Buying a home is often the biggest purchase that an individual will make in their lifetime, and such a big purchase comes with many important questions. Location, home style and budget are all very crucial factors to consider when purchasing your home. There’s another important factor to think about when you’re ready to purchase: the best loan to buy a house based on your goals.
When you are ready to buy a home, it’s vital to educate yourself on different mortgages to find the best one for your budget and circumstances. Since buying a home is the largest purchase you may make in your lifetime, it’s crucial to find a home loan that fits.
Key Takeaways:
- Multiple home loan options exist. There is no singular best mortgage. Buyers can choose from many types, including conventional loans, which can be fixed-rate or adjustable-rate, and government-backed loans such as FHA, VA, and USDA.
- When trying to find the best loan for your situation, consider factors such as upfront costs, long-term expenses, credit requirements and property type to determine the most suitable mortgage.
- If you qualify, government-backed loans offer unique benefits. For example, FHA, VA and USDA loans all offer low- or no-down-payment options, more flexible credit requirements and reduced mortgage insurance, making homeownership more accessible for eligible buyers.
What Is The Best Mortgage: How to Compare
Mortgages are loans provided to borrowers from a mortgage lender, bank or other financial institution to purchase or refinance a home, with the home acting as the collateral on the loan.
There are many types of mortgage loans available when purchasing a home. It is important to educate yourself about home loans and consider a few factors before committing to a mortgage.
Consider the following mortgage-related questions:
- How much house can I afford based on my debt-to-income ratio, income and savings?
- Do I qualify for down payment assistance?
- Have I set a savings goal for upfront costs, like a down payment and fees during closing?
- Would I prefer a 15-year or 30-year loan term?
After answering these questions, compare interest rates on different mortgage products, and research and compare lenders in your area.
Each type of mortgage loan comes with a list of pros and cons, along with different loan qualifications. Because of this, the best mortgage loan is ultimately the one that fits your financial situation and needs the best. While one mortgage loan type may be ideal for one borrower, it may not fit the specific needs and situation of another.
What’s Your Goal?
Buy A Home
Discover mortgage options that fit your unique financial needs.
Refinance
Refinance your mortgage to have more money for what matters.
Tap Into Equity
Use your home’s equity and unlock cash to achieve your goals.
Types Of Mortgage Loans, Compared
Here is a quick visual guide to some of the most common types of mortgage loans offered and their specifics. It’s important to note that some figures may vary between lenders. These include the minimum credit score and mortgage insurance.
Loan Type | Overview | Upfront Fees | Minimum Down Payment | Minimum Credit Score | Mortgage Insurance |
|---|---|---|---|---|---|
FHA Loan
| Government-insured and ideal for borrowers with lower credit scores | Mortgage Insurance Premium (MIP) equal to 1.75% of loan amount | 3.5% | 580 | Required regardless of down payment – 0.15% – 0.75% of loan balance |
USDA Loan | Used to purchase homes in designated rural areas | Guarantee Fee equal to 1% of loan amount | 0% | 640 | .35% of remaining loan balance |
VA Loan | Those in active duty, veterans and surviving spouses may be eligible | VA Funding Fee equal to 1.25% – 3.3% of loan amount | 0% | The VA does not require a min. credit score, though most lenders require 580-620 | None |
Conventional Mortgage | Most common type of mortgage, not backed by the government | N/A | 3%-5% | 620, though some lenders prefer higher | Required if less than 20% down payment – 0.1% – 2% of loan balance |
Jumbo Loan | Used to buy houses that sell for more than the conforming loan limit | N/A | 10%-20% | 680 or higher | May be required if less than 20% down payment, though it depends on the lender |
Ready To Become A Homeowner?
Get matched with a lender that can help you find the right mortgage.
5 Types Of Mortgage Loans
1. Conventional Loan
A conventional loan is a catch-all term for mortgages not backed by a government agency, such as the U.S. Department of Agriculture (USDA) or the U.S. Department of Veterans Affairs (VA).
The two most common types of conventional loans are:adjustable-rate and fixed-rate mortgages (more on those below).
To qualify for a conventional mortgage, your lender will review a few different things; namely, your financial information, including your credit score, down payment and debt-to-income ratio (DTI). Conventional loans do come with conforming loan limits, meaning there is a cap on how much you can borrow.
- Credit score: The minimum credit score required to approve a conventional loan varies by lender, but a score of 620 is typically needed. Keep in mind that a lower credit score may result in a higher interest rate, whereas a higher score may offer more favorable terms.
- Down payment: When it comes to conventional loans, the minimum required down payment is 3% of the home’s sale price. However, your required down payment will depend on your personal situation and the type of loan or property you’re getting. Ultimately, the larger the amount of money you can put down, the less money you’ll need to borrow and the more equity you’ll have in the home.
- DTI: Lastly, lenders will look at your DTI, which is a measure of how much of your monthly gross income is taken up by any debts that you may have. Generally, the maximum DTI is 50% for conventional loans.
Who Is A Conventional Loan Best For?
A conventional loan, like a fixed-rate or ARM, is usually best suited for borrowers who meet the criteria of a credit score of 620 or higher and do not have a DTI over 50%.
Pros
- No upfront mortgage insurance premium.
- Ability to use this type of loan for secondary homes and investment properties
- Opportunity for a lower down payment
Cons
- Tougher qualifications may make it harder to be approved for this loan.
- You cannot borrow more than the conforming loan limit. In 2025, that limit is $806,500 for a single-family residence in most areas of the U.S. and $1,209,750 for high-cost areas like Alaska and Hawaii.
2. Adjustable-Rate Mortgage
An adjustable-rate mortgage (ARM) is a type of conventional mortgage loan that allows you to have some variation in the interest rate that you pay. ARMs start with a fixed interest rate for a set period (usually for 5, 7 or 10 years). This fixed period typically features a lower interest rate than fixed-rate mortgages. Once the fixed period ends, your interest rate may increase or decrease depending on the market.
ARMs include a rate cap that protects your interest rate from increasing too much in a short amount of time. Rate caps limit how much your interest rate can increase. As rates continue to rise, your interest rate will rise only to the rate cap amount set for your loan.
For example:
- An initial cap limits the first time a rate adjusts.
- A periodic cap limits the adjustment per period, while the lifetime cap limits the interest rate over the entire life of your loan.
Who Is An Adjustable-Rate Mortgage Best For?
This type of mortgage rate would be best for a borrower who is buying a starter home and/or planning on selling within a few years of purchasing it. ARMs are also well suited for those who have a flexible budget, as the changing interest rates, unlike fixed ones, can cause changes in budgeting.
Pros
- Low introductory rate for the first (5, 7 or 10) years
- Access to low interest rates when the market rates fall without needing to refinance
Cons
- After the fixed period, varying interest rates can cause budgeting issues, as monthly mortgage payments may fluctuate.
- When market interest rates rise, your interest rate will rise as well.
3. Fixed-Rate Mortgage
A fixed-rate mortgage loan is another common type of conventional loan. Most homebuyers opt for fixed-rate mortgages, often in the form of a conventional mortgage loan. Why? Because the interest rate that you receive at the beginning of a fixed-rate loan stays the same for the entire life of the loan. The typical loan life for a fixed-rate mortgage is 15 or 30 years. Mortgage rates are determined by many factors. The first of which is the market rate at the time of your loan application. The market rate will impact the rate on your mortgage loan. When rates are high, buyers may choose to wait to purchase or refinance a home.
The rate that you’re given is also affected by personal factors, such as your credit score and down payment amount. Since this mortgage rate will not change throughout the life of the loan, you need to refinance to get a new rate.
Who Is A Fixed-Rate Mortgage Best For?
A fixed-rate mortgage is best for borrowers who want a consistent rate for the life of their loan. This is especially beneficial if you can lock in a low interest rate. Potential home buyers who plan on staying in the home long term and want the stability of a more predictable payment would be the ideal borrowers for this type of home loan.
Pros
- Due to the consistent interest rate, principal and interest payments will also stay consistent, which allows for better budgeting.
- You won’t need to worry about your rate increasing.
Cons
- If the market rates fall to below your interest rate, you’ll need to refinance to acquire the lower rate.
- A fixed-rate mortgage does not have the same low introductory rate that an ARM has.
4. Jumbo Loan
Next, we have the jumbo loan, which is a nonconforming loan (unsellable to Fannie and Freddie) that is typically used to buy a home that has a purchase price higher than the conforming loan limit.
As with the typical conventional loan, a jumbo loan features the same set of criteria to be looked at by your lender. However, due to the large amount of money and larger risk to your lender, there is a higher degree of scrutiny than the normal conventional loan.
You’ll need:
- A higher minimum credit score (at least 680)
- A lower DTI
- A larger down payment (typically 10% – 20% of the purchase price)
Who Is A Jumbo Loan Best For?
A jumbo loan would be ideal for a borrower who is trying to purchase a home with a selling price that is higher than the conventional limit for the area. The potential home buyer would also have a credit score of 680 or higher, along with a low DTI and a larger down payment.
Pros
- Interest rates are comparable to those of standard conventional mortgages.
- Allows the purchase of a more expensive home
Cons
- Requires a large down payment
- Stricter qualifications make approval more challenging.
5. Government-Insured Loan
There are three main types of government-insured loans:
An FHA loan offers the opportunity to qualify with a lower credit score. Most lenders require a credit score of 580 or higher, but some lenders allow applicants to have a credit score as low as 500 with a higher down payment (usually 10%). With FHA loans, you’ll be required to pay MIP.
A USDA loan doesn’t require a down payment and is used by those looking to purchase a house in a designated rural area. These loans come with unique stipulations, such as the location of the home being purchased and limits on household incomes (in the area) to qualify.
A VA loan is available only to active service members of the United States military, along with veterans and eligible surviving spouses. VA loans are unique, as they do not require a down payment on the home and there is no minimum credit score required by the VA. However, lenders may have their own qualifying credit score in place – usually at least 580. In addition, like all loans, the higher your score, the better the interest rate on your loan.
Who Is A Government-Insured Loan Best For?
A government-insured loan is best for those who fit the unique qualifications that come with this type of loan. For a USDA loan, the ideal borrower would be a home buyer looking for a house in a rural area. A VA loan would be best for veterans, surviving spouses and active service members. Lastly, an FHA loan would be ideal for those looking to purchase a home but do not have excellent credit.
Pros
- Low or no down payment
- Borrowers with not-so-great credit may qualify.
Cons
- Strict requirements
- Income eligibility (for some loans)
- Not available to all borrowers
Take The First Step To Buying A Home
Find a lender that will work with your unique financial situation.
The Bottom Line: The Best Loan
So, what’s the best loan to buy a home? Ultimately, this depends solely on your unique needs and situation. Wondering where to start? Go comparison shopping to find a home loan option that is the best fit for your finances, the type of home you want and your individual goals.
Ben Shapiro
Ben Shapiro is an award-winning financial analyst with nearly a decade of experience working in corporate finance in big banks, small-to-medium-size businesses, and mortgage finance. His expertise includes strategic application of macroeconomic analysis, financial data analysis, financial forecasting and strategic scenario planning. For the past four years, he has focused on the mortgage industry, applying economics to forecasting and strategic decision-making at Quicken Loans. Ben earned a bachelor’s degree in business with a minor in economics from California State University, Northridge, graduating cum laude and with honors. He also served as an officer in an allied military for five years, responsible for the welfare of 300 soldiers and eight direct reports before age 25.
