Different Types of Mortgage Loans for Buyers and Refinancers

Conventional or government-backed? Fixed or adjustable rate? Find what's best for you as a borrower.

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Home loans aren't one-size-fits-all. Many different types of mortgage loans exist, and they are designed to appeal to a wide range of borrowers' needs.

Here are the two key decisions you'll need to make to get started, followed by a rundown of the main types of mortgage loans. Don't see what you're looking for? Head to the end for even more kinds of mortgages.

Mortgage options

Fixed or adjustable rate?

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. For example, a 5-year ARM has an interest rate that is set for the first five years and then adjusts annually.

Fixed-rate mortgages

Pro: Provide buyers with predictable monthly payments.

Con: If rates drop, you have to refinance to take advantage of lower rates.

Best for: Buyers who are planning to stay in their homes longer.

Adjustable-rate mortgages

Pro: Can help buyers stretch their budgets, since ARMs begin with a fixed period that usually has a lower introductory rate.

Con: Once the intro period is over, ARM rates adjust, possibly raising your mortgage payment.

Best for: Buyers who plan to move or refinance before the rate begins adjusting, or who are confident they'll be able to handle a potentially higher rate when the introductory period ends.

» MORE: Compare the pros and cons of adjustable- and fixed-rate mortgages

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How long will your mortgage loan last?

While ARMs generally last 30 years, with a fixed-rate loan you've got other options. You can choose to get a fixed-rate mortgage that lasts for 15 years. Depending on the type of loan you're getting, other terms, like 20- or 10-year loans, may be available. The most common term, however, is 30 years. It's also the longest repayment term available.

30-year mortgages

Pro: Monthly payments are lower, because the loan is stretched out over a long period of time.

Con: Lifetime interest paid is higher, because you're paying interest for a longer time and interest rates tend to be higher for 30-year loans.

Best for: Buyers who want a manageable mortgage payment.

Shorter-term mortgages

Pro: Allow buyers to build equity more quickly and pay less total interest. Loans with shorter terms also often come with lower interest rates.

Con: Loans lasting 20, 15, or 10 years have higher monthly payments, because repayment happens on a faster schedule. 

Best for: Homeowners who are refinancing or buyers able to keep up with an aggressive payment schedule.

» MORE: Use our 15- vs. 30-year mortgage calculator to see how your payments would change

Types of mortgage loans

Conventional loans

Conventional loans are the most common type of home loan. These mortgages meet standards that allow lenders to resell them to the government-sponsored enterprises Fannie Mae and Freddie Mac. By making sure borrowers and loans fit GSE requirements, lenders can sell their loans, which gives them money to make new loans. But because of those conditions, conventional loans can have stiffer qualifications.

Pro: Down payments can be as low as 3%, though borrowers with down payments under 20% have to pay for private mortgage insurance.

Con: Can be harder to qualify for, generally requiring a credit score of at least 620 and a debt-to-income ratio that's under 36%.

Best for: Home buyers who are on solid financial footing.

Government-backed loans

Government-backed loans are mortgages that are insured by different federal agencies. This protects mortgage lenders, because if the borrower becomes unable to repay the loan, the agency has to handle the default. Having that backstop allows lenders to offer mortgages to a broader range of potential buyers.

FHA loans

Pro: Home loans insured by the Federal Housing Administration can allow for credit scores as low as 500 with a 10% down payment; with a credit score of 580 or higher you can make a 3.5% down payment.

Con: FHA loans require FHA mortgage insurance, which lasts for 11 years or the life of the loan, depending on the size of your down payment. 

Best for: Borrowers with lower credit scores and limited down payment savings.

VA loans

Pro: Loans backed by the Department of Veterans Affairs don't require a down payment or mortgage insurance.

Con: VA loans are only available to veterans, current service members and eligible spouses.

Best for: Military borrowers.

USDA loans

Pro: The U.S. Department of Agriculture backs USDA loans as well as offering direct loans, with no down payment required. 

Con: USDA loans are limited to areas designated as rural. Some loans have caps on income and property value, too.

Best for: Lower-income borrowers in rural or suburban areas.

Other types of mortgage loans

Now you know the most common types of mortgages you're likely to encounter when buying a home. Here are other mortgage types you might hear about along the way:

Conforming loans: The term conforming loans usually refers to conventional mortgages that meet Federal Housing Finance Administration loan limits. (Loans that are larger are jumbo loans, below.) But conforming loans must also meet other FHFA standards like minimum borrower credit scores and debt-to-income ratio. 

Construction loans: Construction loans finance the building of a new home. A construction-to-permanent loan covers both the construction and the home purchase, while a construction-only loan gets paid off when building is complete. If you're buying a new construction home that's already finished, you don't need a construction loan since the building's already done.

Interest-only mortgages: With an interest-only mortgage, you make payments on the interest — not paying down the loan principal — for the first few years of the home loan. After that period ends, you can end the loan by selling or refinancing, or begin to make monthly payments that cover principal and interest.

ITIN loans: People who don't have and aren't eligible to get Social Security numbers can use their individual taxpayer identification number, or ITIN, to apply for home loans from lenders offering ITIN loans. Because lenders usually use SSNs to verify buyers' finances, ITIN loans can require extensive documentation.

Jumbo loans: As their name implies, jumbo loans are XL-sized mortgages used to buy expensive properties. Jumbo loans exceed FHFA loan limits, making them one type of nonconforming loan.

Nonconforming loans: Nonconforming loans are mortgages that don't fit FHFA standards for conventional loans. Government-backed loans are nonconforming, though they fit their own sets of agency rules. Nonconforming more commonly refers to loans that don't fit in conventional or government-backed boxes, like jumbo loans. 

Portfolio loans: As described above, lenders generally resell mortgages to the GSEs. Those sales then fund lenders' abilities to make more loans. But lenders can opt to keep loans in-house; these are called portfolio loans. Since nonconforming loans like jumbo loans can't be resold, lenders often have to keep these on their books.

Professional loans: Some lenders offer mortgages that are designed for borrowers in specific professions. For example, physician loans make allowances for the limited income future doctors have during medical school. 

Renovation mortgages: With a renovation mortgage, the costs of updating or upgrading the home are rolled into the amount borrowed for the purchase. The Freddie Mac CHOICERenovation loan, Fannie Mae HomeStyle loan and FHA 203(k) loan are common renovation mortgages.

Reverse mortgages: Reverse mortgages allow homeowners 62 or older to take out some of their home equity as a regular stream of income or as a lump sum. This can put your home at risk, however — here's more about the pros and cons of reverse mortgages.

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View curated lists of top lenders, compare rates, and shop for great mortgage options.

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