Thinking about buying a home but not sure which mortgage makes sense for you? You’re not alone. Choosing the right loan can feel overwhelming, especially when every option seems to come with different rules, rates, and requirements.
The good news is that home loans are not one-size-fits-all. Whether you’ve got a large down payment or need flexible credit requirements, there’s likely a mortgage that fits your situation. Learning about your options now could save you thousands on your down payment, interest, and fees over the life of your loan.
Before you start visiting open houses, take a little time to get familiar with the different types of home loans available in 2025.
The 6 Most Common Types of Home Loans
Understanding the different types of mortgage loans will help you choose the option that’s best suited for you. Let’s look at a brief overview of the eight types of mortgages available in 2025.
1. Conventional Loans
A conventional loan is a mortgage that’s not issued by the federal government. There are two types of conventional mortgages: conforming and non-conforming loans.
A conforming loan meets the guidelines set by Fannie Mae and Freddie Mac. You’ll get a conforming loan through a private lender, like a bank, credit union, or mortgage company. Since the government doesn’t guarantee these loans, the requirements are usually stricter.
As of 2025, the maximum loan amount for a conforming loan is $766,550 in most areas. In high-cost counties, the limit can go up to $1,149,825. If your down payment is less than 20%, you’ll need to pay for private mortgage insurance (PMI).
Conventional loans are often fixed-rate mortgages, which means your monthly payment stays the same for the life of the loan. Common loan terms include:
- 30-year fixed-rate mortgage
- 20-year fixed-rate mortgage
- 15-year fixed-rate mortgage
- 10-year fixed-rate mortgage
If you need to borrow more than the conforming loan limits, you’ll be looking at a jumbo loan. Jumbo loans are simply larger conventional loans. They usually require a higher credit score, a bigger down payment, and often come with higher interest rates.
Pros:
- Can be used to buy a primary home or an investment property
- Often costs less than government-backed loans
- You can cancel PMI once you reach 20% equity
Cons:
- Requires a FICO score of at least 620
- Tougher to qualify for than government-backed loans
- You’ll need a low debt-to-income ratio
2. Conventional 97 Mortgage
A conventional 97 mortgage is similar to a conventional loan in that it’s widely available to various borrowers. The main difference is that with this type of home loan, you only have to pay a 3% down payment.
The program is available for first-time and repeat home buyers. However, it must be your primary residence, and the loan amount must fall within the conforming loan limits for your county. In 2025, that’s up to $766,550, or as high as $1,149,825 in high-cost areas.
Pros:
- Widely available to most borrowers
- Only requires a 3% down payment
- Available for first-time and repeat homebuyers
Cons:
- Cannot be used to purchase investment properties
- The maximum loan amount is $510,400
- Requires a minimum FICO score of 660 or higher
3. FHA Loans
FHA loans are backed by the Federal Housing Administration and are a popular option for first-time home buyers. To qualify, you need to have a 3.5% down payment and a minimum credit score of 580.
If you have a credit score of 500 or higher, you can qualify for an FHA loan with a 10% down payment. These flexible requirements make FHA loans a suitable option for borrowers with bad credit.
To qualify for an FHA home loan, you must have a debt-to-income ratio of 43% or less. These loans can’t be used to purchase investment properties, and your home must meet the FHA’s lending limits.
These limits vary by state, so you’ll need to check the FHA’s website to see what the guidelines are for your area.
Pros:
- Loans come with low down payment options
- A viable option for borrowers with bad credit
- Available for first-time and repeat homeowners
Cons:
- Loans can’t be taken out for investment properties
- If your credit score is below 580, a 10% down payment is required
- You must have a debt-to-income ratio below 43%
- Mandatory mortgage insurance premiums
4. FHA 203(k) Rehab Loans
An FHA 203(k) rehab loan is sometimes referred to as a renovation loan. It allows home buyers to finance the purchase of their home and any necessary renovations with a single loan.
Many people purchase older homes to fix them up. Instead of taking out a mortgage and then applying for a home renovation loan, you can accomplish both within a single mortgage.
A rehab loan is similar to an FHA loan in that you’ll need a 3.5% down payment. However, the credit requirements are stricter, and you’ll need a minimum credit score of 640 to qualify.
Pros:
- Allows you to buy a home and finance the remodel within one mortgage
- Requires a minimum 3.5% down payment
- Easier to qualify since the FHA backs your loan
Cons:
- Credit requirements are more stringent than typical FHA loans
- You must hire approved contractors and cannot DIY the renovations
- The closing process takes longer than other types of mortgages
5. VA Loans
The Department of Veteran Affairs guarantees VA loans. These loans are designed to make it easier for veterans and service members to qualify for affordable mortgages.
One of the biggest advantages of taking out a VA loan is that it doesn’t require a down payment or mortgage insurance premium (MIP). And there are no listed credit requirements, though the lender can set their own minimum credit requirements. VA loans typically come with a lower interest rate than FHA and conventional loans.
To qualify for a VA loan, you must either be active duty military, a veteran or honorably discharged. You’ll need to apply for your mortgage through an approved VA lender.
Pros:
- No down payment required
- No PMI required
- Flexible credit requirements
Cons:
- Must be a veteran to qualify
- Some sellers will not want to deal with a VA loan
6. USDA Loans
A USDA loan is a type of mortgage that’s available for rural and suburban home buyers. It’s a viable option for borrowers with lower credit scores that are having a hard time qualifying for a traditional mortgage.
USDA loans are backed by the U.S. Department of Agriculture, and they help low-income borrowers find housing in rural areas. USDA loans do not require a down payment, but you will need a minimum credit score of 640 to qualify.
You will need to meet the USDA’s eligibility requirements to qualify for the loan. But according to the department’s property eligibility map, over 95% of the U.S. is eligible.
Pros:
- No down payment required
- A practical option for low-income borrowers
- Available to first-time and repeat home buyers
Cons:
- A minimum credit score of 640 is required
- Housing is limited to rural and suburban areas
Fixed-Rate vs. Adjustable-Rate Mortgages (ARMs)
Once you’ve decided which type of loan works for you, the next step is choosing how your interest rate will work. Most home loans offer either a fixed interest rate or an adjustable rate.
Fixed-Rate Mortgages
With a fixed-rate mortgage, your interest rate and monthly payment stay the same for the entire life of the loan. This makes it easier to budget, and many buyers prefer the stability.
Adjustable-Rate Mortgages (ARMs)
An ARM usually starts with a lower interest rate for the first few years. After that, the rate adjusts periodically based on the market. This means your payment could go up or down over time. An ARM can be a good option if you plan to sell or refinance before the initial fixed period ends.
Most buyers choose fixed-rate loans for the predictability, but an ARM could save money in the early years if you’re comfortable with the risk of future rate increases.
How to Choose the Best Home Loan for You
When picking a home loan, start by thinking about the type of loan that fits your situation. Conventional loans usually work well for borrowers with good credit and a solid down payment. Government-backed options like FHA, VA, or USDA loans may be better if you need lower down payments or flexible credit requirements.
Next, decide if you want a fixed-rate or adjustable-rate mortgage (ARM). Fixed rates offer stable monthly payments, while ARMs might save money early on if you expect your income to rise or plan to move before the rate adjusts.
You’ll also need to consider your budget, down payment, and the length of the loan term. Make sure the monthly payment fits comfortably with your other expenses.
Finally, shop around. Get quotes from at least three lenders, including both banks and online lenders. Compare interest rates, loan terms, closing costs, and lender fees. Some lenders may also offer special programs for first-time buyers or discounts for certain professions.
Tips for Getting the Best Rates and Terms
One of the most effective strategies is to improve your credit score. Lenders look closely at credit scores when deciding whether to approve a loan. Those with higher scores are typically offered better terms. You can improve your credit score by paying your bills on time, reducing your debt, and correcting any errors on your credit report.
Another tip is to make a larger down payment, which can help you secure a lower interest rate and reduce the size of your monthly payments. Finally, consider working with a mortgage broker, who can help you shop around and find the best deal.
Final Thoughts
Choosing the right home loan can save you thousands over the life of your mortgage. The best option will depend on your budget, credit score, down payment, and long-term goals.
Take time to compare lenders and loan types before making a decision. If you’re not sure where to start, a qualified loan officer can help you find the best fit for your situation.
