you’ve decided to take the plunge and buy a home. You’ve got your eyes set on the perfect property, but did you realize you’d also need to navigate a maze of loan options to make that dream a reality?
Each mortgage loan type comes with its own set of pros and cons. Let’s dive into your options and figure out which one might suit your situation best.
A fixed-rate mortgage is a home loan where the interest rate never changes. That means your monthly payments stay the same for the entire loan term—no surprises, no market fluctuations, just steady, predictable payments.
Fixed-rate mortgages are offered in several term lengths, with 15-year and 30-year options being the most popular. Once your interest rate is locked in at closing, it never changes. This means:
However, it’s important to remember that property taxes, homeowners insurance, and HOA fees can still fluctuate, which may impact your total monthly payment if they’re included in your escrow account.
A fixed-rate mortgage may be an excellent fit if:
For buyers who want financial consistency and peace of mind, this loan type remains one of the most reliable and popular choices.
By understanding how fixed-rate mortgages operate, you can confidently select the loan option that best supports your goals and provides the stability you need on your home-buying journey.
An adjustable-rate mortgage (ARM) is a type of home loan in which the interest rate can change over time based on market conditions. ARMs often begin with a lower initial interest rate compared to fixed-rate mortgages, making them an attractive option for buyers looking for lower early payments—especially those purchasing a starter home or planning to pay off the loan relatively quickly. As with all mortgage types, you’ll need to meet certain credit and income qualifications to be approved.
ARMs operate in two main phases, each affecting how your interest rate and monthly payment are determined:
This is the “honeymoon phase” of the loan. During this period:
This low-start structure makes ARMs appealing for buyers looking to maximize early affordability.
Once the introductory phase ends:
Because your rate can change, your monthly payment may rise or fall depending on market conditions.
An adjustable-rate mortgage can be a smart financial choice for borrowers who:
If you’re comfortable with the possibility of future rate adjustments and have a sound long-term plan, an ARM may offer significant upfront savings.
An ARM isn’t the right fit for everyone, but for buyers with flexibility and a solid exit strategy, it can be a cost-efficient way to enter the housing market—especially when short-term affordability is a priority. If you’d like help determining whether an ARM aligns with your goals, feel free to ask!
If your down payment is less than 20%, your lender will typically require private mortgage insurance (PMI). PMI is an additional monthly cost designed to protect the lender—not the borrower—in the event you are unable to repay the loan. Although it adds to your overall housing expenses, it also makes it possible to purchase a home with a smaller upfront investment.
Lenders view borrowers with low down payments as higher risk. PMI helps offset that risk by covering a portion of the lender’s losses if the loan goes into default. This requirement is standard for most conventional loans with down payments below 20%.
Once you’ve built 20% equity in your home—either through paying down your mortgage balance or through home value appreciation—you can request to have PMI removed. Many lenders will also automatically cancel PMI once your loan reaches 78% of the original loan-to-value (LTV) ratio.
A conforming loan is a type of mortgage that meets the underwriting standards established by Fannie Mae and Freddie Mac, two government-sponsored enterprises (GSEs) that purchase and guarantee a large portion of U.S. home loans. Because these loans adhere to strict guidelines—covering credit score, income, loan size, and property requirements—they are considered lower risk for lenders. This typically results in more competitive interest rates and favorable loan terms for borrowers.
Conforming loans generally offer lower rates than non-conforming options, such as jumbo loans, because they are less risky for lenders.
Many conforming loans allow down payments as low as 3%, making them accessible for first-time buyers or borrowers with limited upfront funds.
These loans can be used to purchase or refinance:
Borrowers can choose from fixed-rate, adjustable-rate (ARM), and other loan formats, giving you flexibility to select the option that best fits your financial goals.
Conforming loans must fall below the conforming loan limit, which varies by county.
To meet GSE guidelines, borrowers typically need:
If your down payment is less than 20%, you’ll be required to carry private mortgage insurance (PMI), which adds to your monthly costs until you reach sufficient equity.
A conforming loan may be an excellent fit if you:
As long as you’re comfortable with the qualification requirements and your desired loan amount fits within the established limits, a conforming loan can offer affordability, stability, and widespread flexibility.
If you have questions or want help evaluating whether a conforming loan matches your situation, feel free to reach out—guidance is always available.
Conventional loans are mortgages that aren’t backed by a government agency like the FHA or VA. Instead, they’re offered by private lenders—banks, credit unions, and mortgage companies—and usually follow the rules set by Fannie Mae and Freddie Mac.
Rates Depend on Credit: Borrowers with weaker credit may see higher interest rates.
Requirements | Explanation |
Credit Score | Generally, you’ll need a credit score of at least 620 to qualify. However, to get the best interest rates, a score of 740 or above is often recommended. |
Down Payment | You can secure a conventional loan with as little as 3% down but putting down at least 20% will help you avoid Private Mortgage Insurance (PMI). |
Debt-to-Income Ratio (DTI) | DTI ratio that’s less than 43% to make sure you can handle the monthly payments relative to your income. |
Employment and Income | A stable employment history, usually two years or more, can make your application stronger. |
Loan Limits | limits set by Fannie Mae and Freddie Mac. For 2022, the limit is $647,200 for most areas but can be higher in high-cost locations. |
Loan Types | Conventional loans come in various terms and types, such as fixed-rate or adjustable-rate, which can also affect eligibility. |
Property Use and Type | The property will need to be appraised to confirm its market value meets or exceeds the purchase price. |
Documentation | You may need to provide bank statements, W-2s, Govt. ID and Social Security. Information on other assets like retirement accounts and possibly tax returns. |
If you’ve got solid credit, steady income, and the ability to put some money down, a conventional loan could be a great fit. You’ll have more options and fewer restrictions—but you’ll need to meet the higher qualification standards.
An FHA loan is a government-backed mortgage insured by the Federal Housing Administration (FHA), an agency within the U.S. Department of Housing and Urban Development (HUD). These loans are specifically designed to make homeownership more accessible—particularly for first-time buyers, those with lower credit scores, or individuals who may not have substantial savings for a down payment.
One of the biggest benefits of an FHA loan is the ability to purchase a home with as little as 3.5% down, making it a popular choice for buyers with limited upfront funds.
FHA loans are known for their lenient credit requirements. Many lenders accept credit scores as low as 580, and some may consider even lower scores with a slightly higher down payment.
FHA loans commonly come with fixed interest rates, meaning your principal and interest payments remain consistent throughout the life of the loan—making long-term budgeting easier.
The FHA Streamline Refinance program allows current FHA borrowers to refinance with reduced documentation and potentially lower interest rates, often resulting in lower monthly payments.
FHA loans require both an upfront mortgage insurance premium (UFMIP) and annual mortgage insurance premiums (MIP). These additional costs can increase your overall loan expense.
FHA loans have regional loan limits based on local housing costs. While these limits vary by market, they may restrict borrowing power in higher-priced areas.
Homes financed with an FHA loan must meet specific safety, security, and habitability standards. If a property requires repairs to meet these guidelines, it may delay or impact the approval process.
Requirements | Explanation |
Credit Score | FHA loans are more forgiving on credit scores, often accepting scores as low as 580. Some lenders may even consider scores between 500-579 with a larger down payment. |
Down Payment | A down payment as low as 3.5% is usually required if your credit score is 580 or above. For scores between 500-579, a 10% down payment is typically required. |
Debt-to-Income Ratio (DTI) | DTI ratio that’s less than 43% to make sure you can handle the monthly payments relative to your income. |
Employment and Income | A stable employment history, usually two years or more, can make your application stronger. |
Loan Limits | limits set by Fannie Mae and Freddie Mac. For 2022, the limit is $647,200 for most areas but can be higher in high-cost locations. |
Property Use and Type | Conforming loans can be used for primary residences, second homes, or even investment (1 to 4 units) properties depending on lender guidelines. The property must meet certain FHA appraisal and inspection standards related to safety and habitability. |
Mortgage Insurance | Upfront and Ongoing: FHA loans require an upfront mortgage insurance premium (UFMIP) as well as ongoing monthly mortgage insurance premiums (MIP). |
Documentation | You may need to provide bank statements, W-2s, Govt. ID and Social Security. Information on other assets like retirement accounts and possibly tax returns. |
An FHA loan may be a strong choice if you:
However, it’s important to weigh the cost of mortgage insurance against the benefits of easier qualification and lower upfront requirements.
If you’d like help determining whether an FHA loan is the best fit for your financial situation or need personalized guidance, feel free to reach out—we’re here to help you make the most informed decision possible.
USDA loans are a bit of a hidden gem in the mortgage world. Backed by the U.S. Department of Agriculture, these loans are designed to support rural development and can be a fantastic option for buyers who meet the guidelines.
Requirements | Explanation |
Credit Score | Generally, a credit score of 640 or above is recommended for USDA loans, though some lenders may have more flexible requirements. |
Down Payment | No down payment required |
Debt-to-Income Ratio (DTI) | DTI ratio of 41% or less is usually preferred, though exceptions can be made for those with certain compensating factors, like a higher credit score or larger cash reserves. |
Income Limits | Your household income generally must be at or below 115% of the median income for the area in which you’re buying. These limits can vary by location and family size. |
Employment | A stable employment history, usually two years or more, can make your application stronger. |
Geographic Eligibility | The property must be in a USDA-eligible rural or suburban area. You can check the USDA’s online eligibility map to see if a location qualifies. |
Loan Types | Conventional loans come in various terms and types, such as fixed-rate or adjustable-rate, which can also affect eligibility. |
Property Use and Type | The property must meet certain health and safety standards and pass a USDA appraisal. USDA loans are only for primary residences, not investment properties or second homes. |
Mortgage Insurance | There’s an upfront guaranteed fee, which can be rolled into the loan amount. There’s also an annual fee, which is usually lower than PMI for conventional loans. |
Documentation | You may need to provide bank statements, W-2s, Govt. ID and Social Security. Information on other assets like retirement accounts and possibly tax returns. |
If you’re open to living outside densely populated urban areas, a USDA loan can be a game-changer—especially for first-time buyers or anyone without a large down payment. The program is designed to help moderate-income borrowers and can be more accessible than you might expect. While a credit score of 640 or higher is ideal, some lenders may approve lower scores with strong compensating factors.
Between the no-down-payment option, lower mortgage insurance, and competitive rates, USDA loans can offer significantly lower monthly payments compared to many other loan types.
VA loans are a fantastic financing option for eligible service members, veterans, and certain surviving spouses. Backed by the U.S. Department of Veterans Affairs, these loans come with powerful benefits that can make homeownership more accessible and affordable for those who have served.
If you’re an eligible veteran, active-duty service member, or qualifying spouse, a VA loan is often one of the best mortgage options available. The combination of no down payment, no PMI, competitive rates, and flexible credit requirements makes homeownership far more attainable.
For anyone who qualifies, this loan type is typically a top contender—especially if you don’t have a large down payment saved or want the lowest possible monthly payment.
To qualify for a mortgage, lenders typically require that you have a debt-to-income ratio of “43/49.” This means that no more than 43% of your total monthly income (from all sources, before taxes) can go toward your new mortgage payment, and no more than 49.99% of your monthly income can go toward your total monthly debt (including your mortgage payment). VA and FHA loans even allow for higher debt ratios on a case by case basis.
Skip to content
