10 Mortgage Loan Types Every Homebuyer Should Know in 2025

The mortgage market in 2025 presents unique challenges and opportunities for borrowers. The Federal Reserve’s actions and global economic events have impacted interest rates, making it essential for homebuyers to fully understand their mortgage options before committing to a loan. Our Mortgage Rate page provides the latest trends on rates, helping you stay informed.

When choosing the right mortgage, several factors need to be considered: credit score, down payment, and debt-to-income ratio. A higher credit score often qualifies you for better rates. To get the best rate on your mortgage, use tools like our Loan Price Matrix to compare various options.

This guide is structured for both beginners and advanced buyers. New buyers should start with conventional loans or FHA options, while experienced buyers can explore Jumbo and Non-QM loans. Our Non-QM Loans page offers insights for those with non-traditional income sources.

Conventional loans are not insured or guaranteed by the federal government. Conforming loans meet Fannie Mae & Freddie Mac guidelines, while Non-Conforming loans (Jumbo) exceed the set limits or diverge in credit requirements. Learn more about Conventional vs Non-Conventional Loans.

Conforming loans have specific requirements, such as a credit score of 620+ and a down payment of at least 3–5%. The debt-to-income ratio (DTI) is a critical factor, and your lender will look for a DTI under 43%. Learn more on our Mortgage Vocabulary page.

A fixed-rate mortgage offers a stable interest rate throughout the life of the loan. This guarantees your monthly payment will remain the same, providing predictable budgeting for the entire loan term. It is ideal for homebuyers who prefer consistency and security in their payments. Fixed-rate mortgages are available in a variety of terms, typically 15, 20, and 30 years. Learn more about different loan terms on our Fixed-Rate Mortgage page.

In 2025, interest rates are expected to remain relatively stable, but locking in your mortgage rate at the right time can save you significant amounts over the life of your loan. Many lenders offer rate locks, which ensure that your rate stays the same, even if market conditions change. Learn more about rate lock policies and their benefits on our Rate Lock Policy page.

One key benefit of a fixed-rate mortgage is its predictability. On the other hand, an adjustable-rate mortgage (ARM) may offer a lower initial rate but exposes you to the risk of rate increases over time. If you plan to stay in your home for a long period, a fixed-rate mortgage is generally the better choice. However, if you anticipate moving or refinancing before the rate adjusts, an ARM might be a more affordable option. Explore more about ARMs on our Adjustable Rate Mortgage page.

An adjustable-rate mortgage (ARM) offers a lower initial interest rate compared to fixed-rate mortgages. ARMs are typically offered in hybrid terms, such as 5/1, 7/1, or 10/1. These numbers refer to the initial fixed-rate period (5, 7, or 10 years) followed by an adjustable rate that changes annually. ARMs are suitable for homebuyers who don’t plan to stay in their home long-term. Learn more about ARMs on our Adjustable Rate Mortgage page.

ARMs are appealing because they offer a lower initial payment. However, the risk lies in the potential for rate increases after the initial period. If interest rates rise significantly, your monthly payments can become unaffordable. It's crucial to assess your ability to absorb rate increases before choosing an ARM. For more on payment flexibility and rate risks, see our ARM guide.

In a rising-rate environment, ARMs may not be the best choice for long-term stability. However, if you expect to refinance or sell your home before the adjustable period kicks in, you could benefit from the lower initial payments. ARMs can also be useful if you anticipate a future decrease in interest rates. Learn more about ARM benefits and risks on our ARM guide.

FHA loans are a popular choice for first-time homebuyers due to their low down payment requirements. You can secure an FHA loan with as little as 3.5% down, even if you have a credit score of 580 or higher. This makes FHA loans an attractive option for those who are just starting out in homeownership. To learn more about FHA home loans, visit our FHA Home Loans page.

To qualify for an FHA loan with the lowest down payment (3.5%), you need a credit score of 580 or higher. If your score is below 580, you may still qualify for an FHA loan, but you'll need a 10% down payment. FHA loans are known for being more lenient on credit score requirements compared to conventional loans, making them an excellent choice for borrowers with less-than-perfect credit. Learn more about credit score requirements for FHA loans on our Credit Score page.

When comparing FHA and Conventional loans, it’s important to understand the key differences. FHA loans have lower down payment requirements, making them ideal for first-time buyers or those with lower credit scores. However, Conventional loans often have better terms for those with higher credit scores and a larger down payment. To help you compare these loan types, visit our Conventional Mortgage Loans page.

VA loans are a fantastic option for veterans and active-duty service members. These loans offer numerous benefits, including zero down payment and no mortgage insurance. VA loans are also competitive with their interest rates, making them a great option for military personnel looking to purchase a home. If you are eligible for a VA loan, explore the benefits in more detail on our VA Home Loans page.

To apply for a VA loan, you must first obtain a Certificate of Eligibility (COE). The COE confirms your eligibility for a VA loan based on your military service. You can apply for the COE through the VA or have your lender assist with the process. To learn more about the COE and how to apply, visit our VA Home Loans page.

VA loans are one of the most beneficial government-backed programs, but they are not the only option. For example, FHA loans offer a low down payment option, while USDA loans are ideal for those looking to buy a home in rural areas. The key benefit of VA loans is that they offer 100% financing, no PMI, and no down payment requirements, which makes them stand out among other options. Compare different government-backed programs on our Government-Backed Loans page.

USDA loans are available for low-to-moderate-income homebuyers in eligible rural and suburban areas. These loans offer 100% financing with no down payment required, making them an attractive option for those who qualify. The USDA loan is a great program for rural buyers, especially first-time homebuyers, and provides a low-interest rate and favorable terms. Learn more about USDA home loans on our USDA Home Loans page.

To qualify for a USDA loan, you must meet certain income and property location requirements. USDA loans are available in areas classified as rural, so it's important to verify if your property qualifies. You must also have a stable income and meet the USDA’s debt-to-income (DTI) limits. Check out our USDA Home Loans page for more information.

Both USDA and FHA loans are excellent choices for first-time homebuyers, but they serve different needs. USDA loans are specifically for rural areas and offer 100% financing, while FHA loans are more widely available but require a minimum down payment of 3.5%. To compare these options, visit our Government-Backed Loans page.

Jumbo loans are used for properties that exceed the conforming loan limits set by Fannie Mae and Freddie Mac. In 2025, these limits range from $510,400 to $1,023,000 depending on the area. Since these loans are non-conforming, they are not eligible for purchase by the government-sponsored enterprises, and lenders often hold them in their portfolios. Learn more about jumbo loans on our Jumbo Loans page.

Jumbo loan rates are expected to remain competitive in 2025, but they tend to be slightly higher than conventional loan rates due to the increased risk to lenders. These rates can vary based on market conditions, loan size, and the borrower's financial profile. For more details on jumbo loan rates, visit our Mortgage Rates page.

To qualify for a jumbo loan, you generally need a higher credit score (700 or higher), a larger down payment (20% or more), and a solid financial profile. Lenders will also look for lower debt-to-income (DTI) ratios and require proof of significant assets to cover the loan. To understand if you qualify for a jumbo loan, visit our Jumbo Loan Qualifications page.

Interest-only mortgages allow borrowers to pay only the interest portion of their loan for a set period, typically 5-10 years. During this period, you are not required to pay down the principal. After the interest-only period ends, your payments will increase as they begin to include principal repayment. Learn more about how interest-only mortgages work on our Mortgage FAQs page.

Interest-only mortgages come with a set of risks. Since you are not paying down the principal during the interest-only period, your loan balance will remain unchanged. This can lead to a situation where you owe more than the home is worth if property values decrease. Furthermore, once the interest-only period ends, your monthly payments will increase significantly. To learn more about interest-only mortgages and their risks, visit our Interest-Only Loans page.

Interest-only mortgages are typically best suited for borrowers with fluctuating incomes, such as business owners, or for those who plan to sell or refinance before the principal payments kick in. They are also useful for people who need to keep their monthly payments low in the short term. Learn more about the ideal candidates for interest-only loans on our Interest-Only Loans page.

A balloon mortgage is a short-term loan structure where you make small payments over the loan's term, but a large lump-sum payment is due at the end of the term, which is typically 5-7 years. Balloon mortgages often have lower monthly payments compared to a standard mortgage, but the large final payment can be a challenge if not properly planned. Learn more about balloon mortgages on our Bridge Loans page.

Balloon loans can be risky for borrowers who are unable to make the large final payment. If property values have decreased or if you haven't planned to refinance or sell the property, you may find yourself in a financial bind. Additionally, balloon loans often come with higher interest rates than traditional loans, which can increase the overall cost. To learn more about the risks associated with balloon loans, visit our Bridge Loans page.

Balloon mortgages are commonly used for investment properties, especially by real estate investors who intend to sell or refinance before the large final payment is due. These loans allow investors to maximize cash flow during the initial period. However, investors need to be careful to ensure that they can either sell the property or refinance before the balloon payment is due. For more information on using balloon mortgages for investment, check out our Investment Property Loans page.

A Home Equity Conversion Mortgage (HECM) is a type of reverse mortgage that allows homeowners aged 62 and older to convert part of their home equity into loan proceeds, which can be received as a lump sum, monthly payments, or a line of credit. HECMs are federally insured and are a popular option for seniors looking to supplement their income. To learn more about HECMs, visit our Reverse Mortgage page.

The main advantage of a reverse mortgage is that it provides seniors with access to their home equity without requiring monthly mortgage payments. However, there are costs associated with this type of loan, and it can reduce the equity in your home. Additionally, when the homeowner moves out, the loan must be repaid, which could impact their heirs. To understand the pros and cons of reverse mortgages, visit our Reverse Mortgage page.

Reverse mortgages can have a significant impact on estate planning. Since the loan balance increases over time and is repaid when the homeowner passes away or sells the home, the heirs may not inherit the full value of the home. In some cases, heirs may need to sell the home to repay the loan. It’s important for homeowners and their families to understand these implications when considering a reverse mortgage. Learn more about estate planning and reverse mortgages on our Reverse Mortgage page.

Green mortgages, also known as energy-efficient mortgages (EEM), are designed for homebuyers who wish to finance energy-efficient homes or make energy-efficient improvements to an existing home. These loans can help borrowers save money on energy bills by offering lower rates or larger loan amounts. Programs are available through FHA, VA, and conventional loan options. For more information about green mortgages, visit our Green Mortgages page.

Non-Qualified Mortgages (Non-QM) are home loans designed for borrowers who don’t fit the traditional lending criteria. Non-QM loans include bank statement loans, DSCR (Debt Service Coverage Ratio) loans, and portfolio loans. These loans are ideal for self-employed individuals, real estate investors, and those with unique financial situations. To learn more about Non-QM loans, visit our Non-QM Loans page.

Renovation mortgages, such as FHA 203(k) and Fannie Mae HomeStyle loans, allow borrowers to finance both the purchase of a home and the cost of necessary repairs or renovations. These loans are ideal for homebuyers who want to buy a fixer-upper or for those looking to make substantial upgrades to their current home. For more details on renovation mortgages, check out our Renovation Loans page.

When comparing mortgage options, it’s essential to look at both the rate and the terms of the loan. Some mortgages may have lower interest rates but come with higher fees or stricter terms, while others may offer more flexibility but at a higher rate. Use our mortgage calculator tools to compare your options.

When evaluating the total cost of a mortgage, it’s important to factor in not only the principal and interest payments but also private mortgage insurance (PMI) and closing fees. These additional costs can significantly increase the total amount you will pay over the life of the loan. Be sure to account for PMI, taxes, and fees when comparing your mortgage options. For more details, visit our Mortgage Process page.

Mortgage calculators and rate comparison tools can be invaluable when choosing a mortgage. These tools help you estimate your monthly payments based on loan terms, interest rates, and other factors. Additionally, rate comparison tools allow you to compare mortgage options from different lenders, helping you find the best deal for your financial situation. Explore our mortgage calculator tools to get started.

As a first-time homebuyer, it’s essential to explore your mortgage options carefully. FHA, VA, and USDA loans often offer lower down payment options and favorable terms for new buyers. Additionally, you can explore conventional loans with as little as 3% down. Use our First-Time Homebuyer guide to understand your options.

Low- and moderate-income borrowers can benefit from various government-backed loan programs like FHA, USDA, and certain state and local programs. These programs often offer lower down payment requirements and more flexible credit score criteria. Check out our Down Payment Options page for more details.

Self-employed individuals and investors often face challenges securing traditional home loans due to inconsistent income or unconventional financial profiles. Bank statement loans, DSCR loans, and portfolio loans are great alternatives for these borrowers. For more information on self-employed loan options, visit our Bank Statement Loans page.

Veterans and active-duty service members have access to specialized loan programs, such as VA loans. These loans offer benefits such as no down payment, no private mortgage insurance (PMI), and competitive interest rates. For more details, check out our VA Home Loans page.

The mortgage industry is increasingly moving towards digital platforms and eClosing, which streamline the loan application and approval process. These innovations help reduce paperwork, shorten closing times, and enhance security. Stay ahead of the curve with our Security and Privacy page for the latest updates on digital mortgage platforms.

AI-driven underwriting and predictive credit models are changing the way lenders assess loan applications. By leveraging machine learning and big data, lenders can quickly evaluate borrower risk and predict future creditworthiness. Explore our Non-QM Loan Programs for insights into alternative underwriting methods.

As environmental, social, and governance (ESG) factors gain prominence in the financial sector, more lenders are offering green home financing options. These include energy-efficient mortgages and eco-friendly home renovation loans. Learn more about sustainable financing options on our Green Mortgages page.

In this guide, we've covered the 10 most important mortgage loan types every homebuyer should know in 2025, from Conventional and FHA to VA, USDA, Jumbo, and Specialty programs. Understanding these mortgage types is crucial for selecting the best fit for your financial situation and homeownership goals. For a deeper dive into mortgage options, visit our Top 5 Most Common Mortgage Types page.

As you consider your mortgage options, the next steps involve evaluating your financial situation, comparing rates, and speaking to a mortgage expert. Visit our Loan Application page to start your journey. Whether you're a first-time homebuyer or looking to refinance, taking action today will set you on the path to homeownership. Utilize our Mortgage Calculators to estimate monthly payments and overall costs.