What are the Different Types of Home Mortgage Loans
When purchasing a home, one of the most significant decisions you’ll make is selecting the right type of mortgage loan. With so many options available, it can be overwhelming to know where to start. Understanding the different types of home mortgage loans is crucial to finding the best fit for your financial situation.
In this article, we’ll explore the most common types of home loans and offer insight into how to choose the right one for you.
Understand the Different Types of Loans Available
Before you dive into the world of home mortgage loans, it’s essential to understand the various options available. The type of loan you choose will affect your monthly payments, interest rates, and the total cost of your mortgage over time. Depending on your financial goals, current situation, and long-term plans, certain mortgage types may be more beneficial than others.
Mortgage loans generally fall into two categories: conventional loans and government-backed loans. Within these categories, there are various specific types that offer unique features, such as adjustable rates, fixed rates, and specific eligibility requirements. Let’s dive into the 15 most common types of home mortgage loans that can help you make an informed decision.
15 Types of Home Mortgage Loans
Fixed-Rate Mortgage
The fixed-rate mortgage is the most common type of mortgage loan, offering predictable monthly payments and a fixed interest rate throughout the loan term. This type of loan is best for buyers who want stability and plan to stay in the home long-term.
Adjustable-Rate Mortgage (ARM)
An ARM features an interest rate that can change over time, often starting with a lower rate than a fixed-rate mortgage. While this can result in lower initial payments, there is a risk that your interest rate—and monthly payment—may increase over time.
FHA Loans (Federal Housing Administration)
FHA loans are government-backed loans designed for first-time homebuyers and those with less-than-perfect credit. They offer lower down payments and more lenient credit score requirements, making them an accessible option for many buyers.
VA Loans (Veterans Affairs)
VA loans are available to active-duty military members, veterans, and their families. These loans typically require no down payment and offer lower interest rates, making them an excellent option for those who qualify.
USDA Loans (United States Department of Agriculture)
USDA loans are designed for buyers in rural and suburban areas. These loans require no down payment and are available to low- to moderate-income buyers who meet specific eligibility criteria.
Jumbo Loans
Jumbo loans are for individuals who are looking to purchase high-value homes that exceed the conventional loan limits set by the Federal Housing Finance Agency (FHFA). These loans typically have higher interest rates and stricter requirements.
Interest-Only Mortgages
With an interest-only mortgage, you only pay interest for a set period, typically 5-10 years. After this period, the loan converts to a traditional mortgage, and you begin paying off the principal in addition to interest. This type of mortgage can be helpful for those who anticipate an increase in income in the future.
Balloon Mortgages
A balloon mortgage features low monthly payments for a set period, after which the full remaining balance is due. This option can be advantageous if you plan to sell or refinance before the balloon payment is due.
Conventional Loans
Conventional loans are not backed by the government, and they typically require a higher credit score and larger down payments. However, they offer flexibility in terms and conditions, making them a popular choice for homebuyers with strong financial profiles.
Subprime Mortgages
Subprime mortgages are designed for buyers with lower credit scores who may not qualify for conventional loans. While they offer more lenient qualification requirements, they often come with higher interest rates to offset the risk to lenders.
Renovation Loans
Renovation loans, such as the FHA 203(k) loan, allow buyers to finance the cost of home improvements or repairs into the mortgage. This can be a great option for purchasing fixer-upper properties.
Reverse Mortgages
A reverse mortgage is available to homeowners aged 62 or older. It allows you to convert the equity in your home into loan proceeds, which are paid to you in installments. The loan is repaid when the homeowner sells the home or passes away.
Fixed-Period ARMs
A fixed-period ARM offers a fixed interest rate for an initial period (e.g., 5 or 7 years) before adjusting to a variable rate. This type of loan offers the benefits of lower initial payments while still providing flexibility.
Construction Loans
A construction loan is used to finance the construction of a new home or significant home renovations. These loans are short-term and are typically paid in installments as construction progresses.
Home Equity Loans
A home equity loan allows homeowners to borrow against the equity they’ve built in their home. These loans are often used for home improvements or debt consolidation and are typically repaid over a fixed term.

Choosing the Right Home Mortgage Loan for You
Choosing the right mortgage loan depends on your financial situation, long-term goals, and homeownership plans. If you’re planning to stay in the home for many years, a fixed-rate mortgage may offer the stability you need. However, if you’re comfortable with potential changes in interest rates and are looking for lower initial payments, an ARM might be the better option.
Dwan, the owner of Dwanderful, a real estate investor and podcast host, offers valuable insights to help investors and homebuyers navigate the complex world of mortgages. Dwanderful provides a free book entitled “Real Estate Lingo” to help buyers understand industry terminology. Additionally, Dwanderful offers a paid resource, the “Five Pillars of Real Estate Investing” book, which is a comprehensive guide to becoming a successful real estate investor. Whether you’re a first-time buyer or seasoned investor, Dwan’s insights and resources can guide you to the right mortgage loan for your needs. Contact us now!
Frequently Asked Questions
What is the best mortgage loan for first-time homebuyers?
The best mortgage for first-time buyers is often an FHA loan, as it offers lower down payment requirements and more flexible credit score standards.
How do adjustable-rate mortgages work?
ARMs have an initial fixed interest rate for a certain period, after which the rate adjusts periodically based on market conditions.
Can I refinance a jumbo loan?
Yes, jumbo loans can be refinanced, but you may need to meet stricter requirements due to the loan amount exceeding conventional loan limits.