Breaking Down the 4 Types of Mortgages: A Complete Guide

It can be intimidating to buy a new home, especially if it is your first time. There is a lot of information to learn. Plus, it’s a huge investment that you don’t want to mess up.

Did you know there are several different types of mortgages? You’ll want to start to review the types of mortgage loans if you’re considering buying a home. Your mortgage selection is going to determine your finances for a long time to come!

First, let’s clear up any confusion about the basics of a mortgage.

What Is a Mortgage?

People throw the word mortgage around all the time. But what is a mortgage really? Simply put, a mortgage is any type of loan that is used to purchase or refinance a house!

A mortgage is specifically used for a property. This is why you will hear mortgages referred to as a mortgage loan, or even just a loan. It’s all the same! A mortgage is a type of loan.

If you can pay cash outright for the house, then you can avoid a mortgage. If not, most people use a mortgage to buy a home. There are 4 types of mortgages that we want you to know about!


1. Conventional Mortgages

A conventional loan is exactly what it sounds like — the classic approach to obtaining a housing loan.

The conventional loan is designed for homebuyers that have good credit scores (minimum 620), a low debt-to-income ratio (45-50%), and a stable income. This type of mortgage loan is not backed by the government.

Your down payment can be as low as 3% with a conventional loan. However, the standard down payment with a conventional loan is 20% of the housing cost. Opt for the 20% down payment to make the most of the conventional loan.

There are two different types of conventional loans you should be familiar with.

Conforming Loan

A conforming loan means that a certain amount of money is under the maximum limit set by the FHFA (Federal Housing Finance Agency). The amount is determined based on the county where your new home will be located. This can impact the process you need to follow, so be sure to do your homework!


A nonconforming mortgage loan is a large mortgage amount that is above the FHFA limits. The most common nonconforming loan is known as a jumbo loan!

A jumbo loan is likely to be used in higher-cost areas. Affluent buyers with high incomes should explore the jumbo loan option. Be ready to provide documentation to qualify.

While a conventional loan can be great for some, there are SO many more options! Read on for more types of mortgage loans.

2. Government-Backed Mortgages

U.S. government agencies back certain types of mortgage loans. These options help out if you are ineligible for a conventional loan.

Government-backed mortgages require lower down payments and have lower minimum credit score requirements. On the flip side, there are more regulations and eligibility criteria for each type of mortgage.

FHA (Federal Housing Administration) Loans

FHA mortgage loans are great for first time homeowners! The down payment associated with this type of mortgage is only 3.5% down. Review the maximum borrow limit – the FHA sets a value each year based on your area.

VA (Veterans Affairs) Loans

For all active and former U.S. military members, there is no required down payment and low-interest mortgage payments with a VA loan.

The minimum credit score for a VA loan is 580. Beware of closing fees and a one-time funding fee, but know there are ways to negotiate to have this paid for by the seller.

USDA (U.S. Department of Agriculture) Loans

The USDA loan is an attractive option that depends on the location of your new home. You must be moving to an eligible area to qualify.

USDA loans are usually intended for rural areas, and will be available to moderate- to- low-income homebuyers. In certain cases, you may not need a down payment!

3. Fixed-Rate Mortgage

A fixed-rate mortgage will result in a predictable, monthly payment. Fixed-rate mortgages tend to be an agreement over 15, 20, or 30 years.

For this reason, you should plan to be in your house for at least 7 to 10 years when selecting a fixed-rate loan. Look closely at interest rates for your fixed-rate mortgage. You are likely to pay higher interest with this option.

4. Adjustable-Rate Mortgage (ARMs)

The adjustable-rate mortgage is for future homeowners comfortable with uncertainty. ARMs are subject to market conditions and are volatile in comparison to fixed-rate mortgages. If you select an ARM, you should review our tips for buyers in the 2021 housing market to help you understand the current state of the industry.

Some ARMs will start off with a low, fixed-interest rate. This allows for early savings. If you don’t think you will live in your new home for a long time, this could be the best type of mortgage loan for you!

California Mortgage Types

Sellers and buyers alike benefit from knowing about special state or local mortgage types. In California, get familiar with the California Housing Finance Agency (CalHFA).

CalHFA offers additional down payment support with the MyHome Assistance Program. There are also options for first-time mortgages in California that offer special rates and support.

Make your Buying or Selling Process Stress-Free

Now that you understand the different mortgage loan types, it’s a good time to review the complete escrow process. Our team is dedicated to providing clients with quality service and protecting their best interests!

For more tips for buyers and sellers, contact us at New Venture Escrow today!

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