Types of Mortgage Loans Explained
There are three main types of mortgage loans: conventional loans, government-backed loans, and special programs. Every mortgage also pairs that loan type with a loan term, such as 15 or 30 years, and a rate type, fixed or adjustable. The Consumer Financial Protection Bureau (CFPB) frames every home loan this way.
Sometimes only one loan type fits your situation. If several fit, the CFPB suggests trying scenarios and asking lenders for several quotes to see which type offers the best deal overall.
The Main Types of Mortgage Loans at a Glance
Conventional loans make up the majority of mortgages, and the conforming version is the most common loan type. Government and housing agency programs serve specific borrowers, and which type costs least depends on your credit, your down payment and the programs you are eligible for.
| Loan type | Who it is for | What to know |
|---|---|---|
| Conventional (conforming) | The majority of loans. Conforming is the most common loan type. | The government sets the maximum loan amount, and Fannie Mae or Freddie Mac set the other rules. Mortgage insurance is typically required with less than 20 percent down. |
| Jumbo (non-conforming) | Borrowers who need more than the conforming jumbo limit in their county | Rules vary by lender. Borrowers usually need good credit and a high down payment. |
| Federal Housing Administration (FHA) | Borrowers with lower credit scores or a small down payment | Down payments as low as 3.5 percent. Mortgage insurance is required on every FHA loan, and the maximum loan amount varies by county. |
| Department of Veterans Affairs (VA) | Veterans, service members and surviving spouses | A Certificate of Eligibility shows the lender you qualify. Nearly 90 percent of VA-backed loans are made with no down payment. |
| U.S. Department of Agriculture (USDA) | Low- to middle-income borrowers in rural areas | Check eligibility with USDA before applying. |
| State or local housing agency programs | Low- to middle-income borrowers, first-time homebuyers or public service employees | Offered by state or local housing agencies. Special Purpose Credit Programs are private-lender loans to low- to middle-income borrowers, generally in targeted communities. |
Three Choices Every Mortgage Combines
Every mortgage combines three separate choices: a loan type, a loan term and an interest rate type. Picking a conventional loan does not settle the term or the rate. You still choose those on their own, and each one changes a different part of the deal.
| Choice | Common options | What it changes |
|---|---|---|
| Loan type | Conventional, FHA, VA, USDA, special programs | Your down payment, your total cost including interest and mortgage insurance, and how much you can borrow |
| Loan term | 15 years or 30 years | Your monthly payment, your interest rate and your total cost |
| Rate type | Fixed or adjustable | Whether your principal and interest payment can change over the life of the loan |
The loan type also affects the house price range you can consider. A 30-year FHA loan and a 15-year FHA loan share a loan type but carry different monthly payments and different total costs.
Conforming, Jumbo and Other Conventional Loans
A conventional loan is any mortgage that is not part of a specific government program. Conventional loans typically cost less than FHA loans but can be more difficult to get. They split into two main categories, conforming and non-conforming.
Conforming loans are the most common loan type. The government sets their maximum loan amounts, and Fannie Mae or Freddie Mac, which back conforming loans, set the other rules. By law, Fannie Mae and Freddie Mac can only buy single-family mortgages below a ceiling called the conforming loan limit.
Look up your county's figure on the Federal Housing Finance Agency (FHFA) conforming loan limit page before you set a price range. The 2026 limits were set using the formula in the Housing and Economic Recovery Act of 2008, and they are higher in some high-cost areas. In certain counties, a conforming jumbo loan covers amounts above the standard limit, with a maximum that varies by county.
Jumbo loans above the conforming jumbo limit in your county are non-conforming. Rules vary by lender, but borrowers usually need good credit and a high down payment. Non-conforming loans are less standardized, so eligibility, pricing and features can vary widely, and the CFPB calls shopping around particularly important for them.
A third group, other non-conforming loans, covers loans of any size that fit no other category. Some are aimed at borrowers with poor credit and tend to carry high rates. They may also include minimal income documentation, interest-only payments or a balance that is allowed to increase.
Many of the loans that got people in trouble during the financial crisis fell in this group. If you are offered one, consult several lenders and ask whether you could qualify for a conforming or FHA loan instead. If a lender pitches a portfolio loan, our portfolio loan explainer walks through how it works.
On a conventional loan, a down payment under 20 percent typically means paying for mortgage insurance. Our FHA vs conventional loan comparison is the next read for buyers with a smaller down payment.
Government-Backed Loans from FHA, VA and USDA
Government-backed loans serve three groups: borrowers with lower credit scores or small down payments (FHA), veterans and service members (VA), and low- to middle-income rural borrowers (USDA).
FHA loans come from private lenders and are regulated and insured by the Federal Housing Administration, a government agency that does not lend the money itself. They allow down payments as low as 3.5 percent and lower credit scores than most conventional loans. Mortgage insurance is required on every FHA loan, and the maximum loan amount varies by county.
Whether FHA or conventional costs less depends on your profile. For borrowers with good credit and a 10 to 15 percent down payment, FHA loans tend to cost more than conventional loans. For borrowers with lower credit scores or smaller down payments, FHA can often be the cheapest option.
The CFPB says there are no hard-and-fast rules and a lot depends on the current market, so ask lenders to quote both. The FHA loan calculator lets you test different down payments before you request quotes.
VA home loans help Veterans, service members and their survivors buy, build, improve or refinance a home. VA offers a VA direct loan and 3 VA-backed loans, and nearly 90 percent of VA-backed loans are made with no down payment. A Certificate of Eligibility (COE), based on your service history and duty status, shows a lender that you qualify.
A VA loan may offer better terms than a traditional loan from a private bank, mortgage company or credit union. You still need the required credit and income for the amount you borrow. Run your numbers in the VA loan calculator, then read our VA loan vs conventional loan comparison and FHA loan vs VA loan comparison.
USDA loans are for low- to middle-income borrowers in rural areas. For how the two programs differ, see our USDA loan vs FHA loan comparison.
Fixed-Rate vs Adjustable-Rate Mortgages
A fixed-rate mortgage keeps the same interest rate and the same monthly principal and interest payment. An adjustable-rate mortgage (ARM) has a rate that can rise or fall after an initial period. Most borrowers choose fixed-rate mortgages. On a fixed-rate loan, your total monthly payment can still change if property taxes, homeowner's insurance or mortgage insurance change.
An ARM starts with a lower interest rate. Most ARMs have two periods: an introductory period with a fixed rate, then a second period where the rate adjusts regularly. Part of the rate is tied to an index, and the rate you pay is the index plus a set margin, subject to any caps.
After the fixed period ends, the monthly principal and interest payment can go up or down. It could go up a lot, even double. Some ARMs include rate caps that limit how much the rate can adjust.
An ARM could cost less in the short term, for example if you plan to move within the initial fixed period. If you stay longer than expected, you could pay a lot more. The CFPB warns against assuming you can sell or refinance before the rate changes, because your property's value could drop or your finances could change.
Before taking an ARM, get answers to five questions from the lender:
- How high or low can the rate and payment go with each adjustment?
- How often does the rate adjust?
- How soon could the payment go up?
- Is there a cap on how high the rate can go?
- Could you still afford the loan at the maximum rate and payment?
To weigh the two rate types on cost and risk, read our fixed vs ARM mortgage comparison.
Loan Term and the 15-Year vs 30-Year Tradeoff
A shorter loan term means higher monthly payments, a typically lower interest rate and a lower total cost. A longer term reverses each of those: lower monthly payments, a typically higher rate and a higher total cost.
The CFPB says the rate on a shorter term is usually lower, by as much as a full percentage point. How much lower depends on the terms and rates involved. Rates vary among lenders, especially for shorter terms, so ask each lender to quote both lengths.
Our 15-year vs 30-year mortgage comparison covers the two terms, and the 40-year mortgage guide covers a longer term.
Loan Features to Question Before You Sign
The CFPB flags four loan features to be careful with: a prepayment penalty, a balloon payment, negative amortization and interest-only payments. If a loan offer includes one, ask the loan officer why. Then ask for a second Loan Estimate for the same loan without that feature, so you can see what the feature costs you.
Generally, a lender must document and verify your income, employment, assets, debts and credit history to decide whether you can repay. A loan that does this and meets certain criteria may be called a qualified mortgage.
Nonqualified mortgages can be riskier or more expensive. They are sometimes marketed to self-employed borrowers or borrowers without Social Security numbers. If you are offered one, compare Loan Estimates from several lenders.
How to Compare Types of Mortgage Loans
Compare types of mortgage loans by getting official Loan Estimates from several lenders for each type that fits you, then comparing the total cost. The CFPB says never make a final decision about a loan before you have Loan Estimates in hand.
Start by narrowing the list on eligibility. A Certificate of Eligibility shows a VA lender that you qualify, and USDA loans are for low- to middle-income rural borrowers. Conforming loans stop at your county's limit, and anything above it is a jumbo loan.
Your down payment and credit shape the rest. FHA can often be cheapest with a lower credit score or a small down payment. Conventional tends to cost less with good credit and a 10 to 15 percent down payment.
Set a price range with the mortgage affordability calculator, then test terms and rates in the mortgage calculator. Our best mortgage lenders roundup helps you build a shortlist, and our list of questions to ask a mortgage lender covers what to raise on each call.
If this is your first purchase, the first-time home buyer guide walks through the steps around the loan.
Frequently asked questions
What is the most common mortgage type?
Conforming conventional loans are the most common type. Conventional loans make up the majority of mortgages, and conforming loans follow maximum loan amounts set by the government plus other rules set by Fannie Mae or Freddie Mac. On rate type, most borrowers choose a fixed-rate mortgage.
What are the five major types of mortgages?
The CFPB sorts mortgages into three categories: conventional, government and special programs. Within them, the main loan types are conforming, jumbo, FHA, VA, USDA and state or local housing agency programs. Each type can then pair with a loan term and a fixed or adjustable rate.
What is a jumbo mortgage loan?
A jumbo mortgage is a loan above the conforming loan limit, which the Federal Housing Finance Agency publishes each year and which varies by county. Some counties allow conforming jumbo loans above the standard limit. Loans above that county figure are non-conforming jumbo loans.
What is a hybrid ARM mortgage?
A hybrid ARM is an adjustable-rate mortgage that starts with a fixed rate for an introductory period, then adjusts regularly after that. Once adjustments begin, the rate follows an index plus a set margin, subject to any caps, so the monthly payment can rise or fall. The CFPB warns against assuming you can sell or refinance before the rate changes.
What are the risks of a mortgage?
Risks the CFPB names include rising ARM payments and risky loan features. An ARM payment can go up a lot after the fixed period, even double. Prepayment penalties, balloon payments, negative amortization and interest-only payments all call for caution, and nonqualified mortgages can be riskier or more expensive. Ask for a Loan Estimate without the feature to compare.
What is the best type of home mortgage loan?
No single type is best for every buyer. The right fit depends on your down payment, your credit, which programs you are eligible for, and how long you plan to stay in the home. Compare Loan Estimates for every type that fits you to see which one costs least overall.
Sources
We prioritize primary sources for rules, formulas, rates, limits, and definitions. See our calculator methodology and editorial policy.