For most homebuyers, working with a mortgage lender is one of the most important aspects of buying a new home. As with buying a car, it's generally easier to pay for such a large purchase in small chunks over several years rather than all at once.
In addition to understanding the steps of the home loan process, it's helpful to know what home loan options are available to you—and which one might be right for your financial circumstances and preferences.
Types of Home Loans
FHA (Federal Housing Administration) Loans
Popular for first-time homebuyers—though not exclusive to them—FHA loans are backed by the government's Federal Housing Administration (hence the "FHA" acronym).
And because FHA loans are insured by the government, the lender bears less risk—allowing them to approve FHA loans for certain buyers with lower credit scores and with a lower down payment.
FHA loan highlights:
- Down payment as low as 3.5% of the loan
- More flexible underwriting guidelines for previous credit challenges
- Upfront mortgage insurance premium (MIP), plus a monthly mortgage insurance premium for the life of the loan
Conventional Loans
Conventional loans generally require a higher credit score and a lower debt-to-income ratio but with flexible down payment requirements. Plus, the higher your credit score and larger your down payment, the lower your interest rate.
If you do opt for less than 20% down, monthly mortgage insurance will be required but only until you establish at least 20% equity in the property. In other words, if you qualify, a conventional loan could mean more money in your pocket.
Conventional loan highlights:
- Credit score of at least 620
- Down payment as low as 3% of the loan
- No mortgage insurance premium once the loan-to-value (LTV) ratio falls below 80%
- Lower required debt-to-income ratio compared to FHA loans
- Conventional loans above the maximum conforming loan limit are known as "jumbo" loans
USDA (U.S. Department of Agriculture) Loans
Another loan type backed by the government, USDA loans are designed to make homebuying more affordable in rural areas—offering no-money-down financing. That's a big deal for buyers who can afford monthly payments on a mortgage but don't have money in the bank to qualify for a down payment on an FHA or conventional loan.
In addition, you might enjoy a lower interest rate on a USDA loan. And before you think that rural means too far away from a metro center, you might be surprised at what areas offer USDA-eligible homes; they might not be as remote as you think!
Check the USDA eligibility map for your area >>
USDA loan highlights:
- Only available in eligible USDA areas
- Income limits apply
- No down payment required
- May offer a lower interest rate
- Mortgage insurance premium required
VA (Veterans Affairs) Loans
Available to U.S. military servicemembers, veterans and their spouses, VA loans are guaranteed by the U.S. Department of Veterans Affairs—which, like other federally backed loans, makes for potentially more affordable mortgage terms compared to conventional loans.
As with USDA loans, VA loans primarily offer savings to qualified buyers through no-money-down financing. No mortgage insurance premium equals even more savings, plus credit score and debt-to-income requirements might also be lower (depending on your lender).
VA loan highlights:
- Available to active military, veterans and their spouses
- No down payment required
- May offer a lower interest rate
- Include a Financing Funding Fee (based on type of service and if you've previously used your VA eligibility)
- Funding Fee is waived for any veteran who has a military-related disability
Adjustable-Rate Mortgage
An adjustable-rate mortgage (ARM) is a type of home loan where the interest rate changes over time instead of staying fixed for the entire term.
- Initial Phase: The loan begins with a fixed-rate period—commonly 5, 7, or 10 years—where your monthly payment remains steady.
- Adjustment Phase: After that period, the interest rate adjusts at set intervals (often once a year), moving up or down based on broader market conditions.
This structure makes ARMs appealing to some buyers, especially those who don’t plan to stay in their home long-term.
Adjustable-rate mortgage highlights:
- Initial Interest Rate: Usually lower than fixed-rate loans
- Monthly Payments: Stable during fixed period, then increase
- Flexibility: Good if you plan to move, refinance, or upgrade within the fixed period
- Risk Level: Higher than fixed rate; payments may increase after fixed period
Get Expert Help Identifying Your Best Loan Type
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