Finding an affordable mortgage that fits your needs depends on more than just the interest rate. Your credit, down payment, finances and homebuying goals can all affect which home loan is the right fit. There’s no one-size-fits-all mortgage, because different mortgage types are designed for different borrowers, the best option for you may not be the best option for someone else.
Conventional, FHA, VA, USDA and jumbo loans each have different eligibility requirements, costs and potential benefits. Use the guide below to quickly compare the most common home loan options and find one that may fit your situation.
Quick Guide: Which Home Loan May Be Right for You?
Types of Home Loans
The most common home loan programs include conventional, FHA, VA, USDA and jumbo loans. Each has different eligibility requirements, costs and potential benefits. Explore the options below to understand how each type of mortgage works and who it may be best suited for.
Conventional Mortgages
A conventional mortgage is a home loan that isn’t insured or guaranteed by a government program such as FHA, VA or USDA. Conventional loans can be conforming or non-conforming and may offer a range of down payment and term options.
A conventional mortgage may be worth considering if you:
- Have established credit and stable income
- Have funds available for a down payment
- Want flexibility in choosing your loan amount, term or payment structure
- Don’t need or qualify for a government-backed loan
Some conventional loan programs allow eligible borrowers to put down less than 20%. Depending on the loan and down payment, private mortgage insurance (PMI) may be required.
FHA Loans
Federal Housing Administration (FHA) loans are offered by FHA-approved lenders, such as banks, credit unions and mortgage companies, and insured by the FHA. They can offer down payments as low as 3.5% for qualifying borrowers and may be an option for buyers looking for more flexible qualification requirements or a lower down payment.
An FHA loan may be worth considering if you:
- Want a low-down-payment option
- Have a lower credit score
- Have limited funds available for a down payment
- Want to compare government-backed financing with a conventional loan
FHA loans require mortgage insurance, so they aren’t necessarily less expensive than conventional financing. Compare the interest rate, mortgage insurance, closing costs and other expenses to determine which option may cost less for your situation.
VA Loans
VA-backed home loans are available to eligible veterans, active-duty service members and certain surviving spouses. VA loans are offered through private lenders, with the VA guaranteeing a portion of the loan. Eligible borrowers may be able to purchase a home with no down payment, subject to applicable requirements.
A VA loan may be worth exploring if you:
- Are eligible for VA home loan benefits
- Want to explore a no-down-payment option
- Want to compare VA financing with other mortgage programs
If you’re eligible, compare the costs and terms of a VA loan with your other financing options to determine which best fits your needs.
USDA Loans
The USDA Rural Development Guaranteed Loan Program helps eligible low- and moderate-income borrowers purchase homes in qualifying rural areas. Qualified borrowers may be able to finance 100% of the home’s purchase price, meaning a down payment may not be required.
A USDA loan may be worth considering if you:
- Meet the program’s income requirements
- Are buying a home in an eligible area
- Plan to use the home as your primary residence
- Want to explore a no-down-payment option
USDA loans have specific income and property eligibility requirements. A property doesn’t have to be in a remote location to qualify, so check the USDA’s eligibility criteria and property maps when considering this option.
Jumbo Mortgages
A jumbo mortgage is generally a loan that exceeds the applicable conforming loan limit, which varies by location and property type. They are typically used to finance higher-priced homes and may have different qualification requirements than conventional loans.
A jumbo mortgage may be worth considering if you:
- Are purchasing a higher-priced home
- Need to borrow more than the applicable conforming loan limit
- Have the income, assets and credit profile needed to qualify
Jumbo loans may have different qualification, documentation, down-payment and reserve requirements than conforming mortgages. Check the current loan limit for the property you’re considering and compare the available financing options.
The five loan types discussed here are among the most common mortgage options, but they aren’t the only ones available. Depending on your circumstances, where you live and the type of home you’re buying, you may also qualify for other mortgage programs or homebuying assistance. A mortgage professional can help you explore the options available to you and determine which may best fit your needs.
Choosing a Home Loan
Qualifying for a certain loan amount doesn’t necessarily mean you should spend that much on a home. Before choosing a mortgage, consider how the monthly payment fits within your budget and how the loan aligns with your overall financial goals. Choosing a home loan involves more than comparing interest rates. Your down payment, credit, income, debt and the type of home you’re buying can all affect which loan options may be right for you.
Down Payment
Your down payment can affect your loan options, monthly payment and overall borrowing costs. A smaller down payment preserves cash but may result in a larger loan balance or mortgage insurance, depending on the loan type.
Credit
Your credit history and score can affect your eligibility and the terms a lender offers. Different loan programs have different requirements, so don’t assume you need perfect credit to qualify.
Income and Debt
Lenders consider your income, existing debts and ability to repay the loan when determining how much you may qualify to borrow. Your debt-to-income (DTI) ratio, which compares your monthly debt payments with your gross monthly income, can affect your loan options and ability to qualify. A lower DTI generally improves your chances of qualifying, while paying down debt, increasing your income or avoiding new loans can help improve your ratio. Keep your overall budget in mind, too. Just because you qualify for a certain loan amount doesn’t mean you need to borrow that much. Consider what monthly payment fits comfortably within your budget and financial goals.
The Home You’re Buying
The property’s location, purchase price and characteristics can affect your loan options. For example, USDA loans require eligible properties, while higher loan amounts may require jumbo financing.
Consider Your Loan Term and Interest Rate
Once you’ve chosen a loan type, you’ll also need to consider the loan term and interest-rate type.
15-Year vs. 30-Year Mortgages
When choosing a mortgage term, consider the differences between a 15-year and 30-year mortgage. A 15-year mortgage typically has higher monthly payments but allows you to pay off the loan sooner and generally pay less total interest over the life of the loan. A 30-year mortgage typically has a lower monthly payment but may result in more total interest over the life of the loan.
The right term depends on your budget, financial goals and how quickly you want to pay off your mortgage.
Fixed-Rate vs. Adjustable-Rate Mortgages
With a fixed-rate mortgage, your interest rate remains the same throughout the loan term, providing predictable principal and interest payments. An adjustable-rate mortgage (ARM) typically starts with a fixed rate before adjusting according to the terms of the loan.
A fixed-rate mortgage may appeal to buyers who prioritize predictable payments, while an ARM may offer a lower initial rate but comes with the possibility of future rate and payment increases. If you’re considering an ARM, understand when and how the rate can adjust before choosing one.
How to Compare Mortgage Offers
Once you’ve identified the loan types that may fit your situation, compare actual offers, not just the advertised interest rate.
Look at the interest rate and APR, estimated monthly payment, mortgage insurance, upfront costs and total cost of the loan. Also consider how the loan term affects your payment and total interest, and if you’re considering an ARM, understand how your rate and payment could change over time.
When comparing lenders, request Loan Estimates for the same loan type, amount and term. This makes it easier to compare your options and determine which offer may be the best fit.
Questions to Ask a Mortgage Lender
Before choosing a mortgage, consider asking:
- Which loan programs might I qualify for?
- What would my estimated monthly payment be?
- How much would I need for a down payment and closing costs?
- Would mortgage insurance be required?
- What is the APR, not just the interest rate?
- Would a 15-year or 30-year term make more sense for my budget?
- Would a fixed-rate or adjustable-rate mortgage fit my situation?
- Can you provide Loan Estimates for multiple options so I can compare them?
The best home loan isn’t necessarily the one with the lowest advertised rate or smallest down payment. It’s the loan that fits your circumstances and financial goals.
Ready to Explore Your Options?
Connect with an FNBO mortgage loan officer who can help you compare loan options, understand the costs and terms of each, and determine which mortgage best fits your individual goals and budget.
About the Author
Reyna Moreno is a Community Mortgage Lender with FNBO with more than two decades of experience in mortgage lending. She is passionate about helping individuals and families achieve their homeownership goals by providing personalized guidance, education, and clear communication throughout the mortgage process. Reyna believes in helping borrowers understand their options so they can make informed decisions and choose a mortgage that best fits their individual needs and financial goals. She is especially passionate about serving and strengthening the communities she calls home.
Frequently Asked Questions
There isn’t one best home loan for everyone. The right loan depends on your credit, income, down payment, the property you’re buying and whether you qualify for a particular program.
Conventional, FHA, VA, USDA and jumbo mortgages each serve different situations. If you qualify for more than one type, compare the total costs and terms to determine which option best fits your goals.
Not necessarily. FHA loans can be attractive for borrowers with lower credit scores or smaller down payments, while conventional financing may be more attractive for borrowers with stronger credit and finances.
The least expensive option depends on your individual circumstances. Compare actual loan offers rather than assuming one program is always better.
For an eligible borrower, a VA loan can offer significant benefits, including the potential for no-down-payment financing. But the best choice depends on your circumstances, and the specific loan offers available to you.
USDA financing can be a valuable option for eligible borrowers purchasing a home in a qualifying rural area. Some qualified borrowers may be able to finance 100% of the purchase price.
Eligibility depends on both the borrower and the property.
Not necessarily. A 15-year mortgage generally has a higher monthly payment but can allow you to pay off the loan sooner and pay less total interest if the loan is held to maturity.
A 30-year mortgage generally has a lower monthly payment and can provide greater budget flexibility.
A fixed-rate mortgage provides greater payment predictability, while an ARM can offer a lower initial rate but carries the possibility of future rate changes.
The right choice depends on your financial situation, how long you expect to own the home and your comfort with payment changes.
Yes. Depending on your circumstances, you may be able to use conventional, FHA, VA or USDA financing with less than 20% down. Some eligible VA and USDA borrowers may qualify for no-down-payment financing.
A smaller down payment can preserve cash but may increase your loan balance or result in mortgage insurance, depending on the loan program.
Compare more than the interest rate. Look at the APR, monthly payment, down payment, closing costs, mortgage insurance, loan term, rate structure and total expected cost.
When possible, compare official Loan Estimates from multiple lenders.
