What are my mortgage options?

By Jennifer Tucker
January 3, 2023 | 7 Min. Read

As a homebuyer looking for a mortgage loan, you’ll discover there are a lot of options—and that comes with advantages and disadvantages. On the one hand, the number of options available means a loan is out to fit your needs. On the other hand, it can feel overwhelming to sort through your choices.

The many types of mortgage loans are designed to appeal to a range of borrowers’ needs. Here, we’ll help you understand the types of mortgage loans, how they differ, and which home loan might be best for you.

Before we dive into the specific types of loans you have to choose from, it’s important to understand the difference between conforming and non-conforming loans.

All mortgages are considered either conforming or non-conforming loans. Whether your loan is conforming or non-conforming depends on whether your lender keeps the loan or sells it to one of two investment companies: Fannie Mae or Freddie Mac.

Especially if you’re a first-time homebuyer or have had challenges with credit in the past, you might be wondering what type of home loan is best for your financial situation. The good news is that there are a lot of options when it comes to mortgage loans.

There are four general types of mortgages that borrowers should be familiar with:

Each loan type comes with different requirements and is suitable for a different type of borrower. Let’s look at the different types of mortgage loans in more detail to help you understand which one best fits your borrowing needs.

Best for: borrowers with a minimum credit score of 620.
Non-government conventional mortgage loans are aimed at people with moderate to good credit. People with lower credit scores may qualify for a conventional loan but will likely see a higher interest rate and fees. In general, if your credit score is below 600, it may be best to consider a different loan to avoid higher fees.

Best for: borrowers who want lower monthly payments over a longer period.

Fixed rate mortgage loans often come with either 30-year or 15-year terms. A 30-year fixed-rate mortgage comes with an interest rate locked in for the entire 30-year term. A 15-year fixed rate mortgage comes with an interest rate that remains the same for the entire 15-year term and is most often used for refinancing.

The 30-year fixed rate mortgage is the most popular type of home loan because your interest rate never changes, and your monthly payment is lower and more predictable. It also offers the flexibility to repay the loan faster if you’re able to increase your monthly payments.

Best for: borrowers who don’t plan to hold the mortgage for a long period.

An adjustable rate mortgage (ARM) has a rate that can change, which causes your monthly payment to increase or decrease depending on the interest rate. The initial interest rate is fixed for a specified period of time, then periodically changes. For example, a 5/1 ARM has a set interest rate for the first 5 years, and then the interest rate adjusts annually.

An adjustable rate mortgage often comes with a lower initial interest rate than other loans, which means lower monthly payments during the initial term. However, your monthly payments become less predictable after the interest rate adjusts. You can use our free online calculator to understand the cost of an adjustable rate mortgage.

Best for: borrowers with a credit score of 500 and 10% down or 580 and 3.5% down.
Backed by the Federal Housing Administration, FHA mortgage loans have one of the lowest credit requirements. An FHA loan is attractive for first-time home buyers because FHA-backed loans don’t immediately require higher interest rates for bad credit. There are additional qualifications, including a minimum down payment percentage.

Best for: borrowers with a credit score between 580-620.
You could qualify for a VA loan if you are a veteran, service member, eligible spouse, or military affiliate. Backed by the Department of Veterans Affairs, this loan allows you to purchase a home with $0 down. Like FHA loans, there are specific qualifications that vary by lender. VA loans often have the lowest interest rates but offer similar treatment to low-score applicants as FHA loans.

Best for: borrowers with a minimum credit score of 640.
Backed by the U.S. Department of Agriculture, USDA mortgage loans allow you to buy a home with $0 down and low rates. Although these loans are primarily qualified for rural housing areas, they can also be available to buyers in suburban neighborhoods. USDA loans are specifically for low-to-moderate-income households and enforce strict income limits for applicants.

*Keep in mind that each lender has its own requirements that may vary, as well as potentially higher minimum credit scores. Check eligibility requirements for each loan.

Especially if you’re a first-time homebuyer, you might wonder exactly what it means to get a home mortgage loan. Put simply, a mortgage is a type of loan used to buy a home or other real estate. It represents an agreement between you and your lender to pay the loan back over a set period of time in a series of regular payments. Your home is used as collateral to secure the loan.

When you apply for a mortgage home loan, there are a few things the lender will look at to determine your eligibility and qualifications:

When you’re presented with your options, you can use our free online calculator to compare two mortgage loans.

Your credit score helps lenders determine your ability or inability to repay a mortgage. It helps the lender determine their risk in making the loan.

A low credit score can affect your ability to qualify for lower interest rates, or it may increase your mortgage fees. It is possible to be approved for a mortgage loan with a low credit score, but you may need to reduce the amount you plan to borrow or have a co-signer.

Having low or bad credit shouldn’t dash your dreams of homeownership. It is possible to get a home loan with bad credit. The lowest credit score to get a loan depends on the lender and the type of loan. On average, the lowest scores most mortgage lenders consider range from 600 to 620.

The best type of mortgage depends on your individual needs—research and talk to a financial counselor about the best loan for your situation. Compare loans from different lenders, national and community banks, and credit unions.