Mortgage Types Cheat Sheet
Conventional vs. Government-Backed Mortgages
| Feature | Conventional | Government-Backed (FHA/VA/USDA) |
|---|---|---|
| Backing | Private lenders (no government guarantee) | Insured or guaranteed by federal agency |
| Down Payment | 3%–20%+ | 0%–3.5% |
| Credit Score | 620+ (typically 680+ for best rates) | 500+ (FHA), no minimum (VA) |
| Mortgage Insurance | PMI if < 20% down (removable) | MIP (FHA, lifetime on most loans) or VA funding fee |
| Loan Limits | Conforming limits ($766,550 in 2024; higher in HCOL areas) | Varies by program |
| Best For | Borrowers with strong credit and savings | First-time buyers, veterans, rural buyers |
All Mortgage Types Compared
| Type | Rate Structure | Min Down | Key Feature | Best For |
|---|---|---|---|---|
| 30-Year Fixed | Fixed for 30 years | 3%–20% | Predictable payments, most popular | Long-term homeowners |
| 15-Year Fixed | Fixed for 15 years | 3%–20% | Lower rate, faster payoff, higher payments | Buyers who can afford higher monthly payments |
| 5/1 ARM | Fixed 5 yrs, then adjusts annually | 5%–20% | Lower initial rate, rate risk after 5 years | Short-term owners, expect to move or refinance |
| 7/1 ARM | Fixed 7 yrs, then adjusts annually | 5%–20% | Longer fixed period than 5/1 | Medium-term owners |
| 10/1 ARM | Fixed 10 yrs, then adjusts annually | 5%–20% | Near-fixed stability with lower rate | Buyers unsure about timeline |
| FHA Loan | Fixed or ARM | 3.5% | Low credit score OK, MIP required | First-time buyers, lower credit scores |
| VA Loan | Fixed or ARM | 0% | No down payment, no PMI, competitive rates | Veterans and active military |
| USDA Loan | Fixed | 0% | Rural and suburban areas only | Moderate-income rural buyers |
| Jumbo Loan | Fixed or ARM | 10%–20% | Exceeds conforming limits | High-value properties |
| Interest-Only | Fixed or ARM | 20%+ | Pay only interest for 5–10 years | Investors, high-income borrowers |
Fixed-Rate vs. Adjustable-Rate (ARM) Deep Dive
| Feature | Fixed-Rate | Adjustable-Rate (ARM) |
|---|---|---|
| Monthly Payment | Never changes | Changes after initial fixed period |
| Initial Rate | Higher | Lower (typically 0.5%–1.5% less) |
| Interest Rate Risk | None — locked in | Significant after adjustment period |
| Rate Caps | N/A | Initial, periodic, and lifetime caps |
| Best When Rates Are… | Low (lock in forever) | High (expect rates to fall) |
| Typical Savings | Peace of mind | $200–$400/mo initially on $500K loan |
FHA Loan Details
FHA loans are insured by the Federal Housing Administration and designed for borrowers who can’t qualify for conventional financing. The minimum credit score is 580 for a 3.5% down payment (500–579 requires 10% down). FHA loans require mortgage insurance premium (MIP): 1.75% upfront plus 0.55%–0.85% annual premium. On most FHA loans originated after 2013, MIP lasts the life of the loan unless you refinance to conventional.
VA Loan Details
VA loans are guaranteed by the Department of Veterans Affairs and are available to eligible veterans, active-duty service members, and surviving spouses. Key benefits include zero down payment, no private mortgage insurance, competitive interest rates, and limited closing costs. The VA funding fee (1.25%–3.3% depending on down payment and usage) can be rolled into the loan. VA loans have no official maximum, though lenders may impose their own limits.
Mortgage Payment Formula
Where: P = principal, r = monthly rate, n = total payments
For a quick estimate, use the PMT function in Excel: =PMT(annual_rate/12, years*12, -loan_amount).
Key Takeaways
- 30-year fixed is the most popular mortgage type — predictable payments at the cost of a higher rate.
- ARMs save money upfront but carry interest rate risk after the fixed period ends.
- FHA loans allow down payments as low as 3.5% but come with lifetime mortgage insurance.
- VA loans offer the best terms available (0% down, no PMI) for eligible veterans.
- Jumbo loans exceed conforming limits and typically require stronger credit and larger down payments.
FAQ
What is the difference between a fixed-rate and adjustable-rate mortgage?
A fixed-rate mortgage has the same interest rate for the entire loan term (usually 15 or 30 years). An adjustable-rate mortgage (ARM) has a lower initial rate for a fixed period (e.g., 5 years), then adjusts periodically based on a benchmark index plus a margin.
What credit score do I need for a mortgage?
Conventional loans typically require 620+, with the best rates at 740+. FHA loans accept scores as low as 500 (with 10% down) or 580 (with 3.5% down). VA loans have no official minimum, but most lenders want 620+.
Should I choose a 15-year or 30-year mortgage?
A 15-year mortgage has a lower rate and saves significant interest, but monthly payments are ~50% higher. Choose 15-year if you can comfortably afford the higher payments. Choose 30-year for flexibility — you can always pay extra toward principal.
What is PMI and how do I avoid it?
Private Mortgage Insurance (PMI) is required on conventional loans with less than 20% down. It costs 0.5%–1.5% of the loan annually. You can avoid it by putting 20% down, using a piggyback loan (80/10/10), or choosing a VA loan (no PMI). PMI is removable once you reach 20% equity.
What is a jumbo loan?
A jumbo loan exceeds the conforming loan limit ($766,550 in most areas for 2024, higher in high-cost areas). Because they can’t be sold to Fannie Mae or Freddie Mac, jumbo loans typically require higher credit scores (700+), larger down payments (10–20%), and carry slightly higher rates.