Mortgage Types Compared 2026: Every Home Loan Option Explained

Choosing the right mortgage type can save you tens of thousands of dollars — or cost you just as much if you pick the wrong one. With over a dozen mortgage options available in 2026, understanding the differences is crucial to making the best decision for your financial situation.

This comprehensive comparison covers every major mortgage type, who each one is best for, and how to decide which fits your needs.

Quick Comparison Table

Conventional Loans

The most common mortgage type, backed by Fannie Mae or Freddie Mac.

Key Features

• Loan limits (2026): $766,550 in most areas; up to $1,149,825 in high-cost areas
• Credit score: 620 minimum; 740+ for best rates
• Down payment: 3% minimum (Conventional 97 and HomeReady/Home Possible programs); 5% standard
• PMI: Required below 20% down; removable once you reach 20% equity
• DTI ratio: Up to 45%–50%
• Property types: Single-family, condos, townhomes, 2-4 unit properties

Pros

• Best rates for borrowers with strong credit
• PMI is cancellable (unlike [FHA mortgage insurance](/blog/fha-loan-requirements-2026))
• No upfront mortgage insurance fee
• Flexible property type options
• No geographic restrictions

Cons

• Stricter credit requirements than FHA
• Higher PMI costs for lower credit scores
• Less flexible for complex income situations

Best For

Borrowers with credit scores above 680, stable W-2 income, and at least 5% down payment. If your score is above 740, conventional is almost always the best choice.

FHA Loans

Insured by the Federal Housing Administration, designed for borrowers who need more flexible qualification requirements.

Key Features

• Loan limits (2026): $498,257 in most areas; up to $1,149,825 in high-cost areas
• Credit score: 580 minimum with 3.5% down; 500–579 with 10% down
• Down payment: 3.5% minimum
• Mortgage insurance: 1.75% upfront MIP + 0.55% annual MIP (for most loans)
• DTI ratio: Up to 57% with compensating factors
• Property types: Single-family, condos (FHA-approved), 2-4 unit properties

Pros

• Lower credit score requirements
• More lenient DTI limits
• Lower down payment than most conventional options
• Available sooner after bankruptcy or foreclosure
• Manual underwriting available for borderline cases

Cons

• Mortgage insurance for the life of the loan (unless you put 10%+ down, then it drops after 11 years)
• Upfront MIP adds to closing costs or loan balance
• Property must meet FHA minimum standards
• Loan limits may be restrictive in expensive markets
• Condos must be on the FHA-approved list

Best For

First-time homebuyers with credit scores between 580–680, buyers recovering from credit events, and borrowers with higher DTI ratios. See our [[credit score tiers](/blog/credit-score-ranges-explained) guide](/blog/mortgage-credit-score-tiers) for where FHA makes sense versus conventional.

VA Loans

Guaranteed by the Department of Veterans Affairs for eligible military borrowers.

Key Features

• Loan limits: No limit (since 2020 for full entitlement borrowers)
• Credit score: No VA minimum; lenders typically require 580–620
• Down payment: 0% (zero down)
• PMI: None
• Funding fee: 1.25%–3.3% (can be financed; exempt for disabled veterans)
• DTI ratio: No hard cap; lenders evaluate residual income

Pros

• No down payment required
• No PMI — ever
• Competitive interest rates (often lower than conventional)
• No prepayment penalties
• Lenient credit and [DTI requirements](/blog/dti-ratio-explained)
• Assumable by future buyers

Cons

• Eligibility limited to veterans, active duty, Guard/Reserve, and surviving spouses
• VA funding fee adds to costs (though no PMI offsets this)
• Property must be primary residence
• VA [appraisal requirements](/blog/appraisal-process-explained) can be strict
• Some sellers perceive VA offers as riskier (unfairly)

Best For

Every eligible veteran or service member should seriously consider VA loans first. The zero-down, no-PMI combination is virtually unbeatable.

USDA Loans

Backed by the U.S. Department of Agriculture for rural and suburban homebuyers.

Key Features

• Loan limits: Based on area; typically aligned with local home prices
• Credit score: No official minimum; most lenders require 640
• Down payment: 0% (zero down)
• Guarantee fee: 1.0% upfront + 0.35% annually
• DTI ratio: Up to 41% (higher with compensating factors)
• Income limits: Household income must not exceed 115% of area median income
• Property location: Must be in USDA-eligible area

Pros

• No down payment
• Low mortgage insurance rates
• Below-market interest rates
• No prepayment penalties
• Closing costs can be financed or covered by seller

Cons

• Geographic restrictions — must be in an eligible rural area
• Income limits — too much income disqualifies you
• Only for primary residences
• Can be slower to process
• Property must meet USDA standards

Best For

Moderate-income buyers purchasing in rural or suburban areas. Check USDA's eligibility map — many areas people consider "suburban" actually qualify.

Jumbo Loans

For loan amounts exceeding conventional conforming limits.

Key Features

• Loan amounts: Above $766,550 (or $1,149,825 in high-cost areas)
• Credit score: 700+ typical; 720+ preferred
• Down payment: 10%–20% typical; some allow 5% with strong compensating factors
• PMI: Varies by lender; some offer no PMI with higher rates
• DTI ratio: Usually capped at 43%
• Reserves required: 6–12 months typically

Pros

• Finance expensive properties
• Competitive rates (sometimes lower than conforming in certain markets)
• Portfolio lending allows flexible guidelines
• Available for primary, second homes, and investment properties

Cons

• Higher credit score requirements
• Larger down payments
• More extensive documentation
• Stricter reserve requirements
• Less standardized (terms vary more between lenders)

Best For

Buyers in high-cost markets needing loans above conforming limits, with strong credit and substantial assets.

Adjustable-Rate Mortgages (ARMs)

Interest rate is fixed for an initial period, then adjusts periodically.

Key Features

• Initial fixed period: 3, 5, 7, or 10 years
• Adjustment frequency: Typically annual after the fixed period
• Rate caps: Limits on how much the rate can increase (per adjustment and lifetime)
• Index: Based on SOFR (Secured Overnight Financing Rate) as of 2026
• Down payment: Same as fixed-rate equivalents (3%–20%)

Common ARM Types

• 5/6 ARM: Fixed for 5 years, adjusts every 6 months
• 7/6 ARM: Fixed for 7 years, adjusts every 6 months
• 10/6 ARM: Fixed for 10 years, adjusts every 6 months

Pros

• Lower initial rate than fixed-rate mortgages (typically 0.5%–1.0% lower)
• Ideal if you plan to sell or refinance before the adjustment period
• Rate caps provide some protection
• Can be significantly cheaper if you don't keep the loan long-term

Cons

• Rate can increase substantially after the fixed period
• Payment uncertainty after adjustment
• Harder to budget long-term
• Risk if you can't sell or refinance when planned

Best For

Buyers who plan to sell or refinance within the fixed-rate period, or those who expect their income to increase significantly. Learn more in our [[adjustable rate mortgage](/blog/arm-vs-fixed-rate-mortgage) guide](/blog/adjustable-rate-mortgage-guide) and ARM vs. fixed rate comparison.

Non-QM Loans (Non-Qualified Mortgages)

Alternative loan products for borrowers who don't meet traditional qualification standards.

Types of Non-QM Loans

Bank Statement Loans

• 12–24 months of statements replace tax returns
• Great for self-employed borrowers
• See our [[bank statement mortgage](/blog/bank-statement-mortgage-guide) guide](/blog/bank-statement-mortgage-guide)

DSCR Loans (Debt Service Coverage Ratio)

• For investment properties
• Qualify based on property cash flow, not personal income
• Popular with investors

Asset Depletion Loans

• Qualify based on liquid assets rather than income
• Assets divided over loan term to calculate qualifying income
• Learn more in our asset depletion mortgage guide

Interest-Only Loans

• Pay only interest for an initial period (5–10 years)
• Lower initial payments
• Principal balance doesn't decrease during interest-only period

1099 Loans

• Use 1099 forms instead of tax returns
• Standard expense factor applied
• For freelancers and gig workers

General Non-QM Features

• Credit score: Varies; typically 620+ for most programs, some as low as 500
• Down payment: 10%–25%
• Interest rates: 0.5%–2.5% above conventional rates
• Documentation: Alternative to traditional full-doc

Best For

Self-employed borrowers, real estate investors, those with complex income, recent credit events, and anyone who doesn't fit the traditional lending box. See our guides for freelancers and gig workers.

Specialty Programs

HomeReady (Fannie Mae) and Home Possible (Freddie Mac)

• 3% down payment
• Income limits apply (usually 80% of area median)
• Reduced PMI rates
• Allow non-borrower household income for qualification
• Excellent for first-time and low-to-moderate income buyers

Construction Loans

• Finance the building of a new home
• Two types: construction-to-permanent (one closing) and standalone construction
• Higher rates during construction
• Convert to permanent mortgage upon completion

[[Renovation](/blog/bathroom-renovation-cost-guide) Loans](/blog/dscr-loan-fix-and-flip) (FHA 203k, Fannie Mae HomeStyle)

• Finance purchase price plus renovation costs in one loan
• Requires contractor estimates and project oversight
• Allows purchase of fixer-uppers that wouldn't qualify for standard loans

Reverse Mortgages (HECM)

• For homeowners 62+ with substantial equity
• Receive payments from lender instead of making them
• Loan balance grows over time
• Repaid when borrower sells, moves, or passes away

How to Choose Your Mortgage Type

Decision Framework

Start here:

1. Are you a veteran or active military? → Consider VA first
2. Is the property in a USDA-eligible area? → Consider USDA
3. Is your credit score above 720? → Conventional is likely best
4. Is your credit score 580–680? → Compare FHA vs. conventional
5. Is the loan amount above conforming limits? → Jumbo loan
6. Are you self-employed with complex income? → Non-QM programs
7. Will you move within 5–7 years? → Consider an ARM

Cost Comparison Example

$350,000 purchase price, 5% down ($17,500), 700 credit score:

In this scenario, VA saves $248/month over FHA — $89,000 over 30 years. Conventional and FHA are nearly identical initially, but conventional wins long-term because PMI is cancellable.

Final Thoughts

There's no single "best" mortgage type — only the best type for your specific situation. Your credit score, down payment, military status, property location, income type, and long-term plans all factor into the decision.

Take the time to understand your options, compare at least two or three loan types for your scenario, and work with a lender or mortgage broker who can run the numbers across multiple programs.

Ready to move forward? Start with our mortgage pre-approval checklist and our mortgage lender comparison guide to find the right loan and the right lender for you.

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