Not all mortgages are the same, and it’s important to understand the benefits of each type before purchasing a home. There are five main types of mortgages available to homebuyers. To help you find the best home loan for your needs, we’ve listed them with some pros and cons for each. Understanding these will help as you work with your mortgage loan officer to determine the most appropriate loan based on your goals and financial situation.
Conventional Loans – Traditional & Lowest Cost
No bells, whistles or fine print here. A conventional mortgage is a standard home loan that's not backed by a government program. It’s the most straightforward loan that gives you the money you need to buy a house with as little as 3% down. It’s paid back over the life of the loan, usually over 15, 20 or 30 years. These loans come in two subtypes – conforming and non-conforming loans.
Conforming Conventional Loan: A conventional mortgage that meets Fannie Mae and Freddie Mac guidelines, including loan amount limits and standard credit/income requirements. These loans typically offer competitive rates and are the most common type of conventional financing.
Non-Conforming Conventional Loan: A conventional mortgage that does not meet Fannie Mae or Freddie Mac guidelines, often because the loan amount exceeds conforming limits (jumbo loan) or the borrower has unique qualifying circumstances. These loans may have different requirements and pricing.
Conventional loans may require you to purchase private mortgage insurance (PMI). It’s basically an insurance policy that covers your lender in the event you can’t pay back what you borrowed. PMI can increase the overall cost of your loan, but conventional loans usually require less borrowing and lower closing costs than other types – even if the interest rate is slightly higher. You can avoid PMI if you're able to put at least 20% down on your home.
Pros:
- Simple, straightforward terms
- Available from the majority of lenders
- Lower closing costs
- Rewards good credit with good rates
Cons:
- Need a credit score of at least 620 to qualify
- Interest rate may be higher than that of other loans
- Requires higher down payment than some other loans, including VA and USDA loans
- Requires PMI if down payment is less than 20%
As a prospective homebuyer, you can choose between an adjustable-rate mortgage (ARM) and a fixed-rate mortgage. So, what’s the difference?
An ARM is a home loan with an interest rate that adjusts over time based on the market. ARMs typically have a lower initial interest rate than fixed-rate mortgages, making them an attractive option if your goal is to get the lowest possible mortgage rate starting out.
This interest rate won’t last forever, though. After the initial period, your monthly payment can fluctuate. If interest rates go down, ARMs can become less expensive. However, ARMs can also become more expensive if rates go up.
A fixed-rate mortgage offers more certainty because it retains the same interest rate for the life of the loan. That means your monthly principal and interest payment will stay constant throughout the loan term. If you’re planning to stay in your home for a long time and are looking for a more stable monthly payment, this could be the right loan option for you. If interest rates decrease, you could even consider refinancing to get a lower rate.
Government-Insured Loans – FHA, VA, USDA
The U.S. government isn’t a mortgage lender, but it does play a key role in making homeownership accessible to more Americans. If a conventional loan isn't the right fit for your financial situation, a government-backed loan may be worth considering. These loans often offer more flexible qualification requirements and lower down payment options, helping more borrowers achieve homeownership. There are three types of government-backed loans - FHA, VA and USDA.
FHA Loans
Insured by the Federal Housing Administration (FHA), these loans can be offered at as low as a 3.5% down payment. FHA requires a Mortgage Insurance Premium (MIP) and Upfront Mortgage Insurance Premium (UFMIP) regardless of down payment, however, with 10% down, MIP is only required to be held for 11 years. This helps ensure lenders in the unfortunate event that you default on your loan. The ceiling for how much you can borrow is often lower with these loans.
VA Loans
Guaranteed by the U.S. Department of Veterans Affairs (VA), these loans are for eligible members of the U.S. military (active duty, veterans, National Guard and Reservists), as well as their surviving spouses. There’s no mortgage insurance or minimum down payment, but you may need to pay a funding fee at closing.
USDA Loans
Guaranteed by the U.S. Department of Agriculture (USDA), these loans are available to low-to-moderate income borrowers within certain income limits buying a home in rural, USDA-eligible areas. A major benefit to this type of loan is eligible borrowers can finance with 0% down. Guarantee fees do apply.
Government-insured loans are best for prospective bowers who'd like a lower down payment option and need more flexible credit/qualifying guidelines or who want to live in a certain qualifying area.
Pros:
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Much more flexible credit and down payment guidelines
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Helps borrowers who otherwise wouldn’t qualify for a conventional loan
Cons:
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Might require mortgage insurance or funding fee
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Can have higher closing costs and fees
Jumbo Loans – Bigger Mortgage, High-End Home
Jumbo mortgages are typically borrowed for larger, more expensive properties. A jumbo mortgage surpasses the Federal Housing Finance Agency's (FHFA) conforming loan limits, which are the maximum loan amounts eligible for purchase or guarantee by Fannie Mae and Freddie Mac. Because home values vary across the United States, the maximum limit depends heavily on where you live. The 2026 conforming loan limit is $832,750 or as high as $1,249,125 depending on the county in which you reside.
If you need a jumbo loan, you’ll have to prove that you can assume most of the risk and are a safe bet for your lender, since your jumbo loan won’t be insured by traditional policies. Your bank may require extensive documentation to prove you have enough savings in the bank and a steady income. You may need a credit score of 700+ to get the most competitive rates and a down payment of at least 10 to 20%.
Pros:
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Can finance a more expensive home
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Competitive interest rates
Cons:
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May require a higher credit score than standard loan programs
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Not available with every lender
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Depending on the loan amount, may require a larger down payment
Construction Loans - Finance The Building of a Residential Home
Are you building a new home and need financing for construction? A construction loan may be right for you. The money loaned is often advanced incrementally during the building phase of the home. While some construction loans can roll over into standard mortgages when building is complete, most of the time interest is only paid during the construction period and the loan will come due when the building phase is over.
Funding new build projects tends to be riskier than buying an existing home, so construction loans often carry higher interest rates and can be more difficult to get than regular home mortgages. Still there are many lenders who can help home builders obtain these types of loans.
The two most popular types of construction loans are one-time close and two-time close. A one-time loan converts into a permanent mortgage when the building is completed, and a two-time close loan only covers the construction period and will then be refinanced into permanent financing.
Pros:
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Loan is based on the project or future home value, not available equity
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Build your dream home
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Finance the cost of the lot and build
Cons:
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Loan amount set in advance
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Little flexibility on loan terms
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Higher interest rates than a secured loan
Specialized Loan Programs
At Atlantic Union Bank, we offer a variety of competitive loan options ranging from 0% down to jumbo loans up to $5 million.
- STAR (Steps Toward Achieving Results) Affordable Lending Program features 100% financing with no down payment for those who qualify and when paired with our Closing the Gap loan.
- Closing the Gap Loan is a second lien mortgage designed to help cover up to 3% in closing costs or down payment assistance.
- Attorney Loan is available to eligible practicing licensed attorneys with up to 100% financing and no mortgage insurance.
- Medical Professionals Loan is available to a wide range of medical professionals and offers up to 100% financing with no mortgage insurance.
- Stay at Home Renovation Loan is a second mortgage that provides the financing you need for your construction project.
Pros:
- Provides flexible credit, down payment and closing cost guidelines
- Enables borrowers with less-than-perfect credit or without substantial savings to qualify for a home loan
Cons:
- Can have higher closing costs
- May require to have a specific job
- May require to have certain income restrictions
Finding the right mortgage that works for you can seem like a daunting task, but it doesn’t have to be. Your lender will provide you with all the information to help you choose your mortgage type.
If you don’t already have a lender, we’re here to help. Atlantic Union Bank has a team of dedicated and knowledgeable Mortgage Loan Officers ready to help you find the right product for your needs. For information on mortgage options, visit AtlanticUnionBank.com/Mortgage or fill out a brief questionnaire to meet with one of our mortgage professionals.
Sources: Bankrate, Banzai, Investopedia