Understanding your mortgage options
Choosing the right home loan can save you tens of thousands of dollars over the life of your mortgage. Here's a straightforward comparison of the most common loan types available to homebuyers in 2026.
Loan type comparison
| Loan type | Down payment | Best for | Key features |
|---|---|---|---|
| Conventional fixed-rate | 3–20% | Buyers with good credit (680+) and steady income | Predictable payments for 15 or 30 years |
| Adjustable-rate (ARM) | 3–20% | Buyers planning to move or refinance within 5–7 years | Lower initial rate; adjusts after fixed period |
| FHA loan | 3.5% | First-time buyers or those with credit scores 580+ | Lower credit requirements; mortgage insurance required |
| VA loan | 0% | Veterans, active military, and eligible spouses | No down payment, no PMI, competitive rates |
| USDA loan | 0% | Buyers in eligible rural areas | No down payment; income limits apply |
| Jumbo loan | 10–20% | Buyers purchasing above conforming loan limits ($766,550 in most areas) | Higher rates; stricter qualification |
Fixed-rate vs. adjustable-rate: How to decide
- Choose fixed-rate if: You plan to stay in the home 7+ years, prefer payment stability, or expect rates to rise.
- Choose ARM if: You're confident you'll move or refinance before the adjustment period, or current fixed rates are significantly higher than ARM rates.
How to get the best rate
- Improve your credit score: Even 20 points can move you into a better rate tier.
- Save for a larger down payment: 20% down eliminates PMI and often gets you a better rate.
- Shop multiple lenders: Rates can vary 0.25–0.75% between lenders for the same borrower.
- Consider buying points: Paying upfront "points" (1 point = 1% of loan amount) can reduce your rate by 0.25%.
- Lock your rate: Once you find a good rate, lock it for 30–60 days to protect against increases during closing.
Common costs beyond the mortgage
- Closing costs: 2–5% of the loan amount
- Property taxes: Varies widely by location
- Homeowner's insurance: $1,200–$3,000/year for most homes
- PMI (if under 20% down): 0.3–1.5% of the loan amount annually
FAQ
How much home can I afford?
A common guideline is that your monthly housing costs (mortgage, taxes, insurance) shouldn't exceed 28–32% of your gross monthly income. Use a mortgage calculator to test scenarios.
Should I get pre-approved or pre-qualified?
Pre-approval is much stronger — it involves a credit check and income verification. Pre-qualification is just an informal estimate. Sellers prefer offers backed by pre-approval letters.