Buying a home is one of the biggest financial decisions most people ever make, and choosing the right type of home loan can make a huge difference in your long-term financial health. With so many mortgage options available, it’s easy to feel overwhelmed. Fixed-rate, adjustable-rate, FHA, VA, jumbo loans—how do you know what’s right for you?
This guide breaks down the most common types of home loans and who they’re best suited for, so you can confidently choose the mortgage that fits your needs.
Fixed-Rate Mortgage
A fixed-rate mortgage is the most popular and straightforward type of home loan. As the name suggests, the interest rate stays the same throughout the life of the loan, which typically lasts 15, 20, or 30 years.
It is best for homebuyers who plan to stay in their home for many years and want predictable monthly payments. If you value stability and don’t want to worry about changing interest rates, a fixed-rate mortgage is likely your best bet.
HELOC (Home Equity Line of Credit)
While not used to buy a home, a HELOC allows homeowners to borrow against the equity they’ve built up in their property. It works like a credit line, which gives you flexible access to funds over a draw period that is then followed by a repayment period.
This type of loan best suits homeowners who need funds for large expenses like home renovations, education costs, or debt consolidation, as mentioned by Amerisave. A HELOC offers flexibility but requires discipline, as the variable interest rates can lead to fluctuating payments.
Adjustable-Rate Mortgage (ARM)
An adjustable-rate mortgage starts off with a lower interest rate than a fixed-rate loan. However, that rate adjusts periodically based on market conditions after an initial fixed term that can range from 5 to 10 years.
Buyers who plan to sell or refinance before the rate adjusts can benefit a lot from this loan. ARMs can offer considerable savings early on, but they carry the risk of higher payments later. This option is best suited for financially flexible buyers or those who don’t expect to live in the home long-term.
FHA Loan
FHA loans are backed by the Federal Housing Administration. These loans help first-time homebuyers or those with lower credit scores and modest savings. FHA loans allow for lower down payments (as low as 3.5%) and more flexible qualification requirements.
Due to this reason, these loans are best for buyers with limited savings or less-than-perfect credit. FHA loans can make homeownership accessible when conventional loans may not be an option.
VA Loan
VA loans are backed by the U.S. Department of Veterans Affairs and are available to eligible veterans, active-duty service members, and some military spouses. They typically require no down payment, no private mortgage insurance (PMI), and offer competitive interest rates.
As the name implies, these loans are best for qualifying military personnel who want to buy a home with favorable terms and little or no upfront costs. VA loans are among the most cost-effective options available for those who qualify.