Almost every home loan in the United States belongs to one of six families, conventional, FHA, VA, USDA, jumbo and specialty financing, and the right one for you usually comes down to three numbers: your credit score, your down payment and how long you plan to keep the house. Conventional loans start at 3% down with a 620 credit score. FHA loans start at 3.5% down with a 580 score. VA and USDA loans allow 0% down for borrowers who qualify.

Picking the wrong program isn’t fatal, you can refinance later, but it can cost you thousands in mortgage insurance you never needed, or a monthly payment you can’t comfortably hold. Learn how each type of mortgage loan works, including down payment minimums, credit thresholds, mortgage insurance rules and loan limits, so you can match a program to your actual file instead of the one a single bank happens to sell.

Key takeaways:

• You do not need 20% down: Conventional loans go as low as 3% down, FHA loans 3.5%, and VA and USDA loans 0% for eligible borrowers.
• Your credit score sets the menu: Most conventional loans look for a 620 score or higher, while FHA reaches down to 580 with 3.5% down and 500 with 10% down.
• The program you qualify for isn’t always the one you should take: Compare total cost, down payment, mortgage insurance and rate, across at least two programs before you commit, which is exactly the comparison an independent broker runs for you.

What are the main types of mortgage loans?

A mortgage type is the loan program that sets your down payment minimum, credit requirements, mortgage insurance rules and maximum loan amount. Two questions sort nearly every program: who stands behind the loan, and how the interest rate behaves.

On the first question, loans are either conventional (not government-insured, usually written to Fannie Mae or Freddie Mac guidelines), government-backed (FHA, VA and USDA), or non-agency (jumbo, portfolio and non-QM loans that lenders keep or sell privately). On the second question, every one of those programs comes in a fixed-rate or adjustable-rate version, in terms that typically run 10, 15, 20 or 30 years.

Loan type	Minimum down payment	Typical minimum credit score	Mortgage insurance	Best for
Conventional	3%	620	PMI under 20% down; cancellable	Buyers with solid credit who want insurance that eventually goes away
FHA	3.5%	580 (500 with 10% down)	Upfront premium plus annual MIP, usually for the life of the loan	Thinner credit files, past credit events, higher debt ratios
VA	0%	Set by the lender, commonly 580 – 620	None; a one-time funding fee instead	Eligible veterans, service members and surviving spouses
USDA	0%	Commonly 640	Upfront and annual guarantee fees	Buyers in eligible rural and small-town areas within income limits
Jumbo	Often 10% – 20%	Commonly 700+	None	Loan amounts above the county conforming limit
Non-QM / portfolio	Often 10% – 20%	Varies by lender	Varies by lender	Self-employed, investor and recent-credit-event borrowers

Because Align Lending is a broker rather than a direct lender, all six families are on the table in one conversation. Including USDA and non-QM programs that many retail banks don’t offer at all. Here’s how each one actually works.

What is a conventional loan, and who is it best for?

Conventional loans are the most common mortgage type in the country, and qualified first-time buyers can put as little as 3% down with a credit score of 620 or higher. A conventional loan isn’t insured by a government agency; most are underwritten to Fannie Mae or Freddie Mac guidelines and must stay within the annual conforming loan limit, which the Federal Housing Finance Agency resets every year, it sits at $832,750 for a one-unit home in most counties for 2026, with higher ceilings in designated high-cost counties.

• Down payment: 3% is the floor for eligible buyers through the Conventional 97 loan, and income-based programs like HomeReady mortgages and Freddie Mac’s Home Possible pair that 3% with reduced mortgage insurance for households at or below 80% of area median income.
• Mortgage insurance: Private mortgage insurance (PMI) is required below 20% down, but it is cancellable. You can request removal at 80% loan-to-value and it terminates automatically at 78%. That single feature is the strongest argument for conventional over FHA when your credit supports it.
• Credit and debt ratios: Most lenders want a 620 score and a debt-to-income (DTI) ratio under roughly 45%, though automated underwriting will stretch that for borrowers with reserves or strong income stability. Agency guidelines change more often than buyers expect, so verify current rules before assuming last year’s answer still applies.

If your credit is thinner or your debt ratio is high, the government-backed side of the menu usually prices better.

How do FHA loans work?

FHA loans let you buy with 3.5% down at a 580 credit score, or 10% down with a score between 500 and 579, the widest credit door of any mainstream program. They’re insured by the Federal Housing Administration, part of the U.S. Department of Housing and Urban Development, which is why lenders can approve files that conventional underwriting would decline.

The tradeoff is insurance. FHA charges an upfront mortgage insurance premium financed into the loan, plus an annual MIP collected monthly. On most FHA loans with less than 10% down, that annual MIP stays for the life of the loan. It does not fall off at 20% equity the way PMI does. Refinancing out of FHA once your credit and equity improve is a normal, planned exit, not a failure.

• Loan limits: FHA loan limits are set by county and reset annually alongside the conforming limit. For 2026 the single-family floor is $541,288 in most counties, with a high-cost ceiling of $1,249,125, meaningfully lower than the conventional conforming limit in standard-cost areas.
• Renovation option: An FHA 203(k) renovation loan rolls the purchase price and the repair budget into one mortgage underwritten on the home’s after-improved value, useful on the dated housing stock common across older Michigan neighborhoods.
• Appraisal standards: FHA appraisers check safety and habitability in addition to value, so peeling paint, missing handrails and non-working systems can stall a file. Our FHA loan tips cover what to fix before the appraiser arrives, and what HUD has changed recently.

Align Lending is not acting on behalf of or at the direction of FHA or HUD.

Who qualifies for a VA loan?

Eligible veterans, active-duty service members, National Guard and Reserve members, and many surviving spouses can buy with 0% down and pay no monthly mortgage insurance, the strongest financing terms available in American mortgage lending. Eligibility starts with a Certificate of Eligibility (COE) from the U.S. Department of Veterans Affairs, and borrowers with full entitlement have no VA loan limit at all; the lender’s qualifying math sets the ceiling instead.

Instead of monthly insurance, VA loans charge a one-time funding fee that can be financed into the loan and is waived entirely for veterans receiving compensation for a service-connected disability. The home must also meet the VA’s Minimum Property Requirements, which are closer to FHA’s safety standards than to a conventional appraisal.

• Service requirements: Eligibility depends on service dates, length of service and discharge character, start with how to qualify for a VA loan to see where your record lands.
• The benefit is reusable: Entitlement can be restored and used more than once, which surprises most eligible borrowers. The full list of VA loan benefits includes limits on which closing costs you can be charged.
• Purchase process: The steps differ from a conventional file in small but important ways; our guide to buying a home with a VA loan walks the sequence from COE to closing, including VA construction financing for new builds.

Align Lending works with VA-approved lenders and is not endorsed or sponsored by the Department of Veterans Affairs or any government agency.

What are USDA loans and down payment assistance programs?

USDA loans allow 0% down in eligible rural and small-town areas for households whose income falls within the program’s limits, generally 115% of the area median income for the county. They’re guaranteed by the USDA Rural Development program, and the eligible map covers far more territory than the word “rural” suggests, including plenty of communities on the outer edge of metro areas.

Like FHA, USDA loans carry an upfront guarantee fee plus a smaller annual fee collected monthly. Most lenders look for a 640 credit score to run automated underwriting, and the property itself must sit inside an eligible census area. A map check that takes about a minute and should happen before you write an offer.

Down payment assistance is the other half of this hub. Every state runs a housing finance agency offering below-market first mortgages paired with grants or deferred-payment second loans that cost nothing monthly and are repaid only when you sell, refinance or pay off the home.

• Program mechanics: USDA loan basics covers income limits, property eligibility and the guarantee-fee math in detail.
• Program changes: Income caps and eligible maps are revised periodically, see the recent changes to USDA loan programs before relying on an older eligibility answer.
• Assistance stacking: State-specific mortgage assistance programs can often be layered on top of an FHA, conventional or USDA first mortgage, which is how many buyers get to the closing table with almost nothing out of pocket.

Full detail on all three lives in our USDA and assistance programs hub.

When do you need a jumbo or non-QM loan?

You need a jumbo loan when your loan amount exceeds your county’s conforming limit, $832,750 for a one-unit home in most counties in 2026, and you need a non-QM loan when your income or credit story doesn’t fit agency underwriting, regardless of loan size. The two often get lumped together because both live outside Fannie and Freddie, but they solve different problems.

Jumbo files are usually about size and reserves. Expect a 700-plus credit score, 10% – 20% down, tighter debt ratios and several months of verified reserves after closing. Jumbo and non-QM lending is also the corner of the market where lender-to-lender pricing differences are widest, because there’s no agency setting a common floor.

• Jumbo qualification: Reserve requirements and appraisal rules are the two places jumbo files stall, how to qualify for a jumbo loan lays out what underwriters actually check.
• Self-employed income: Bank statement programs qualify borrowers on 12 – 24 months of business or personal deposits instead of tax returns. Non-QM loans for self-employed borrowers explains how the income calculation works and what it costs in rate.
• Portfolio lending: A portfolio loan is one the lender keeps on its own books rather than selling, which is what allows genuinely custom guidelines, and why brokers can find approvals that a single bank cannot.

Fixed-rate vs. adjustable-rate: which structure fits you?

A fixed-rate mortgage locks your principal-and-interest payment for the entire term; an adjustable-rate mortgage (ARM) fixes it for an introductory period, commonly 5, 7 or 10 years, then resets on a schedule tied to an index. The 30-year fixed is the default in the U.S. because it converts an unpredictable expense into a known one, and that certainty is worth real money to most households.

ARMs make sense in a narrower set of cases: you expect to sell or refinance before the first adjustment, the intro rate is meaningfully below the fixed alternative, and you could absorb the payment if your plans changed. Modern ARMs carry caps, an initial adjustment cap, a periodic cap and a lifetime ceiling, so the worst case is bounded, but it is still a worst case worth pricing out before you sign. Current market rates for both structures move weekly; Freddie Mac’s Primary Mortgage Market Survey is the standard public benchmark.

• Stability, priced honestly: The benefits and drawbacks of fixed-rate mortgages include the one nobody mentions. You pay for certainty you may not need if you’re moving in four years.
• The ARM tradeoff: Weigh the pros and cons of adjustable-rate mortgages against your actual timeline, not an optimistic one.
• What happens at reset: Understanding how ARM resets work, index, margin and caps, is the difference between a manageable adjustment and a surprise.
• Term length matters too: Beyond the 30-year, fixed-rate loans come in 10-, 15- and 20-year terms that typically price below the 30-year and build equity substantially faster.

Every program above is available in both structures, so compare them inside the fixed and adjustable-rate structures hub before you settle on a term.

What is specialty financing?

Specialty financing covers the loans built for situations the six main programs don’t address: buying a house that needs work, building from scratch, taking over a seller’s existing mortgage, or converting home equity into retirement income. These programs are where broker access earns its keep, because most are offered by a handful of wholesale lenders rather than by every bank on the corner.

• Renovation loans: A renovation loan finances the purchase and the repairs in a single mortgage underwritten on the home’s after-improved value, instead of forcing you to find cash for the rehab separately.
• Construction financing: Construction-to-permanent loans fund the build and convert to a standard mortgage at completion with one closing and one set of costs.
• Assumable mortgages: FHA, VA and USDA loans are generally assumable; conventional loans generally are not. Taking over an assumable mortgage can be worth serious money when the seller’s existing rate sits well below the current market.
• Reverse mortgages: Reverse mortgages let homeowners aged 62 and older convert equity to cash or income without a monthly mortgage payment, with the balance repaid when the home is sold or the last borrower leaves.
• Profession-specific programs: Physician and dentist mortgages allow low or zero down payment while treating student loan debt more favorably than standard underwriting does.

The full catalog sits in our specialty financing hub.

How to choose the right mortgage type

Work the decision in this order: qualify first, then compare total cost, then match the structure to your timeline. Most buyers do it backwards, they pick a program from a headline rate and discover the mortgage insurance math too late.

1. Start with your credit score and available cash

Your score and down payment eliminate most of the menu before preference enters the picture. Below 620, FHA is usually the realistic path. At 620 – 680 with 3% – 5% down, conventional and FHA both work and the comparison is genuinely close. Above 700 with 5% or more down, conventional almost always wins on total cost. Our guide to low-down-payment mortgages compares the sub-5% options directly.

2. Compare mortgage insurance, not just the rate

Say you’re buying a $300,000 home in Waterford with a 640 score. FHA at 3.5% down needs $10,500 and adds an upfront premium financed into the loan, with annual MIP that won’t cancel. Conventional at 3% down needs $9,000, and PMI at a 640 score prices higher than it would at 740, but it disappears at 78% loan-to-value. Which loan is cheaper depends entirely on how long you keep it, which is a question only you can answer.

3. Match the term and rate structure to your timeline

If you’ll be in the home more than seven years, fixed-rate is the safer default. If you know you’re moving inside five, price the ARM. See fixed vs. adjustable-rate mortgages for the head-to-head.

4. Compare at least two programs on the same day

Rates and program pricing move daily, so quotes gathered a week apart aren’t comparable. Get competing Loan Estimates on the same day and read the total five-year cost, not the headline rate. Our guide to choosing the right mortgage type and our overview of government-backed loans both walk the comparison framework, and every head-to-head matchup lives in the loan comparisons hub.

Honest note: sometimes the answer is to wait. If raising your score 30 points moves you from FHA to conventional, three months of disciplined credit work can be worth more than any rate shopping you’ll do.

What Michigan buyers should know

Michigan buyers have one advantage that changes the loan-type math: the state’s housing finance agency pairs down payment assistance with conventional, FHA, VA and USDA first mortgages.

• MSHDA down payment assistance: The Michigan State Housing Development Authority offers up to $10,000 through its MI 10K DPA program, structured as a deferred second loan with no monthly payment, repaid when you sell, refinance or pay off the first mortgage.
• Income and price limits apply: MSHDA sets county-level household income limits and sales price caps, and requires a homebuyer education course before closing. Those limits change, so verify them for your county before you write an offer.
• USDA territory is wider than most Michigan buyers assume: Much of the state outside Metro Detroit, Grand Rapids and Ann Arbor sits in USDA-eligible census areas, which puts 0%-down financing in reach for buyers who never considered it.
• Older housing stock favors renovation programs: Across much of Southeast Michigan, the affordable inventory is 60 – 90 years old, which is why FHA 203(k) and conventional renovation loans get used here more than the national average would suggest.

FAQ: Types of mortgage loans

Here are answers to common questions about types of mortgage loans.

What is the most common type of mortgage?

The 30-year fixed-rate conventional loan is the most common mortgage in the United States. It keeps the principal-and-interest payment identical for 30 years, which makes budgeting predictable, and it accepts as little as 3% down for qualified buyers. Shorter terms cost less in total interest but require a larger monthly payment, see our 15-year vs. 30-year mortgage comparison for the tradeoff in detail.

Which mortgage type has the lowest down payment?

VA and USDA loans both allow 0% down for borrowers who meet their eligibility rules, military service for VA, and location plus income limits for USDA. Among programs open to everyone, conventional loans go to 3% down and FHA loans to 3.5%. If you’re eligible for VA, it is almost always the cheapest path; our VA loan tips cover how to use your entitlement well.

Which loan type is best for a self-employed borrower?

It depends on how your tax returns look. If your net income after deductions still supports the payment, a standard conventional or FHA loan is usually cheapest. If deductions shrink your qualifying income, a bank statement program that qualifies you on 12 – 24 months of deposits may be the only workable path. Compare both in our guide to mortgage options for self-employed borrowers.

Can I use any loan type to buy a condo?

No. Condos add a second layer of underwriting: the lender approves the building as well as the borrower. The project must generally be “warrantable”, financially stable HOA, acceptable owner-occupancy, limited commercial space and no significant litigation. Non-warrantable projects need portfolio financing at higher cost. Read condominium financing before you make an offer on a unit.

Are interest-only mortgages still available?

Yes, though they live in the non-QM and portfolio world rather than the agency market. Payments cover only interest for an initial period, then jump when principal repayment begins, so they suit borrowers with variable income or a clear exit plan, and punish everyone else. Our guide to interest-only mortgages covers who they actually fit.

Is a fixed-rate or an adjustable-rate mortgage better?

It depends on how long you’ll hold the loan. A fixed rate never changes, so it’s the safer choice for a long-term hold. An ARM starts lower and adjusts after the intro period, typically 5, 7, or 10 years, which can win if you’ll sell or refinance before the first adjustment. Compare the structures in fixed vs. adjustable-rate mortgages.

When do you need a jumbo loan?

When the loan amount exceeds the conforming loan limit for your county, which the Federal Housing Finance Agency resets every year. Above that line the loan can’t be sold to Fannie Mae or Freddie Mac, so pricing and guidelines come from the lender’s own investors, usually meaning higher reserves and a stronger credit profile. See how to qualify for a jumbo loan.

The bottom line on choosing a mortgage type

Nearly every home loan falls into one of six families, conventional, FHA, VA, USDA, jumbo and specialty, and your credit score, down payment and timeline narrow that list to two or three real options fast. Conventional starts at 3% down with a 620 score, FHA at 3.5% down with a 580 score, and VA and USDA at 0% down for eligible borrowers. The cheapest program on paper isn’t always the cheapest over the years you’ll actually hold the loan, so compare total cost, including mortgage insurance, before you commit.

If you’re ready to find the loan type that fits your file, talk to Align Lending, we’ll shop your scenario across our lender network and show you the numbers side by side. Call 248-506-5727 or start online today.

This article is for informational purposes only and is not intended to provide legal, financial, or tax advice. Consult a qualified professional about your situation. Program terms, credit score minimums, and down payment figures shown are illustrative, are not a rate quote or an offer of credit, and are subject to lender overlays and change. Align Lending works with FHA- and VA-approved lenders and is not acting on behalf of, endorsed by, or sponsored by FHA, HUD, the Department of Veterans Affairs, or USDA.