Mortgage types explained

The key ideas

Fixed-rate mortgage

The interest rate stays the same for the life of the loan, so your principal and interest payment never changes. 30-year and 15-year terms are the most common. A 15-year loan has higher payments but much less total interest.

Adjustable-rate mortgage (ARM)

The rate is fixed for an initial period, such as 5 or 7 years, then adjusts on a schedule. Ask how high the rate and payment could go under the loan's caps.

Conventional loans

Not backed by the government. Some programs allow as little as 3% down for qualifying buyers. With less than 20% down you usually pay private mortgage insurance (PMI).

FHA loans

Insured by the Federal Housing Administration. They allow down payments as low as 3.5% with a credit score of 580 or higher, and require mortgage insurance premiums.

VA loans

For eligible service members, veterans and some surviving spouses. Usually no down payment and no monthly mortgage insurance, with a one-time funding fee in many cases.

USDA loans

For eligible homes in qualifying rural and suburban areas, with income limits. Usually no down payment.

Questions to ask yourself

• How long do I expect to stay in this home?
• If this is an ARM, what is the highest my payment could reach?
• What is the APR, not just the interest rate, and what fees are included?

Free help

CFPB Loan Estimate explainer

An annotated sample Loan Estimate showing what each line means, at consumerfinance.gov.

VA and USDA websites

Official eligibility rules at va.gov/housing-assistance and rd.usda.gov.

This guide is general education for US households, based on how things typically work. Rules, rates and program details change and vary by lender and state. It is not individual financial, legal or tax advice, and it isn't an offer of credit. Pennies & More isn't paid by any lender or company mentioned here.