In a housing market where mortgage rates have ping-ponged between 6% and 7% for most of the past two years, knowing the types of mortgage loans available to you may just be the key to homeownership.
Knowledge about mortgage types could help you take advantage of unique loan benefits that can help you more easily buy a house. It could land you a lower interest rate, give you some breathing room on your monthly payment, or even waive your need for a down payment. Are you hoping to buy a home soon? Here are the types of mortgage loans that should be on your radar.
Read more: How to get a mortgage in 2025
In this article:
The most common type of mortgage is a conventional loan, which has two subsets: conforming and non-conforming loans.
Conforming loan
A conforming conventional loan is not backed by any government agency, but the loans are built to the specifications of Fannie Mae or Freddie Mac so that mortgage lenders can sell the loans to them later on. Though these sound like federal agencies, Fannie and Freddie are actually private companies authorized by the government to put money into the mortgage system.
Conforming conventional mortgages require a good credit score (nothing lower than 620) and enough cash on hand for at least a 3% down payment and additional savings to pay closing costs. You will also need a debt-to-income ratio of below 36%, though some borrowers may be allowed a DTI of up to 50% if they have enough cash on hand.
Non-conforming loan
There are also non-conforming conventional loans. Non-conforming loans don’t meet requirements set by Fannie Mae and Freddie Mac. Instead, they’re usually loans the lender intends to keep — not sell to another servicer.
Because of this, mortgage lenders have more leeway. They may be able to accept lower credit scores or down payments, offer unique repayment terms, or loan out amounts larger than the Federal Housing Finance Agency allows. These are called jumbo loans, which we’ll go into below.
Higher-priced homes require a jumbo mortgage. In 2025, jumbo loans are anything above $806,500 in most parts of the nation. In Alaska, Guam, Hawaii, and the US Virgin Islands, jumbo loans start at $1,209,751.
Jumbo loans typically are best-suited for highly qualified mortgage applicants. Many lenders will look for at least a 10% down payment, though some prefer 20% or more. A credit score approaching 700 or even higher will also likely be a requirement.
Read more: The conforming loan limits for 2025
FHA loans (along with VA and USDA loans) are a type of government home loan. They are backed by the Federal Housing Administration and designed with low-to-moderate-income borrowers in mind.
FHA loans offer lower down payments and qualifying credit scores than many other loan programs (a 3.5% minimum down payment with a 580 credit score or 10% down payment with a 500 score). This leeway can allow Americans who otherwise couldn’t have become homeowners to purchase a house.
A quick caveat: FHA loans come with FHA Mortgage Insurance Premiums (MIPs), which you’ll pay at closing and as part of your monthly payment. For most buyers, MIP lasts for your entire loan term.
Backed by the Department of Veterans Affairs, VA loans are mortgage options for military service members, veterans, and eligible spouses. They usually require no down payment, eliminating a massive barrier for thousands of eager military home buyers.
Though the VA doesn’t have a minimum credit score requirement for these loans, most lenders ask that you have at least a 620 score. You will also need to pay a VA funding fee at closing. This varies from 1.25% to 3.3% of the loan amount.
Offered by the U.S. Department of Agriculture, USDA loans are mortgage loans for low-income borrowers who are purchasing homes in rural and agricultural areas.
Like VA loans, these mortgages also require no down payment. To qualify, your household can’t earn more than the family income limit for the area you’re buying in. You’ll usually need at least a 640 credit score, though the exact minimum depends on the lender you choose. The property you purchase also must be in a USDA-eligible area. You can use the department’s eligibility map to see possible homes in your region.
Fixed-rate mortgages have the same interest rate for the entire loan term. This means your monthly payment will stay the same, too (unless your costs of homeowners insurance or property taxes — also called escrow — go up).
With most lenders, you can choose between a 15-year and 30-year fixed-rate mortgage. The 30-year term has traditionally been the most popular; however, 15-year terms save a lot of interest in the long run. Just keep in mind that the monthly payments are higher on these loans, so they can be harder to qualify for and manage.
With some lenders, 10-, 20-, or 25-year fixed-rate mortgages may be an option. The FHA has even introduced a 40-year mortgage term for homeowners struggling to make their payments.
Most borrowers think first about fixed-rate mortgages, where your interest rate is set from the beginning and never changes. With higher interest rates and more expensive homes, it’s worth at least thinking about an adjustable-rate mortgage.
With an ARM, your annual percentage rate is fixed for a number of years — say the first five, seven, or even 10 years – and then the interest you pay will adjust every six months or annually. ARMs can come in many different forms.
Related: Fixed-rate vs. adjustable-rate mortgage loan — Which should you choose?
The above mortgages are all first-lien mortgages, meaning if you fail to make payments, the lender on those loans has a claim to your house first. They can foreclose on it, sell it off, and use the proceeds to pay off the remaining debt you still owe them.
There are also second mortgages, which you can get in addition to first mortgages. With these, in a default situation, the lender won’t get repaid until after your first lender does. This makes them a bit riskier than first mortgages. For this reason, they typically come with higher interest rates and tougher qualifying requirements than you’d see on a first-lien mortgage.
A home equity loan is a second mortgage that allows you to borrow from your home’s equity. You can typically borrow up to 85% of your home’s value minus whatever balance remains on your first mortgage loan. You’ll get the cash as a lump sum once you close on the loan.
You can use home equity loans to pay for renovations, consolidate debt, or any other purpose, and you’ll usually pay the lender back at a set rate and payment for five to 30 years. Sometimes, these come with a tax write-off, depending on how you use the money.
Dig deeper: The best home equity loan lenders
Home equity lines of credit — HELOCs — are a similar tool; only instead of a lump sum, you get a line of credit. This works very much like a credit card does, allowing you to use funds from the credit line, repay them, and use them again for an extended period of time.
These usually require interest-only payments for the first 10 years. After that, you’ll make mortgage principal and interest payments. These can fluctuate, as HELOCs often have variable rates, which move up or down over time.
Read more: Here are the best HELOC lenders right now
Assumable mortgages have gone in and out of favor over the years but become increasingly popular in high-interest-rate environments. These allow a buyer to essentially take over a seller’s current mortgage, including its interest rate, term, and remaining balance.
The existing mortgage lender has to approve the buyer, of course, but if it goes through, the move can help buyers snag a potentially lower-than-market interest rate and more favorable loan terms than might be available on the open market.
A quick note: In the case of assumable loans, the buyer typically offers a down payment to the seller to cover their home equity and perhaps a profit.
Yahoo Finance tip: Not all mortgages are assumable. While government-backed loans, such as FHA, VA, and USDA loans, may be, most conventional loans are not.
Reverse mortgages are an option for senior homeowners. For the government version — called the Home Equity Conversion Mortgage (or HECM) — you need to be at least 62 to qualify. Some lenders offer proprietary reverse mortgage programs that go down to age 55.
With reverse mortgages, instead of paying your lender, the lender pays you out of your home equity. You can choose a lump sum payment, a line of credit, or monthly payments — a popular choice for seniors on limited income. Sometimes, you can opt for a combination of these different payment options.
These loans don’t require you to make monthly payments. You’ll either repay the lender what you borrowed when you sell the home or move permanently away (to a nursing home, for instance), or your heirs will pay it off out of your estate when you pass.
Qualified mortgages must meet requirements established by the Consumer Financial Protection Bureau (CFPB). Borrowers need to have a certain debt-to-income ratio (DTI) to qualify, and lenders can’t charge excessive fees or offer things like interest-only or balloon payments.
Non-qualified mortgages, also called non-QM loans, don’t have to adhere to these regulations, so lenders have a lot more wiggle room. Lenders can accept lower credit scores or higher DTIs, or they might evaluate your income differently (perhaps with bank statements instead of W-2s and pay stubs).
These loans are often a good choice for freelancers, small business owners, or workers with non-9-to-5 income. Borrowers with low credit scores or lots of debt may also benefit from these types of loan programs. Not all lenders offer these, so you’ll need to shop around if you plan to use one for your home purchase or refinance.
Learn more: Best mortgage lenders for low credit scores
An ITIN, or Individual Tax Identification Number, is an alternative to Social Security numbers for those ineligible. People living in the U.S. can use an ITIN when filing their annual tax returns with the Internal Revenue Service and when applying for an ITIN loan to buy a home.
Some lenders offer loan programs just for these sorts of taxpayers, allowing them to qualify for a mortgage using their ITIN instead of an SSN. This often includes non-U.S. citizens and foreign nationals.
Dig deeper: How to get a home loan in the U.S. as an undocumented immigrant
If you’re looking to build a home instead of buying an existing one, you may want to use a construction loan. These are mortgages you can use to foot the bill for the construction of a home — the materials, labor, permits, etc. Then, once the home is built, it transitions into a traditional mortgage, which you’ll pay off over time. These sometimes require two closings (one for the construction loan and one for your permanent mortgage), though it depends on your lender.
With construction loans, the funds are usually distributed in several lump sum payments as construction progresses. There may also be an inspector involved who approves each milestone (which triggers each subsequent release of money).
Learn more:
Land loan
Land loans, sometimes called lot loans, are designed for those looking to purchase plots of land. You might use one of these if you need land to build a home or business on and aren’t quite ready to start construction. (You’d likely use a construction loan in that case.)
When you get a land loan, you’ll need to tell the lender how you plan to use the land, and they’ll usually require certain checks of the property, too — to verify its zoning limitations, boundaries, utility access, and more. Again, not all lenders offer land loans, so you may need to shop around to find one that does. Check out our U.S. Bank mortgage review and PNC Bank mortgage review for two potential land loan options.
Renovation loans are a tool for financing updates to a house you already own or, if you’re buying a fixer-upper, a house you’re about to purchase. For a home you want to purchase and renovate, your renovation loan will include the home’s price, as well as the estimated costs to renovate it. Common loan options in this category include FHA 203(k) loans, VA renovation loans, or Homestyle Renovation loans from Fannie Mae.
If you’re renovating an existing house you already live in, you might look to a home equity loan, HELOC, or cash-out refinance instead. There are also energy-efficient mortgages that can help you cover the costs of green updates, like adding solar panels or upgrading your insulation, for instance.
Read more: 4 types of home renovation loans and how to choose
A chattel loan is a type of mortgage used for buying manufactured housing — or some other piece of personal property that’s physically movable (like farm machinery, for example). On these loans, the home or property (the “chattel”) serves as collateral on the loan and can be seized if you fail to make your payments.
Unlike traditional mortgages, chattel loans don’t help you buy the land on which your property sits. Instead, the loan only covers the home or other movable property you’re financing with it.
Learn more: What is a manufactured home, and how do you finance it?
Bridge loans are a type of mortgage designed to bridge the gap between two larger loans. You may use one when selling a home and buying a new one at the same time. These loans typically only last six months to a year or two.
One common way to use these is to take out a bridge loan large enough to pay for a down payment on a new house. You’d then get a traditional mortgage on the new house and, once your old one sells, use the sale proceeds to pay off the bridge loan and your old loan, leaving you with just one mortgage remaining.
Need a bridge loan? Read our American Pacific mortgage review and Embrace Home Loans review for two lender options.
A piggyback loan is a type of second mortgage you can use to make a larger down payment. Most borrowers who use these opt for the 80-10-10 method. This means they take out a main mortgage for 80% of the home’s price, a piggyback loan for another 10%, and bring a 10% down payment out of their own savings to the table. This gives them a 20% total down payment and helps them avoid private mortgage insurance costs (PMI). It can also help you get a lower interest rate and better mortgage terms, too.
Balloon mortgages are a type of loan that come with an intro period of low (or no) monthly payments, but at the end of the loan’s term, the entire balance comes due in full. These are usually shorter-term loans, lasting only a few years. Sometimes, they require interest-only payments until your balloon payment comes due.
In some versions of this loan type, you may get a set rate and payment for a certain period of time, and then once that period expires, your remaining balance is re-amortized, given a new rate (based on market conditions), and you’ll make new payments based on that.
Some lenders offer mortgage programs for borrowers in specific career fields. A common example is the physician mortgage loan, which is aimed at doctors and others in the medical industry.
These loans function like traditional mortgage loans, though they may have laxer qualifying requirements. For example, they might ask for no down payment or allow for higher debt-to-income ratios. This is because new doctors tend to have a lot of debt or little savings due to recent medical school costs. (Though they have strong future earning potential and are unlikely to default on their loans.)
If you’re looking for a physician loan, read our Bank of America mortgage review and BMO mortgage review for two solid options.
If you’re thinking of buying a home to rent out or fix and flip, you might consider an investment property mortgage. These are designed for properties you intend to make income from, and they often allow for alternative qualifying methods than other loans. For example, you may be able to use the future rent expected on the property to qualify.
Investment property mortgages usually require higher down payments than other loans and more cash reserves. You’ll typically need around six months of mortgage payments saved up to qualify.
Interest-only mortgages delay paying down the principal for several years, temporarily lowering your monthly payment. After the introductory period, your payment is higher and split between principal and interest, just like typical mortgages.
Yahoo Finance tip: Interest-only mortgages can be risky, especially if the value of your home declines. You may have trouble refinancing the loan, selling the home, or affording your higher monthly payment.
There’s no hard-and-fast rule for choosing a mortgage type. The right loan depends on your goals, budget, credit score, and unique qualifications as a buyer — and the best type of home loan for you might not be what’s best for someone else.
To make sure you’re choosing the right one, you should always:
-
Know your goals and budget: Understand your financial capabilities and goals well. What is your credit score? What is your maximum budget for a monthly payment? Are you looking to pay the least possible in long-term interest, or is the lowest possible monthly payment more of a priority? Knowing these details can help you zero in on the best loan options.
-
Run the numbers: Know what each potential mortgage type will cost you — monthly, in long-term interest, in closing costs, and on your down payment. What will each one mean for your household cash flow? Your savings? Your ability to achieve other financial goals you might have?
-
Talk to a mortgage professional: A loan officer or mortgage broker can help break down the full scope of options for you, as well as their costs, requirements, and other details. They can also make recommendations as to which loan options can help you achieve your individual goals best, and, in the case of a broker, they can even shop around with various lenders on your behalf.
There’s a good chance that several loan options could work for you, but the costs and qualifications of each will vary. Always compare at least a few loans — and mortgage lenders — to ensure you’re getting the best deal possible.
While you do have to choose a mortgage loan when purchasing your house, you’re not stuck with that loan forever. If you decide you want to change loan types — perhaps to remove FHA MIP, for example — you can always refinance into another loan type at a later date.
To refinance your mortgage, you need to meet the requirements of the new loan program. This would mean trading in your existing term, rate, and monthly payment for a new one. You’ll want to run the numbers to ensure this works in your financial favor.
A good rule of thumb is to calculate your break-even point — or the month your refinance will save you more than its closing fees cost you. Refinancing is usually a smart move if you know you’ll be in the house long enough to reach that point.
Learn more: 6 times when it makes sense to refinance your mortgage
The most common types of mortgage loans are conventional loans and fixed-rate mortgages. Government-backed loans like FHA loans are popular too.
Interest-only mortgages are probably the riskiest types of home loans because you don’t pay down your principal at all for the first several years, so you aren’t building equity. It could also be financially difficult when regular mortgage payments kick in, and you have to add the principal loan amount to your monthly payments. Adjustable-rate mortgages can be risky too, as your rate and payment can increase over time, potentially putting your monthly mortgage costs out of budget.
FHA, VA, and USDA loans typically have the lowest mortgage rates. However, you could get an even lower rate for the first few years with an adjustable-rate mortgage (ARM). Just know that you’ll risk your rate increasing once the intro-rate period is over with an ARM.
Generally speaking, an FHA loan is easiest to qualify for, as it requires just a 3.5% down payment and a credit score of 580.
This article was edited by Laura Grace Tarpley.
