The only path to homeownership for most Americans — securing a mortgage loan — is riddled with enough variables and complexities to give even the most determined buyer second thoughts. But if you take the time to understand the basics of the most common mortgage types, you'll be able to choose a loan that helps put a roof over your head without dragging down your finances.
CNBC Select breaks down the most common types of home loans, including their requirements, terms and benefits, to help you compare their pros and cons and make an informed decision.
A home loan type has a huge impact on your home-buying process — from how much you'll need for a down payment to your down payment assistance options, to your choice of lender. Some of CNBC Select's favorite lenders include Navy Federal Credit Union, an excellent option if you're looking for a VA loan, while PNC Bank is worth considering for a USDA loan. If you need a jumbo loan, on the other hand, we recommend SoFi for a lower down payment and no private mortgage insurance (PMI).
Annual Percentage Rate (APR)
Apply online for personalized rates
Types of loans
Conventional loans, VA loans, Military Choice loans, Homebuyers Choice loans, adjustable-rate mortgage
10 – 30 years
Not disclosed but lender is flexible
Minimum down payment
0%; 5% for conventional loan option
See our methodology, terms apply.
Annual Percentage Rate (APR)
Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included
Types of loans
Conventional loans, FHA loans, VA loans, USDA loans, jumbo loans, HELOCs, Community Loan and Medical Professional Loan
10 – 30 years
Minimum down payment
0% if moving forward with a USDA loan
The right type of mortgage for you will depend on several factors, such as your credit score and income, how much you're hoping to borrow and more. Below, we're going to take a closer look at each type.
A conforming mortgage loan meets the underwriting guidelines of Fannie Mae and Freddie Mac and is at or below the loan limits set by the Federal Housing Finance Agency (FHFA). Generally, lenders are more willing to offer this type of loan since they can sell these mortgages in the secondary market.
The conforming loan standards include:
- Loan limits: In 2023, the loan amount can't exceed $726,200 for most parts of the U.S. but can be higher in some high-cost housing markets.
- Credit score: Most lenders require a credit score of at least 620 for a conforming mortgage loan.
- Debt-to-income ratio (DTI): Generally, lenders require a DTI of 45% or lower to qualify a borrower for a conforming loan.
- Down payment: Qualified borrowers might be able to put as little as 3% down.
Nonconforming loans don't meet the above standards and tend to come with higher interest rates and fees, and at times, stricter requirements. At the same time, they can be accessible to more borrowers, including those with a high DTI ratio or a low credit score. However, the Consumer Financial Protection Bureau (CFPB) warns that "many of the loans that got people in trouble during the  crisis fell in the "non-conforming..." category." If you want to take on a nonconforming loan, be sure your finances can bear the burden.
An example of a nonconforming loan
A jumbo loan is a type of nonconforming mortgage because the loan value exceeds the conforming loan limits. Usually, you'll need this type of loan to purchase a high-value property. Unlike nonconforming mortgage loans targeting borrowers with bad credit, jumbo loans have strict qualification standards. They may require a high credit score (think 700 and up), a down payment of 10% or greater and proof of significant cash reserves.
Fixed-rate mortgages maintain the same interest rate over the life of the loan. For instance, if you get a 30-year mortgage at a 5% interest rate, that is what you'll pay for 30 years (unless you refinance or sell the property).
An adjustable-rate mortgage (ARM) carries an interest rate that stays constant for a set amount of time but can change afterward.Typically you'll pay a low fixed rate for the first few years, and then your interest will change periodically depending on market conditions.
A fixed-rate mortgage offers consistency and predictability. On the other hand, an ARM might make more sense in a high-interest-rate market or when you're planning to live in the home for a short time (less than 10 years).
A conventional mortgage loan is made through a private lender, such as a bank, credit union or mortgage company. It's the most common type of mortgage loan. A conventional mortgage can be conforming if it meets the required criteria and is backed by Fannie Mae or Freddie Mac.
Nonconforming conventional mortgages don't follow the same standards and can vary widely in eligibility requirements, interest rates and other features.
As the name implies, government-backed mortgages are insured by government agencies, which makes them less risky for lenders. If the borrower defaults, the government agency in question will foot the bill.
These mortgage loans can offer unique benefits, such as more lenient down payment or credit score requirements, as well as lower interest rates.
Examples of government-back mortgage loans include:
This type of mortgage loan is insured by the Federal Housing Administration (FHA). An FHA loan requires a credit score of just 580 and a down payment of 3.5%. And if you can put 10% down, the credit score requirement drops to 500.
Note, however, that if you put less than 10% down, you'll have to pay mortgage insurance for the entire loan term. If you put down at least 10%, the upfront mortgage insurance premium (MIP) can be removed after 11 years of payments. To compare, conventional loans only require mortgage insurance if you put less than 20% down and you can request to remove it once you reach 20% equity.
A VA loan is insured by the Department of Veteran Affairs and can allow you to buy a home with no money down. This type of loan also doesn't require mortgage insurance — instead, homebuyers pay a funding fee, which is typically 2.15% of the loan amount. Veterans can pay the fee at closing or roll it into the loan amount.
To qualify for a VA loan, you must meet the minimum active-duty service requirements.
The United States Department of Agriculture insures USDA loans. These loans charge no mortgage insurance premiums and require no money down. Instead, you'll pay a one-time guarantee fee (1% of the loan amount) and the annual fee (0.35% of the loan balance).
USDA loans are only available for properties in designated rural areas. You'll also need to meet income requirements. You can learn more on the program's website.
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As you can see, you may be able to pick from multiple types of home loans — and what's best for you depends on your financial situation and personal preferences. Before you decide on the type, talk to multiple lenders and consider your options. Remember: while a type of mortgage loan might look perfect on paper, you want to compare all costs in the short and long term to figure out what loan type (and lender) can offer you the best deal.
5 mortgage lenders to consider if you want to buy a home with a small down payment
How to shop for a mortgage without hurting your credit
If you have a bad credit score and still want to buy a house, consider these lenders
Here are 3 major ways debt can affect your ability to buy a home
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
Weigh your credit score, existing debts and household income to determine which mortgage programs you qualify for. Borrowers with fair credit and little savings could consider a government-backed loan, while those with very good credit and a low debt-to-income ratio may get better rates through a conventional loan.What should you consider when trying to determine which type of mortgage is best for you? ›
Weigh your credit score, existing debts and household income to determine which mortgage programs you qualify for. Borrowers with fair credit and little savings could consider a government-backed loan, while those with very good credit and a low debt-to-income ratio may get better rates through a conventional loan.What is the most common mortgage type? ›
Conventional mortgages are the most common type of mortgage. That said, conventional loans may have different requirements for a borrower's minimum credit score and debt-to-income (DTI) ratio than other loan options.What factors she should look at when deciding which mortgage is best for her? ›
Choosing the loan that's best for your situation relies primarily on your financial health: your income, credit history and score, employment, and financial goals. Mortgage lenders can help analyze your finances to help determine the best loan products.What is an important factor or factors to consider when choosing a mortgage? ›
Of course, cost is one of the most important factors when choosing your lender. You'll want to consider the interest rate, obviously, as well as loan origination fees and other charges the lender imposes. The goal should be to get the lowest rate from a lender offering the best overall loan terms.How to choose between conventional and FHA loan? ›
A conventional loan is often better if you have good or excellent credit because your mortgage rate and PMI costs will go down. But an FHA loan can be perfect if your credit score is in the high-500s or low-600s. For lower-credit borrowers, FHA is often the cheaper option.How do I know what kind of loan I need? ›
You can also call the Federal Student Aid Information Center, 1-800-4-FED-AID, TDD 1-800-730-8913. The Center's counselors can help you figure out what types of loans you have. Federal loan promissory notes and applications will state the name of the federal loan program (Stafford, PLUS, Perkins, FFEL, William D.What are the 4 types of qualified mortgages? ›
There are four types of QMs – General, Temporary, Small Creditor, and Balloon-Payment.What are the two most common types of two step mortgages? ›
A two-step mortgage is a mortgage that come in two different types. The first type is a convertible two-step which converts the loan to a fixed rate loan after a specified number of years. The second type is a non-convertible two-step which converts the loan to an ARM loan.What is the most popular type of mortgage in the United States quizlet? ›
1. Conventional Mortgage: This is the most popular and offers the buyer a fixed interest rate and fixed schedule of payments.
You should examine your income, savings (for a down payment and closing costs), and recurring debt to figure out how much house you can afford to buy.What 3 things are required before you can get a mortgage or at least a good one )? ›
- Income And Job History. One of the first things that mortgage lenders consider when you apply for a loan is your income. ...
- Credit Score. Your credit score plays a major role in your ability to get a mortgage. ...
- Debt-To-Income Ratio (DTI) ...
- Assets. ...
- Property Type.
Most personal loan lenders review your credit score, credit history, income and DTI ratio to determine your eligibility. While the minimum requirements for each of these factors vary for each lender, our recommendations include: Minimum credit score of 670.What is the most important part of getting a mortgage? ›
Being prequalified or conditionally approved for a mortgage is the best way to know how much you can borrow. A prequalification gives you an estimate of how much you can borrow based on your income, employment, credit and bank account information.What is the most commonly considered factor when buying a home? ›
Location. One of the most important factors of any piece of real estate is location, location, location. Be sure to pay special consideration to the area in which you buy your house. You will want to be sure that your property has easy access to your work.What are the four factors that are important to determining a mortgage payment? ›
A mortgage payment is typically made up of four components: principal, interest, taxes and insurance. The Principal portion is the amount that pays down your outstanding loan amount. Interest is the cost of borrowing money. The amount of interest you pay is determined by your interest rate and your loan balance.Why do people prefer conventional loans over FHA? ›
FHA loans allow lower credit scores and require less elapsed time for major credit problems. Conventional loans, however, may require less paperwork and offer better options to avoid costly mortgage insurance premiums.Why do people choose conventional loans over FHA? ›
An FHA loan may be a better option if you have a lower credit score, a higher DTI ratio, or less money saved for a down payment. On the other hand, a conventional loan may work better if your finances are sound and you can qualify for favorable loan terms.Do sellers prefer FHA or conventional? ›
"If there are multiple offers on a home, sellers tend to give preference to borrowers with conventional financing," Yates said. Why is that? Sellers worry that if they accept an offer from a borrower with FHA financing, they'll run into problems during both the home appraisal and home inspection processes.What are the three main types of loans you can get? ›
- A secured loan uses an asset you own as collateral; the lender can take the asset if you don't repay the loan.
- An unsecured loan requires no collateral. ...
- An installment loan or term loan is repaid with fixed payments over a set period.
Choosing the right mortgage lender is important. Not only will it impact what loans you qualify for, but it also influences your interest rate, fees, down payment and long-term costs, too.How do I know if I'm getting a good loan? ›
- Loan amount. ...
- Loan Type. ...
- Interest rate and APR. ...
- Prepayment. ...
- Terms. ...
- Does the loan amount meet your needs? ...
- Can you afford the monthly payment? ...
- Is the interest rate reasonable, and how will you know?
Fixed-rate mortgages are home loans that have an interest rate that's set for the entire term. Adjustable-rate mortgages begin with an initial rate that's fixed for a specified period; then the rate adjusts periodically for the rest of the term.
- Types of Mortgages.
- Simple Mortgage. ...
- Mortgage by Conditional Sale. ...
- Usufructuary Mortgage. ...
- English Mortgage. ...
- Anomalous Mortgage.
There are two types of mortgage insurance: private mortgage insurance and FHA's mortgage insurance premium policy.What are the two categories of qualified mortgages? ›
- Type 1: General QM Loans. So-called “General QM loans” may not contain negative amortization, interest-only, or balloon-payment features. ...
- Type 2: Temporary QM Loans. ...
- Type 3: Small Creditor QM Loans. ...
- Balloon Payments & QM. ...
- Safe Harbor vs.
|Loan type||Origination volume, 2022|
|FHA and VA||19.8%|
Most homebuyers choose a “standard” FHA loan to buy their home. Also called the 203(b) program, this type of FHA loan comes with all the down payment and credit score flexibilities we discussed above.Are fixed rate mortgages common in the US? ›
That's having an impact on housing markets now, because new buyers have to pay 7% or more. But the large majority of American homeowners have fixed mortgages, mostly much cheaper than today's going rate.What's your top 2 priorities when considering buying a home? ›
Some of the most important factors to consider when buying a house are price, size, and location. Knowing your priorities ahead of time can help you act fast in a hot real estate market.
- School District:
- Daily Commute:
- Neighborhood Character:
- Property Value:
- Nearby Amenities:
Location, size, age, condition, value, and your budget are all important things to keep in mind. It's important to do your research and make sure that you're getting a good deal on the property.What to avoid when looking at a mortgage? ›
- Failing to check your credit score.
- Getting into debt.
- Making a huge purchase.
- Changing jobs.
- Making large deposits.
- Not making payments on time.
- Undesirable items on Bank Statements.
Jumbo loan interest rates are usually similar to conforming interest rates, but they're more difficult to qualify for than other types of loans. You'll need to have a higher credit score and a lower DTI to qualify for a jumbo loan.What 4 things should you consider before deciding to take out a loan? ›
- Your Credit Score and History. An individual's credit score and credit history can haunt them for years. ...
- Limitations. ...
- Hidden Fees. ...
- Consider All Your Options.
- Payday Loan. ...
- No Credit Check Loans. ...
- Unsecured Personal Loans. ...
- Secured Personal Loan. ...
- Loan From a Friend or Family Member. ...
- Emergency Loans. ...
- Hardship Loans from Local Government. ...
- Hardship Distribution from Your 401(k)
- Your credit score.
- Your debt-to-income ratio.
- Your down payment.
- Your work history.
- The value and condition of the home.
- Select a lender. The first step to applying for a mortgage is to decide which lender you'll work with. ...
- Apply and submit financial documents. Once you've decided on a lender, you can complete a full mortgage application. ...
- Respond to conditions and wait for approval.
Your credit score is one factor that can affect your interest rate. In general, consumers with higher credit scores receive lower interest rates than consumers with lower credit scores. Lenders use your credit scores to predict how reliable you'll be in paying your loan.What is the most important factor to determine a home's value? ›
Livable space is what is most important to buyers and appraisers. Bedrooms and bathrooms are most highly valued, so the more beds and baths your home offers, the more your home is generally worth.
Ease of mobility is a common advantage associated with home ownership. Many people believe that location is the most important factor to consider when selecting a home.What are the most important factors in getting a mortgage? ›
- The Size of Your Down Payment. When you're trying to buy a home, the more money you put down, the less you'll have to borrow from a lender. ...
- Your Credit History. ...
- Your Work History. ...
- Your Debt-to-Income Ratio. ...
- The Type of Loan You're Interested In.
- Points. Fees that have a link to your interest rate. ...
- Fees. Assorted fees such as loan origination and underwriting fees, broker fees, etc. ...
- Closing costs. The costs associated with closing your loan. ...
- Down payment. ...
- Private mortgage insurance.
They say the three most important things to think about when buying a home are location, location, location. You can change almost everything else, but you can't change your home's location.
There are several factors to consider when choosing a lender—for example, the cost of the loan, your comfort with the loan officer's ability to answer your questions, and your confidence that the lender can meet your closing timeframe.What are the two ratios most commonly used by mortgage lenders? ›
Mortgage loans will use both the housing expense ratio and the debt-to-income ratio.What is one of the most important factors in choosing a loan? ›
The interest rate and/or annual percentage rate (APR) is one of the most important factors to consider when determining which loan is best. For some loan types, comparing interest rates is appropriate, but the APR is a better number to review.Why should you compare lenders? ›
Comparing loan estimates can help determine which offer is more cost-effective. Every lender is legally required to provide you with a loan estimate within three days of getting your application and pulling your credit report.