What types of mortgages are available?
Four kinds of mortgages are common today: conventional, jumbo, government-backed, and adjustable rate.
Conventional mortgage: The most common type of mortgage. It has a fixed interest rate that doesn't change over the period of the loan, which can be from 15 to 30 years. This mortgage is best for borrowers with good credit, low debt, and a down payment. The down payment can sometimes be as little as 3 percent, but anything less than a 20 percent down payment requires private mortgage insurance (PMI).
Conventional loans usually conform to Federal Housing Finance Agency (FHFA) standards. When they do, the loan can be purchased by one of two government-sponsored enterprises, Fannie Mae and Freddie Mac. Such loans are called conforming loans, and in 2024 conforming loans can't be over $766,550 in most areas or $1.1 million in high-cost areas.
Jumbo loans: These are non-conforming loans because the loan amount surpasses the FHFA standard and are considered higher risk. In some high-cost real estate markets, however, they can be common for buyers with excellent credit, low debt, and substantial assets.
Government-backed loans: These loans, issued by the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), and the U.S. Department of Agriculture (USDA), make home buying possible for millions of people. FHA loans can be made to people with a 580 credit score and a 3.5 percent down payment. VA loans are for veterans and surviving spouses. They require no minimum down payment, mortgage insurance or minimum credit score. USDA loans are made in eligible rural areas.
ARM (Adjustable Rate Mortgage): About 5 percent of new mortgages today are ARMs. They begin with low payments, which can rise after a certain period of time if overall interest rates rise. These are useful for people who plan to sell in the next few years or expect their income to rise.