What is the best type of mortgage for a first-time buyer?

For most first-time buyers, an FHA loan is the easiest path — only 3.5% down and a 580 credit score minimum. If you have a 620+ score with stable income, a conventional loan with 3-5% down avoids the lifetime mortgage insurance FHA charges. Veterans should always use a VA loan (0% down, no PMI). Rural buyers should check USDA loans (0% down).

What is the difference between FHA and conventional loans?

FHA loans are government-insured with lower credit requirements (580+) and 3.5% down, but require mortgage insurance for the life of the loan. Conventional loans need 620+ credit and 3% down minimum, but PMI can be removed at 20% equity. FHA is easier to qualify for; conventional is cheaper long-term.

Should I get a fixed-rate or adjustable-rate mortgage?

Get a fixed-rate if you plan to stay 7+ years — your payment never changes. Consider an ARM if you'll move or refinance within 5-7 years, since ARM initial rates are typically 0.5-1% lower. In 2026 with rates around 6.5-7%, an ARM can save $100-$200/month initially, but carries rate-increase risk.

What is a jumbo loan?

A jumbo loan exceeds the conforming loan limit ($806,500 in most areas, up to $1,209,750 in high-cost areas for 2026). Jumbo loans typically require 10-20% down, 700+ credit score, and 6+ months cash reserves. Rates are usually 0.25-0.5% higher than conforming loans.

Can I switch mortgage types after I get a loan?

Yes, through refinancing. You can refinance from FHA to conventional to eliminate mortgage insurance, switch from an ARM to a fixed-rate, or even refinance a conventional into a VA loan if you're a veteran. Refinancing costs $3,000-$6,000 in closing costs and requires a new appraisal.

Mortgage Types Explained 2026: How to Choose the Right Loan

Choosing the wrong mortgage type can cost you $50,000 or more over the life of your loan. This guide compares every type of mortgage available in 2026 so you pick the one that saves you the most money based on your specific situation.

All Mortgage Types at a Glance

Mortgage Type	Down Payment	Min. Credit	Best For
Conventional	3-20%	620	Strong credit, wants to avoid FHA insurance
FHA	3.5%	580	First-time buyers, lower credit
VA	0%	None (typ. 620)	Veterans, active military, surviving spouses
USDA	0%	640	Rural and suburban buyers
Jumbo	10-20%	700+	Home prices above conforming limits
ARM	3-20%	620+	Short-term ownership (5-7 years)
Fixed-rate	3-20%	620+	Long-term ownership stability
Construction	10-20%	680+	Building a new home

Conventional Loans

Conventional loans are the most common mortgage type, accounting for about 80% of all home loans.

Feature	Details
Down payment	3% (first-time buyers) to 20%+
Credit score	620 minimum, 740+ for best rates
PMI required?	Yes, if <20% down (removable at 20% equity)
Loan limits	Up to $806,500 (2026, most areas)
Mortgage insurance	0.5-1.5% of loan/year (only until 20% equity)
Best for	Buyers with good credit who want lowest long-term cost

Advantages: PMI is removable, no upfront mortgage insurance fee, wider property types allowed, lower total cost than FHA for strong borrowers.

Disadvantages: Higher credit requirements, higher rates for lower credit scores, stricter DTI limits.

FHA Loans

FHA loans are insured by the Federal Housing Administration, allowing lenders to offer more lenient terms.

Feature	Details
Down payment	3.5% (580+ credit) or 10% (500-579 credit)
Credit score	580+ for 3.5% down; 500+ for 10% down
Mortgage insurance	1.75% upfront + 0.55%/year for life of loan
Loan limits	$498,257-$1,149,825 (varies by county, 2026)
DTI limit	Up to 57% with compensating factors
Best for	First-time buyers, credit recovery, lower income

Advantages: Low down payment, lenient credit requirements, lower rates for lower credit scores.

Disadvantages: Mortgage insurance for the entire loan term (unless you put 10%+ down, then it drops off after 11 years), requires property to meet FHA standards.

See FHA Loan Guide and FHA Loan Rates.

Can You Get an FHA Loan Twice?

Yes — but you can typically only have one FHA loan at a time. You can get another FHA loan once you’ve sold or refinanced the first property, or in specific circumstances like job relocation (100+ miles) or family size increase.

See Can You Get an FHA Loan Twice?

VA Loans

VA loans are available to veterans, active-duty service members, and eligible surviving spouses. They are arguably the best mortgage product available.

Feature	Details
Down payment	0%
Credit score	No VA minimum (lenders typically want 620+)
PMI	None
Funding fee	1.25-3.3% (can be rolled into loan, waived for disabled vets)
Loan limits	No cap for full-entitlement borrowers
Best for	Anyone eligible — it’s the best mortgage deal available

Advantages: Zero down payment, no PMI ever, competitive rates (usually lowest available), no prepayment penalties.

Disadvantages: Funding fee (1.25-3.3%), property must be primary residence, must meet VA property standards.

See VA Loan Guide and VA Loan Rates.

USDA Loans

USDA loans offer zero-down financing in eligible rural and suburban areas (which includes more locations than you’d expect).

Feature	Details
Down payment	0%
Credit score	640+ (most lenders)
Income limit	115% of area median income
Guarantee fee	1% upfront + 0.35%/year
Location	USDA-eligible areas only
Best for	Moderate-income buyers in eligible areas

See USDA Loan Guide.

Jumbo Loans

Jumbo loans exceed the conforming loan limit and can’t be purchased by Fannie Mae or Freddie Mac.

Feature	Details
Down payment	10-20% (some allow 5%)
Credit score	700+ (720+ for best rates)
Cash reserves	6-12 months of payments
Loan limits	Above $806,500 (most areas)
Rates	0.25-0.5% above conforming
Best for	High-value properties above conforming limits

See Jumbo Loan Rates.

Fixed-Rate vs. Adjustable-Rate (ARM)

Factor	30-Year Fixed	15-Year Fixed	5/6 ARM	7/6 ARM
Initial rate (2026 est.)	6.8%	5.9%	6.0%	6.3%
Rate changes?	Never	Never	Every 6 months after year 5	Every 6 months after year 7
Rate caps	N/A	N/A	2/1/5 typical	2/1/5 typical
Best for	Staying 7+ years	Aggressive payoff	Moving in <5 years	Moving in <7 years
Risk level	None	None	Medium	Low-medium

ARM rate caps explained: 2/1/5 means the rate can increase max 2% at first adjustment, 1% per subsequent adjustment, and 5% over the life of the loan. So a 6.0% ARM could reach a maximum of 11.0%.

See ARM Loan Rates and Fixed vs. Variable Rate Mortgage.

Construction Loans

Feature	Details
Down payment	10-20%
Credit score	680+
Interest	Interest-only during construction (6-12 months)
Conversion	Converts to permanent mortgage after build
Inspection	Lender releases funds in stages
Best for	Building a custom home

See Construction Loans Guide and Average Cost to Build a House.

Specialty Mortgage Products

Product	What It Does	Who It’s For
Cash-out refinance	Replaces mortgage with larger one, gives cash difference	Homeowners wanting equity access
Reverse mortgage	Pays homeowner monthly (or lump sum) from equity	Homeowners 62+
Assumable mortgage	Buyer takes over seller’s existing loan terms	Buyers wanting seller’s lower rate
Investment property mortgage	Higher rates for rental/investment properties	Real estate investors
Second home mortgage	Slightly higher rates for vacation homes	Second home buyers

See Cash-Out Refinance, Reverse Mortgage Guide, Assumable Mortgages, Investment Property Rates, and Second Home Rates.

Which Mortgage Type Should You Choose?

Your Situation	Best Option	Why
Veteran or active military	VA	0% down, no PMI, best rates
First-time buyer, 580-619 credit	FHA	Lowest credit requirements
First-time buyer, 620+ credit	Conventional 3%	Avoid lifetime mortgage insurance
Rural area, moderate income	USDA	0% down, low fees
Buying $800K+ home	Jumbo	Only option above conforming limits
Planning to move in 5 years	5/6 ARM	Lower initial rate saves money
Staying 10+ years	30-year fixed	Payment certainty
Want to pay off fast	15-year fixed	Lower rate, forced savings
Building custom home	Construction	Finances build + permanent mortgage

Refinancing: Switching Mortgage Types

Current Loan	Refinance To	Why Switch
FHA	Conventional	Eliminate lifetime mortgage insurance at 20% equity
ARM	Fixed	Lock in rate before it adjusts higher
30-year	15-year	Pay off faster, save on interest
Conventional	VA	Get lower rate, eliminate PMI (if veteran)
High-rate fixed	Lower-rate fixed	Save monthly when rates drop 0.75%+

See Refinancing Guide, When to Refinance, Before You Refinance, and Refinance Calculator.

Quick Reference Table

Mortgage Type	Min Down	Min Credit	PMI	Best Rate
Conventional	3%	620	Until 20% equity	Good credit
FHA	3.5%	580	Life of loan	Lower credit
VA	0%	~620	None	Veterans
USDA	0%	640	0.35%/year	Rural
Jumbo	10%	700	Sometimes	Large loans

The Bottom Line

For most buyers: if you’re a veteran, use a VA loan — it’s the best mortgage product available. If you’re buying in an eligible area with moderate income, check USDA first. If your credit is below 620, FHA is your path. If your credit is 620+, a conventional loan with 3-5% down usually beats FHA on total cost because PMI is removable. Don’t get an ARM unless you’re genuinely planning to move or refinance within 5-7 years. And always get quotes from 3+ lenders — the rate differences between lenders on the same loan type can be worth $50,000+ over 30 years.

90-Day Loan Type Decision Checklist

Check VA eligibility (or confirm ineligible).
Check credit score — determine if FHA vs. conventional pricing applies.
Estimate down payment available — calculate LTV.
Check if target property is in USDA-eligible area if applicable.
Check if loan amount exceeds conforming limit in your county.
Compare APR (not just rate) across loan types for your specific scenario.
Ask lender to model PMI removal timeline if going conventional with less than 20% down.
Confirm ARM cap structure if considering an adjustable rate.

First-Time Homebuyer Loan Programs

Beyond the main loan types, several programs provide additional support:

Program	What It Offers	Who Qualifies
Fannie Mae HomeReady	3% down; lower PMI; counts boarder income	Buyers at/below 80% area median income
Freddie Mac Home Possible	3% down; flexible income sources	Buyers at/below 80% area median income
State HFA loans	Down payment assistance; below-market rates	Varies by state; usually income-capped
Good Neighbor Next Door	50% price discount on HUD homes	Teachers, police, firefighters, EMTs in target areas

Most state housing finance agencies (HFAs) offer grants or second mortgages for down payment support stacked with conventional or FHA first mortgages. Check your state HFA for current programs.

FHA

VA

USDA

USDA Loan Guide

Rate comparisons

See parent hub: Mortgages

Written by WealthVieu

WealthVieu researches and writes data-driven personal finance guides using primary sources including the IRS, Bureau of Labor Statistics, Federal Reserve, and Census Bureau.

Reviewed by Jane Smith

Jane Smith is an expert reviewer with over 10 years of experience in retirement income planning, tax-aware portfolio strategy, and household cash-flow optimization.

The content on Wealthvieu is for informational purposes only and should not be considered financial, tax, or investment advice. Consult a qualified professional before making financial decisions. Full disclaimer · Editorial policy