Full Guide to Mortgage Loan Types: Conventional, FHA, VA, USDA, Jumbo, and More

When you start shopping for a mortgage, it doesn't take long before a lender asks what type of loan you're looking for. If your answer is 'I don't know,' that's completely normal. Most buyers know different loan programs exist but aren't sure which ones they'd actually qualify for or how the costs compare.

The right loan type depends on your credit score, down payment, income, where the property is located, and whether you or your spouse have military service history.

There are six main types of loans, and this guide covers every one available to U.S. buyers in 2026, what each one requires, what it actually costs, and which situations each one fits. If you haven't gone through the purchase process before, read our guide to getting a mortgage first, and then come back to this article.

1. Conventional loans: the baseline most buyers compare against

A conventional loan is any mortgage not backed or insured by the federal government. Most conventional loans follow guidelines set by Fannie Mae and Freddie Mac, and those that do are called conforming loans. When a loan stays at or below the conforming loan limit, lenders can sell it on the secondary market. The secondary market allows banks to sell existing mortgages to investors, replenishing their funds to issue new loans to other homebuyers. This process keeps capital flowing, enabling lenders to continue financing home purchases, and keeps rates competitive.

To qualify for a conventional loan, you typically need a minimum 620 credit score, a 3% minimum down payment on a fixed-rate loan (5% for an adjustable-rate mortgage), and a debt-to-income ratio below 36% for well-qualified borrowers, though in some cases a lender may accept a higher DTI⁽¹⁾.

The 2026 conforming loan limit is $832,750 in most U.S. counties and $1,249,125 in high-cost areas. Any loan above those thresholds is a jumbo loan, which operates under different rules covered in Section 5⁽²⁾.

Private mortgage insurance (PMI)

If you put down less than 20%, you'll pay PMI on a conventional loan. The cost runs 0.46% to 1.50% of the loan amount annually, depending primarily on your credit score⁽³⁾. You can request PMI removal once your loan balance reaches 80% of the original appraised value or purchase price (whichever was lower). Lenders are required by federal law to automatically cancel it once your balance drops to 78% of the original value.

One key advantage of conventional loans is that PMI is temporary. On FHA loans, the mortgage insurance situation is more complicated, which is covered in the next section.

2. FHA loans: lower bar to entry, higher long-term cost

FHA loans are backed by the Federal Housing Administration, a division of HUD. Because the government insures the loan against default, lenders can approve borrowers with lower credit scores and smaller down payments. That makes FHA a common first stop for buyers who don't quite meet conventional requirements.

The credit and down payment split is important to understand. A 580 or higher credit score qualifies you for 3.5% down. If your score is between 500 and 579, the minimum down payment is 10%⁽⁴⁾.

FHA loan limits in 2026 are $541,287 in low-cost counties and up to $1,249,125 in high-cost areas for single-family homes⁽⁴⁾.

Mortgage insurance premium (MIP): the real cost of FHA

FHA charges two layers of mortgage insurance. The upfront MIP is 1.75% of the loan amount, which must either be paid entirely in cash at closing or rolled 100% into the loan balance. The annual MIP runs 0.15% to 0.75% of the loan amount, divided into monthly payments added to your mortgage⁽⁵⁾.

The key disadvantage vs. conventional PMI is duration. With a conventional loan, PMI goes away at 80% LTV. With FHA, if you put down less than 10%, MIP stays for the life of the loan. If you put down 10% or more, MIP cancels after 11 years⁽⁵⁾. Once you've reached 20% equity in an FHA-financed home, refinancing into a conventional loan is how most borrowers eliminate the MIP permanently. See our comprehensive refinancing guide for how to evaluate that decision.

3. VA loans: the strongest loan type for those who qualify

VA loans are backed by the U.S. Department of Veterans Affairs and are available to eligible veterans, active-duty service members, qualifying National Guard and Reserve members, and surviving spouses. If you or your spouse have military service history, checking your VA eligibility is worth doing before you look at any other loan type.

Basic service requirements for a VA loan depend on when you served. For active-duty personnel, you generally qualify after 90 consecutive days of continuous service. For separated veterans who enlisted after September 7, 1980, the standard requirement is 24 continuous months of active duty, or the full period for which you were called to active service (minimum 90 days in wartime or 181 days in peacetime). National Guard and Reserve members qualify after 6 creditable years of service or 90 days of active service (including 30 consecutive days under Title 32 orders)⁽⁶⁾.

VA loans offer three advantages no other standard loan type matches:

• No down payment required with full entitlement
• No private mortgage insurance requirement
• No official minimum credit score (though most lenders prefer 620 or above)⁽⁶⁾.

The VA funding fee

In place of mortgage insurance, VA loans charge a funding fee. The amount ranges from 0.5% to 3.3% of the loan amount depending on the loan type (purchase vs. cash-out refinance), the size of your down payment, and whether it's your first time using a VA loan⁽⁷⁾. The fee can be rolled into the loan balance rather than paid at closing.

Certain borrowers are exempt from the funding fee entirely including veterans receiving VA compensation for a service-connected disability, surviving spouses receiving Dependency and Indemnity Compensation (DIC), and active-duty service members who have received or been proposed for a Purple Heart⁽⁷⁾.

4. USDA loans: $0 down for buyers in eligible rural areas

USDA loans are backed by the U.S. Department of Agriculture and are designed to encourage homeownership in rural and smaller suburban communities.

There are two programs:

• The Guaranteed Loan Program, which is originated by private lenders and is the more common option
• The Direct Loan Program, which is issued directly by USDA to lower-income applicants.

Like VA loans, USDA loans require no down payment⁽⁸⁾. Eligibility has two gates that both need to pass. First, the property must be in a USDA-designated eligible area. This includes most rural areas and many smaller towns and suburbs, not just farmland. Second, household income must not exceed 115% of the area median income in your area⁽⁸⁾⁽⁹⁾.

You can check property and income eligibility using USDA's online mapping tool at eligibility.sc.egov.usda.gov.

USDA fees

Instead of monthly PMI, USDA charges a 1% upfront guarantee fee (which can be rolled into the loan) and a 0.35% annual fee paid monthly for the life of the loan⁽⁸⁾. The annual cost is lower than FHA's MIP for most borrowers, which is one of USDA's underrated advantages.

Unlike FHA or conventional loans where the monthly insurance fee is a fixed percentage of the original loan amount, the USDA annual fee is recalculated every year based on the remaining unpaid principal balance. This means the monthly payment actually shrinks slightly every year as the borrower pays down the mortgage principal⁽¹⁶⁾.

5. Jumbo loans: for purchases above the conforming limit

A jumbo loan is any mortgage that exceeds the conforming loan limit: $832,750 in most counties and $1,249,125 in high-cost areas⁽²⁾. (note: the baseline starts at $1,249,125 across all of Alaska and Hawaii). Because jumbo loans can't be sold to Fannie Mae or Freddie Mac, lenders hold them on their own books and carry the full default risk. That risk is why the qualification bar is higher for borrowers.

Typical jumbo loan requirements include a minimum credit score of 700 to 720 (some lenders require 740 or higher), a down payment of at least 10% to 20% (some lenders want 25% for the best rates), and cash reserves of 6 to 12 months of mortgage payments remaining after close⁽¹⁰⁾. Most lenders also require a DTI of 43% or lower⁽¹⁰⁾.

There's no government-set maximum loan amount for jumbo mortgages. Individual lenders set their own limits based on risk appetite. If you're buying in a high-cost market and the purchase price exceeds the conforming limit, a jumbo loan is typically your only conventional option.

6. Fixed-rate vs. adjustable-rate: the rate structure question every buyer faces

Fixed-rate and adjustable-rate aren't separate loan types. They're rate structures that apply across most loan programs. You can get a conventional, FHA, VA, or USDA loan as either a fixed-rate or an adjustable-rate mortgage. The choice affects your payment predictability and risk exposure, not your base eligibility⁽¹¹⁾.

With a fixed-rate mortgage, your interest rate is set at closing and never changes. Your principal and interest payment stays the same for the entire loan term.⁽¹¹⁾

With an adjustable-rate mortgage (ARM), you get a fixed rate for an initial period, then the rate adjusts periodically based on a market index. The name tells you the structure. A 5/1 ARM has a fixed rate for 5 years, then adjusts once per year after that. Common structures are 5/1, 7/1, and 10/1. (Note: On modern loan paperwork, you will often see these listed as 5/6 or 7/6 ARMs. This means the rate stays fixed for an initial 5 or 7 years and then adjusts every 6 months. This 6-month interval reflects the mortgage industry's universal shift to the 30-day Average SOFR (Secured Overnight Financing Rate) index, which is published by the Federal Reserve Bank of New York).⁽¹⁷⁾

ARM rate caps

ARMs come with three types of caps that protect borrowers from unlimited rate increases. The initial cap limits how much the rate can move at the first adjustment (commonly 2% to 5%). The periodic cap limits changes at each subsequent adjustment (usually 1% to 2% per adjustment). The lifetime cap sets the maximum total change over the life of the loan, typically 5 percentage points above the starting rate⁽¹²⁾.

An ARM makes sense if you plan to sell or refinance before the fixed period ends, or if you expect market interest rates to fall significantly. A fixed rate makes more sense if you plan to stay in the home long-term or need strict payment stability for budgeting. Fortunately, both options offer the same entry barrier: conventional ARMs and conventional fixed-rate loans both allow down payments as low as 3% for qualified buyers.

These six loan types cover most traditional home purchases, but if the property needs serious work, or you're building from the ground up, there are two more categories worth knowing about.

Renovation and construction loans: financing the home and the work together

If the home needs substantial repairs, or if you're building from the ground up, there are specific loan programs designed to wrap the purchase and the project into a single mortgage.

FHA 203(k) loans

The FHA 203(k) is a government-backed renovation loan that finances both the purchase price and the cost of repairs or improvements in one loan and is limited to primary residences only.

There are two versions:

• The Standard 203(k) is for major rehabilitation: it requires a minimum of $5,000 in renovation costs, a HUD-approved consultant to oversee the project, and completion within 12 months⁽¹³⁾.
• The Limited 203(k): Used for minor, cosmetic, non-structural remodeling (like kitchens or flooring). Renovation costs are standardly capped at $35,000 (up to $75,000 in specific high-cost pilot areas), require no minimum amount, make the HUD consultant optional, and require completion within 9 months⁽¹³⁾.

Luxury improvements like pools, outdoor kitchens, hot tubs are not eligible under either program⁽¹³⁾. Credit and down payment requirements match standard FHA guidelines, and require 580+ credit score for 3.5% down.

HomeStyle Renovation loans

Fannie Mae's HomeStyle Renovation loan is the conventional counterpart to the 203(k). It requires a minimum 620 credit score and a maximum DTI of 45% to 50%, depending on underwriting⁽¹⁴⁾. While the total mortgage must fall within the baseline conforming loan limit ($832,750 in most areas for 2026), the renovation costs themselves are strictly capped at 75% of the home's "as-completed" appraised value. Additionally, all construction work must be completed within 12 months of closing⁽¹⁴⁾.

HomeStyle has two notable advantages over the FHA 203(k):

• It allows luxury improvements like pools and landscaping
• It can be used on second homes and investment properties, rather than just primary residences⁽¹⁴⁾.

Construction loans

If you're building a new home from scratch, you'll need a construction loan. These loans fund the build in phases through a draw schedule, with funds released as each stage of construction is completed. You typically make interest-only payments during the construction phase⁽¹⁵⁾.

The two structures differ at closing. A one-time close (also called construction-to-permanent) is a single transaction, where the construction loan converts automatically into a traditional mortgage once the home is complete. You close once and pay one set of closing costs⁽¹⁵⁾.

A two-time close involves a separate construction loan for the build phase, then a full refinance into a permanent mortgage after completion. You go through two closings and pay two sets of closing costs⁽¹⁵⁾.

Construction loans typically require a down payment of 10% to 20% for conventional options, though government-backed programs like FHA or VA loans can lower that barrier to 3.5% or even 0% down. Because the home does not exist yet to serve as collateral, lenders maintain strict underwriting standards. They will require a minimum credit score of 620 to 680, detailed architectural plans, a signed contract with a licensed and insured builder, and an appraisal based on the completed project's expected value⁽¹⁵⁾.

How to choose the right loan type for your situation

Start with eligibility, not preference. Two government-backed loan programs offer unusually strong terms for buyers who qualify, yet many eligible buyers don't realize they can access them.

• If you or your spouse have qualifying military service: Start with a VA loan. Offering 0% down, no monthly PMI, and no official government credit score minimum, it is typically the lowest-cost option for eligible borrowers. It becomes even more advantageous if you qualify for a VA funding fee exemption.
• If the property is in a USDA-eligible area: Check a USDA loan next. If your total household income falls under 115% of the area median income, its 0% down requirement and low annual fees make it highly competitive with FHA loans in qualifying locations.

If neither VA nor USDA applies, your credit score becomes the deciding factor.

• Buyers with credit scores at 620 or above: You have access to conventional loans. These are highly preferable to FHA loans because conventional Private Mortgage Insurance (PMI) can eventually be removed once you build equity, whereas FHA loans generally require a lifetime Mortgage Insurance Premium (MIP).
• Buyers with credit scores between 500 and 619: You are standardly limited to FHA loans.

Keep in mind that if your total borrowed loan amount exceeds $832,750 in your county (or up to $1,249,125 in high-cost areas), you will cross into jumbo loan territory regardless of your underlying loan program type.

Finally, if the property needs significant cosmetic or structural work, evaluate whether an FHA 203(k) or conventional HomeStyle Renovation loan makes more sense than buying a home and scrambling to fund repairs out-of-pocket later.

Key Takeaways

• Check Government Eligibility First: Prioritize VA and USDA loans if you qualify. Both offer $0 down options, and VA completely eliminates monthly mortgage insurance, which can lead to savings many buyers overlook.
• Compare Long-Term Insurance Costs: Look beyond the base interest rate when choosing between FHA and conventional loans. Conventional PMI can be removed, while FHA's MIP usually lasts for the entire life of the loan.
• Know Your Local Jumbo Thresholds: The 2026 conforming loan limit is $832,750 in most counties and $1,249,125 in high-cost areas⁽²⁾. Anything above those thresholds is a jumbo loan with stricter underwriting requirements.
• Decide Based on Future Timeline: Fixed vs. adjustable is a rate structure decision, not a loan-type decision. An ARM can make sense if you plan to sell or refinance before the fixed period ends. Otherwise, a fixed rate gives you predictability that an ARM can't.
• Roll Repairs Into One Closing: If the property needs significant work, renovation loans (FHA 203(k) or HomeStyle) can finance the purchase and the repairs together. That's often cleaner and cheaper than buying conventionally and funding improvements through a home equity loan later.

Choosing a mortgage isn't just hunting down the lowest interest rate on an ad. You have to look at the whole package including your credit score, how much cash you actually want to leave in your bank account, and how long you plan to stay in the house.

Cross off the government-backed options first to see if you can skip the down payment, and always look at how much that mortgage insurance will cost you over time. Getting the right structure set up now means you won't be kicking yourself five years down the road.

Compare current mortgage rates now

Rates vary by loan type, lender, credit profile, and location. Once you know which loan type fits your situation, the next step is seeing what lenders are offering right now.

Compare current mortgage rates

See our comprehensive refinancing guide

Disclaimer

Mortgage eligibility and approval are determined individually by each lender. Information presented here does not guarantee approval for any financial product. Greensprout's editorial team writes on behalf of the reader. Our goal is to provide clear, useful information to help you make better financial decisions. Our editorial content is not influenced by advertiser relationships. Greensprout is an independent, advertising-supported publisher and comparison resource. We may earn compensation when you click on links to products from our partners. This does not affect our editorial standards or recommendations.

Sources