Home loans, or mortgages, are generally categorized by who backs them (a private lender or the government) and by how the interest rate works (fixed for the life of the loan or adjustable over time). You can also get a home loan for purposes other than buying a home, like constructing or renovating one, refinancing for a better rate, or tapping into the equity you've built with a home equity loan or line of credit (HELOC).
Conventional loans from private lenders
Conventional loans are the most straightforward type of home financing — most loans are conventional loans. According to the Consumer Financial Protection Bureau, "conventional" is just a catch-all category for loans that are not part of a government program.
On top of that, most conventional loans are conforming loans, meaning they meet the credit, down payment, and loan size guidelines set by Fannie Mae and Freddie Mac. These two government-sponsored companies buy mortgages from lenders and resell them to investors, which frees up lenders' money to issue more home loans. To qualify for a conforming loan, you'll typically need a credit score of around 620 (varies by lender) and a down payment as low as 3% for eligible first-time buyers.
Loans that don't meet these guidelines are called non-conforming loans. These are specialty loans built for specific circumstances. Non-QM loans, for example, fall outside the "qualified mortgage" rules that cap things like your debt-to-income ratio, which makes them a common option for people without W-2 income, such as freelancers, gig workers, or business owners. Other non-conforming loans exist for people with lower credit scores. Either way, expect higher rates and fees than you'd get with a standard conforming loan.
Conforming loans also have a set borrowing limit that varies by county, adjusted each year based on home price growth. The Federal Housing Finance Agency set that limit at $832,750 for most counties in 2026. If you want to buy a home priced above that limit, you'll need a jumbo loan — a specialty loan built for higher-priced homes (which we’ll cover in more detail later).
Government-backed loans
Qualifying for a conventional loan can be challenging if you have fair or worse credit or only a little bit of money saved for a down payment. But that doesn’t mean you’re out of options. There are many types of home loans backed by the government that make homeownership more accessible, including:
FHA loans
Loans made available through the Federal Housing Administration (FHA) have lower credit score and down payment requirements (minimum 580 score with 3.5% down or minimum 500 score with 10% down). FHA loans require a mortgage insurance premium (MIP) — the FHA's version of private mortgage insurance (PMI) — and have stricter property standards.
VA loans
Available only to active duty servicemembers, veterans, and certain surviving spouses, loans through the Department of Veterans Affairs (VA) don’t require a down payment. Credit score requirements are flexible, though many lenders look for 620 or higher. Interest rates are usually lower than with other types of mortgages, and closing costs are minimal.
USDA loans
These loans, available through the United States Department of Agriculture (USDA), are reserved for low- to moderate-income buyers purchasing a house in a designated rural area.
Comparison of conventional vs. government-backed home loans
The table below compares conventional loans vs. government-backed loans, including FHA, VA, and USDA loans.
|
Conventional loans |
FHA loans |
VA loans |
USDA loans |
|
|
Eligibility |
Anyone who qualifies |
Anyone who qualifies |
Servicemembers, veterans, and certain surviving spouses |
Low- to moderate-income buyers in designated rural areas |
|
Credit score requirements |
Varies by lender, but often 620 |
As low as 500 |
Varies by lender, but often 620 |
Varies by lender, but often 640 |
|
Down payment requirements |
As low as 3% |
As low as 3.5% |
No down payment required |
No down payment required |
|
Insurance requirements |
Until you have 20% equity (not required if you put 20% down) |
Usually required for 11 years or the life of the loan |
No PMI or MIP, but an upfront and annual funding fee applies |
No PMI or MIP, but an upfront and annual guarantee fee applies |
|
Interest rates |
Higher than government-backed loans, but competitive with very good or excellent credit |
Slightly lower than conventional |
Among the lowest available |
Lower than conventional, but higher than VA |
Note: Regardless of which loan type you choose, your lender will require you to carry homeowners insurance for as long as you have a mortgage. If your property is in a high-risk flood zone, you may also need flood insurance, since federally regulated lenders are required to mandate it in those areas — a rule that applies to conventional, FHA, VA, and USDA loans alike.
Fixed-rate vs. adjustable-rate mortgages
Lenders and housing experts may also categorize types of mortgages based on the structure of the interest rate: fixed-rate loans or adjustable-rate loans.
Fixed-rate mortgages
As the name implies, fixed-rate mortgages have interest rates that remain fixed, or constant, during the life of the loan (usually 15 or 30 years). This keeps your monthly mortgage payment relatively predictable, though payment amounts can still shift based on changes in home insurance costs and property taxes.
Adjustable-rate mortgages
On the flip side, adjustable-rate mortgages (ARMs) start with a lower introductory interest rate. Then rates can change over time — they can go up or down. This makes ARMs a little less predictable and potentially more expensive in the long run.
Generally, a fixed-rate mortgage makes more sense for buyers, but there are times when an adjustable-rate mortgage could be beneficial, such as:
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A fast move: If you plan to sell the home within the first five to 10 years, an ARM could work in your favor. You'd get the lower introductory rate, and you might sell before the rate has a chance to adjust upward.
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Refinancing plans: Mortgage rates move up and down over time. If you believe rates could drop in the next couple of years, you may already intend to refinance to a lower rate. In the meantime, you could potentially enjoy the lower intro rate of an ARM.
Specialty and purpose-built loans
Some homes require more unique, purpose-built financing options. Examples include high-value homes, homes requiring major renovations or rehabilitation, or even land waiting to be developed into your dream home.
Here's a closer look at the loan types built for these situations.
Jumbo loans
As we explored above, jumbo loans are designed for higher-value homes that exceed conforming home borrowing limits set by the Federal Housing Finance Agency (FHFA). Because these loans exceed those FHFA limits, they are considered a higher risk to the lender. As such, credit score, debt-to-income ratio, cash reserve, and down payment requirements are usually stricter, and rates are typically higher.
Renovation loans
A renovation loan is a mortgage for a higher amount than the actual purchase price, since it also covers the anticipated cost of repairs for a major fixer-upper.
Construction loans
If you're building your own home, you'll typically need a construction loan, which is a short-term loan that covers the materials, labor, and land. When the home is built, the loan typically converts into a standard, long-term mortgage — such as one of the conventional or government-backed loans covered earlier — that you'll pay off over the loan's remaining term.
Refinancing a mortgage
Sometimes, existing homeowners may choose to refinance their mortgage. This means they take out a new mortgage to pay off the current mortgage, then start making payments on the new mortgage instead.
While there's no new house being purchased, refinancing typically comes with closing costs similar to a traditional home sale. Here's why refinancing your mortgage might make sense, despite the fees involved.
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Lower rates: Many homeowners choose to refinance their loans when interest rates drop significantly. The savings in interest over time may outweigh the closing costs of the refinance. As mentioned above, some homeowners may also refinance to lock in a fixed rate and eliminate their adjustable-rate mortgage.
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Lower payments: If you're struggling with your monthly mortgage payment, refinancing can sometimes lower it. This is most effective when rates have dropped since you took out your original loan. But even if rates haven't moved much, resetting your loan back to a full 30-year term can still lower your payment, since you're spreading your remaining balance over more time.
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Extra cash: Some homeowners who need cash for home renovations, debt consolidation, or other purposes may choose to refinance their home with a new mortgage that is higher than the remaining balance of the old mortgage. They receive the difference in cash at closing. This is called a cash-out refinance. But since this increases both their loan balance and the total interest they'll pay over time, it's worth comparing the cost against other options, like a home equity loan or HELOC (covered next).
Home equity loans vs. HELOCs
A cash-out refinance isn't the only way to finance major renovations to your home or cover other major expenses. Equity is the portion of your home you actually own — the difference between what your home is worth and what you still owe on your mortgage. If you've built up enough equity in your home (through a large down payment and/or through regular ongoing mortgage payments), you may be able to borrow against that equity with a home equity loan or home equity line of credit (HELOC).
Home equity loans and HELOCs are considered second mortgages, since you're borrowing against your home while your original mortgage is still in place, and your home serves as collateral for the new loan. That means the lender could foreclose if you fall behind on payments, which is the main risk to weigh. In exchange for that risk, interest rates are typically lower than other borrowing options, such as personal loans and credit cards.
Home equity loans
A home equity loan is an installment loan with one lump-sum borrowing amount received upfront. You'll then make monthly payments until you've repaid what you borrowed, plus interest. Interest rates are typically fixed.
HELOCs
A HELOC is a revolving line of credit that lets you borrow as needed up to your approved limit, for a set number of years (called a draw period). You'll then enter the repayment period, when you can no longer borrow and instead are focused on repaying your debt. Interest rates are typically variable.
Comparison of home equity loans and HELOCs
The table below breaks down the major differences between home equity loans and HELOCs.
|
Home equity loans |
HELOCs |
|
|
Required equity |
15% to 20% |
15% to 20% |
|
Interest rate |
Usually fixed |
Usually variable |
|
Structure |
Lump-sum installment loan |
Revolving credit line |
|
Term |
5 to 30 years, depending on the lender (most commonly 10 to 15 years) |
Draw period (typically 5 to 10 years) and repayment period (typically 10 to 20 years) |
How to choose the right type of home loan
Choosing the right type of home loan comes down to your income, cash reserves, outstanding debts, and credit score, as well as the type of home you hope to buy. Your financial picture will dictate what you can and can’t qualify for. A loan officer or mortgage lender can help you better understand your options.
You might also need a specialty loan type, depending on your plans. For instance, you may need a renovation loan if you're purchasing a fixer-upper, or you could need a construction loan if you're designing and building your dream home.
Also think about other qualifiers. For example, if you or your spouse have served in the military, a VA loan could be the right call. If you're buying a home out in the country, a USDA loan might be possible.
In short, choosing the right home loan depends on your unique circumstances — who you are and where you want to live.
Frequently asked questions
What are the three main types of mortgages?
The three main types of mortgages are conventional mortgages, government-backed mortgages (such as FHA and VA loans), and interest-rate structures like fixed-rate and adjustable-rate mortgages. Some lenders and real estate experts categorize mortgage types differently, though — for instance, by loan term (30-year vs. 15-year) or by breaking government-backed loans into their individual programs (FHA, VA, and USDA).
How many types of home loans are there?
In short, several. The number of home loan types varies widely across sources depending on how they categorize these loans. Experts may say there are two types of home loans or as many as seven — or even more. You could simply categorize by backing (conventional vs. government-backed) or list out specific programs like FHA, USDA, and VA loans. Or, one could even further break things down by borrower situation, such as non-qualified mortgage or jumbo loans or by interest rate structure.
Can I afford a $300,000 house on a $50,000 salary?
You may not be able to afford a $300,000 home on a $50,000 salary. Many financial experts recommend capping your home's price at around three times your annual salary, which would put your budget closer to $150,000 in this example, though some guidelines go as high as five times your income depending on your other finances. Much of this depends on your debt-to-income ratio, cash reserves, and other financial factors. A larger down payment and a lower interest rate can make the monthly payment more affordable on a $50,000 salary, but car loans, student loans, credit card debt, and other obligations can make it more difficult to manage a higher mortgage payment.
What’s the difference between a home equity loan and a HELOC?
While both home equity loans and HELOCs are options that let you borrow against the equity you’ve built in your home, they work differently.
A home equity loan is an installment loan, with a lump-sum borrowing amount at the start of the loan and predictable monthly payments over a set number of years. Interest rates are usually fixed. HELOCs are a form of revolving credit, with a draw period (during which you can borrow as needed) and a repayment period. Interest rates are usually variable.
Choosing between the two depends on your needs. If you know the full cost of your project and want predictable payments, you might choose a home equity loan. If you’ll have ongoing expenses to cover for a few years, you may want to choose a HELOC.
