains the same throughout the loan term. Most fixed-term loans are 15-year or 30-year loans, though some lenders offer more flexible terms.

Who are fixed-rate mortgages best for?

Fixed-rate mortgages are ideal for homeowners who want to remain in their homes for a while and want the peace of mind that comes with a fixed monthly payment.

Adjustable-rate mortgage 

Unlike a fixed-rate loan, an adjustable-rate mortgage (ARM) has variable interest rates. An ARM typically offers a lower, fixed initial rate for a specified period. After that, the rate will fluctuate (either up or down) at set intervals for the remaining term of the loan.

For example, a 5/6 ARM has a fixed interest rate for the first 5 years; after that, the interest rate increases or decreases on a 6-monthly basis until the loan is paid off. Your monthly mortgage payment increases in tandem with an increase in your rate.

Who are adjustable-rate mortgages best for?

If you’re not planning on living in your home for more than a couple of years, you could save money on interest payments with an ARM. However, it is important to be prepared for the possibility that your monthly payments could go up if you remain in the home.

Also Read: Top Real Estate Brokers In The USA

Other Types Of Home Loans

In addition to the above types of mortgages, you may also come across the following types of mortgages when searching for a loan:

Construction loans

If you’re looking to build a house, a construction loan may be a good option — especially a construction to permanent loan, which will convert into a traditional mortgage as soon as you move into your new home. These loans are best suited to borrowers who can afford a larger down payment.

Interest-only mortgages

An interest-only mortgage allows the borrower to make interest-only repayments for a fixed number of years – typically five or seven – followed by repayments for both the principal and interest. 

Because you are only paying interest at the start, you will not be able to build equity as fast with this loan. These loans are most suitable for borrowers who know they can either sell or refinance the loan or who can reasonably afford to pay the higher monthly payment at a later date.

Piggyback loans

Piggyback loans, also known as 80 / 10 / 10 loans, consist of two loans. One loan is for 80% of the home’s price and the other loan is for 10%. The remaining 10 percent of the loan goes to the borrower as a down payment. 

The purpose of these loan products is to prevent the borrower from having to pay mortgage insurance, but they also have two closing costs. In addition, you’ll pay interest on both loans, making it a great option for those who want to save money.

Balloon mortgages

A balloon mortgage involves making a large payment towards the end of the term of the loan. Typically, you will make monthly payments over the term of 30 years, but for a shorter period, such as seven years. 

When the loan period comes to an end, you will have to make a large monthly payment on the remaining balance, and this can be overwhelming if you are not ready. These loans are ideal for borrowers who have steady cash flow and can afford to pay a large lump sum at the end of the loan term.

Renovation mortgages

Renovation loans are a type of loan that can be used to purchase a property that needs significant renovations. Renovation loans combine the cost of buying and renovating into one mortgage.

Physician loans

Because doctors often carry hefty medical school debt, it can be difficult to qualify for a traditional mortgage, even if you have a high-paying job. Let’s get down to the nitty-gritty of physician loans, which are used by doctors, nurses, and other health professionals to purchase a home.

Non-qualifying loans

Because non-qualifying mortgages, sometimes referred to as non-QM loans, do not follow certain rules set forth by the Consumer Financial Protection Bureau, they are subject to less stringent income and credit restrictions. This could be attractive to a borrower with individual needs, such as a variable income.

However, some QM loans offer higher down payments and higher interest rates.