Conventional Loans
Conventional loans are the most common type of mortgage and are not backed by a government agency. They are issued by private lenders and must conform to guidelines set by Fannie Mae or Freddie Mac, the government-sponsored enterprises that buy most mortgages from lenders in the secondary market.
To qualify for a conventional loan, borrowers generally need a credit score of at least 620, though the best rates go to borrowers with scores above 740. A down payment of 20% kills the requirement for private mortgage insurance (PMI). Down payments as low as 3% are available on some conventional programs, but PMI is required until the loan-to-value ratio reaches 80%.
Conventional loans come in conforming and jumbo categories. Conforming loans stay within the loan limits set annually by the Federal Housing Finance Agency, $766,550 in most areas for 2025, with higher limits in designated high-cost markets. Jumbo loans go above those limits and typically require stronger credit, larger down payments, and more extensive documentation.
FHA Loans
FHA loans are insured by the Federal Housing Administration and are built to widen homeownership access for borrowers who may not qualify for conventional financing. The minimum down payment is 3.5% with a 580+ credit score, or 10% with a score between 500 and 579.
The cost of FHA financing is the mortgage insurance premium (MIP), which includes an upfront premium of 1.75% of the loan amount (usually rolled into the loan balance) plus an annual premium of 0.55% to 1.05% depending on the loan term, loan-to-value ratio, and loan amount. For most FHA loans with less than 10% down, MIP runs for the life of the loan. That ongoing cost makes FHA loans more expensive than conventional loans for borrowers who could qualify for conventional financing with PMI, since conventional PMI can be canceled at 80% LTV while FHA MIP usually cannot.
FHA loans fit first-time buyers with credit scores in the 580 to 660 range and limited cash for a down payment who plan to refinance into a conventional loan once they have built enough equity.
VA Loans
VA loans are guaranteed by the U.S. Department of Veterans Affairs and are available to eligible veterans, active-duty service members, and qualifying surviving spouses. They are one of the cheapest loan programs on offer.
VA loans require no down payment and no private mortgage insurance. Interest rates are typically competitive with or better than conventional rates. The VA caps closing costs that lenders can charge borrowers. The main cost is the VA funding fee, which runs 1.25% to 3.3% of the loan amount depending on down payment size and whether it is the borrower’s first VA loan. The funding fee is waived for veterans with service-connected disabilities.
VA loans have no minimum credit score set by the VA itself, though individual lenders typically want a minimum score of 580 to 620. No down payment, no mortgage insurance, and competitive rates make VA loans the best deal in mortgages for eligible borrowers in most situations.
USDA Loans
USDA loans are guaranteed by the U.S. Department of Agriculture and are available for buying homes in eligible rural and suburban areas. The eligibility map covers more of the country than the name suggests, including plenty of smaller towns and suburban fringes of metro areas.
Like VA loans, USDA loans require no down payment. They carry a guarantee fee (1% upfront, 0.35% annually) in place of mortgage insurance. Income limits apply. Borrowers must have household income at or below 115% of the area median income. USDA loans come in two forms: guaranteed loans (issued by approved private lenders) and direct loans (issued directly by USDA for very low income borrowers).
USDA loans are especially useful for buyers in rural areas who have stable income but limited savings for a down payment.
Fixed-Rate vs. Adjustable-Rate Mortgages
The fixed-rate vs. adjustable-rate split cuts across all loan types and is separate from the conventional/government-backed classification.
A fixed-rate mortgage holds the same interest rate for the entire loan term. The 30-year fixed is the most common mortgage in the United States, valued for payment predictability. The 15-year fixed carries a lower rate and builds equity faster, but the monthly payment is higher. Fixed-rate mortgages fit when rates are relatively low or when the borrower wants long-term payment stability.
An adjustable-rate mortgage (ARM) has a rate that is fixed for an initial period (3, 5, 7, or 10 years) and then adjusts annually based on a benchmark index (typically the Secured Overnight Financing Rate, or SOFR) plus a lender margin. Starting rates on ARMs typically run 0.5 to 1.5 percentage points below 30-year fixed rates. ARMs include caps that limit how much the rate can move per adjustment and over the life of the loan.
ARMs make economic sense for borrowers with a clear plan to sell or refinance before the fixed period ends, or for borrowers in high-rate environments who expect rates to fall and plan to refinance.
Jumbo Loans
Jumbo loans go above the conforming loan limits set by the FHFA, so Fannie Mae and Freddie Mac cannot buy them. Lenders hold jumbo loans on their own books or sell them to private investors, which means underwriting standards are set by individual lenders rather than by Fannie/Freddie guidelines.
Jumbo loan requirements are typically stricter. Most lenders want a 680 to 720+ credit score, a 20% down payment, significant cash reserves (often 12 months of mortgage payments), and thorough documentation of income and assets. Rates on jumbo loans sometimes run slightly above conforming rates, though that relationship has shifted in different rate environments.
Jumbo loans matter for buyers in high-cost markets (New York, San Francisco, Los Angeles, Boston) where even median-priced homes top conforming limits.