đź“‹ This guide is for educational purposes only and does not constitute financial advice. Please consult a licensed mortgage broker or financial advisor for guidance tailored to your situation.

When buying a home, choosing the right mortgage is one of the most critical decisions you'll make. With median home prices in the U.S. Reaching $410,000 in 2026, selecting the right loan can save you tens of thousands of dollars over time. This guide breaks down the main types of mortgages, their pros and cons, and key considerations to help you make an informed decision.

Fixed-Rate Mortgages

Fixed-rate mortgages are among the most common types of home loans. They offer predictable monthly payments, which can be appealing for many buyers.

The interest rate remains constant throughout the loan term, usually 15, 20, or 30 years. This stability makes them a popular choice for first-time buyers. For example, a $250,000 loan at a 6% fixed rate over 30 years results in a monthly payment of about $1,500, excluding taxes and insurance. It won't change.

However, fixed-rate loans typically have higher initial interest rates compared to adjustable-rate mortgages (ARMs). This could mean paying more upfront. If interest rates drop significantly, you’d need to refinance to take advantage of lower rates. Refinancing costs typically run around $3,000 to $5,000.

These loans are ideal for buyers who plan to stay in their homes for a long time. Short-term buyers may prefer other options. Learn more about avoiding debt traps to avoid mortgage mistakes.

Adjustable-Rate Mortgages (ARMs)

Adjustable-rate mortgages start with lower rates but adjust periodically after an initial fixed period. For example, a 5/1 ARM locks in a low rate for five years, then adjusts annually based on market trends.

The initial savings can be significant. A $300,000 5/1 ARM might start with an interest rate of 5%, resulting in a monthly payment of $1,610 during the first five years. Compare that to a fixed-rate mortgage at 6%, which would cost $1,800 monthly. That’s a savings of $190 per month.

However, ARMs carry risks. When the rate adjusts, your monthly payment could increase significantly. If the rate jumps to 7% after the initial period, your payment would rise to $2,000. That’s a steep hike.

ARMs are often better for buyers who plan to sell or refinance before the adjustment period ends. They’re also common among investors who intend to flip properties quickly. Learn how to balance risk with long-term planning by reading our 401k-match-vs-roth-ira guide.

FHA Loans: Easier Approval

Federal Housing Administration (FHA) loans are government-backed loans designed for buyers with lower credit scores or limited savings. They’re a lifeline for many first-time buyers.

One major perk is the low down payment requirement. Some borrowers can qualify with as little as 3.5% down. On a $200,000 home, that's only $7,000 instead of the typical $20,000 for a conventional loan with a 10% down payment.

FHA loans also allow more flexibility with credit scores. You may qualify with a score as low as 580. On the downside, FHA loans require mortgage insurance premiums (MIP), which add to your monthly costs. For a $200,000 loan, MIP could add $150 per month.

FHA loans are often suitable for buyers who need financial flexibility. They’re not the best choice if you have good credit and enough savings for a larger down payment. For tips on managing personal finances, check out our guide to best-budgeting-apps-for-freelancers.

VA Loans: Exclusively for Veterans

VA loans are offered through the Department of Veterans Affairs and are available to eligible military members, veterans, and their families. These loans often offer unbeatable terms.

One significant advantage is no down payment requirement in most cases. If you're buying a $250,000 home, you could finance the entire amount. VA loans also don’t require private mortgage insurance, saving you approximately $150 to $300 per month compared to FHA or conventional loans.

Another perk is competitive interest rates. For instance, in 2026, VA loans average around 5.5%, lower than the national average for conventional loans. However, these loans come with a funding fee, which can range from 1.4% to 3.6% of the loan amount depending on your down payment and military service category. On a $250,000 loan, that could mean an additional $3,500 to $9,000.

If you qualify for a VA loan, it’s often the most cost-effective option. To further explore budgeting strategies for homeownership, visit our guide on best-budgeting-apps.

FAQ

What credit score is required for a conventional loan?

Most lenders require a credit score of at least 620 for a conventional loan. However, a score over 740 may qualify you for the best rates, saving thousands over the loan's term.

How much should I save for a down payment?

Typically, you'll need at least 3% to 20% of the home’s purchase price. For a $300,000 home, that’s $9,000 to $60,000. Larger down payments often lead to lower monthly costs.

Are there closing costs with an FHA loan?

Yes. FHA loans have closing costs ranging from 3% to 6% of the loan amount. For a $200,000 loan, expect to pay $6,000 to $12,000.

Can I refinance a VA loan?

Yes, you can refinance a VA loan through the VA Interest Rate Reduction Refinance Loan (IRRRL) program. This typically reduces your rate by 0.5% to 1%.

Should I choose a 15-year or 30-year mortgage?

A 15-year mortgage offers lower interest rates, often around 5.25% versus 6% for a 30-year. However, monthly payments are higher, approximately $1,975 versus $1,200 on a $200,000 loan.

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Last reviewed: 2026-07-06 by Editorial Team