Different Types of Mortgage Loans You Should Know About

Buying a home is one of the most significant financial decisions you’ll ever make, and choosing the right mortgage loan can make all the difference. With so many options available, it’s easy to feel overwhelmed. Should you go with a fixed-rate mortgage or an adjustable one? Is a government-backed loan the best fit for your situation?

At Garman Builders, we know that understanding different types of mortgage loans is key to making a confident choice. Whether you’re a first-time homebuyer, looking to upgrade, downsize or considering a second mortgage, having the right loan can help you achieve your homeownership goals. Let’s break down the most common mortgage options so you can determine which one works best for you.

Conventional Loans

A conventional loan is a mortgage that the government doesn’t back. Because of this, lenders typically require higher credit scores and larger down payments. However, these loans often come with competitive interest rates and flexible terms making them a solid option for borrowers with strong financial histories.

Conventional loans are best for buyers with stable incomes and good credit who want lower monthly payments without mortgage insurance. If you can afford at least a 20% down payment, this type of loan allows you to skip private mortgage insurance (PMI), saving you even more in the long run.

Fixed-Rate Mortgages

If predictability is a top priority, a fixed-rate mortgage might be the best fit. With this loan, your interest rate stays the same for the entire term—typically 15, 20 or 30 years. That means your monthly principal and interest payments remain consistent, making budgeting easier.

Fixed-rate mortgages work well for buyers planning to stay in their home for many years. Even if market interest rates rise, your rate remains locked in, providing financial stability. However, if rates drop significantly, you should explore refinancing to lower your payments.

Adjustable-Rate Mortgages (ARMs)

Unlike fixed-rate mortgages, adjustable-rate mortgages (ARMs) start with a fixed interest rate for an initial period—often 5, 7 or 10 years—before adjusting periodically based on market rates. While ARMs usually offer lower initial interest rates, they come with the risk of future increases.

These loans are a good choice for buyers who plan to move or refinance before the fixed period ends. However, if you stay in the home longer than expected, your payments could rise significantly, so it’s essential to consider your long-term plans before choosing an ARM.

High-Balance Loans

If you’re buying a home in a high-cost area where property prices exceed conventional loan limits, a high-balance loan may be necessary. These loans have slightly stricter qualification requirements and often come with higher interest rates, but they allow buyers to secure financing without moving into the jumbo loan category.

High-balance loans are ideal for those purchasing in markets with elevated housing costs who still want to take advantage of conventional loan benefits.

Construction Loans

Building a home requires a unique financing solution. Construction loans are short-term loans designed to cover the cost of building a house from the ground up. Once construction is complete, these loans typically convert into a standard mortgage.

Since construction loans are riskier for lenders, they often require higher credit scores and detailed project plans. But if you’re building a custom home or purchasing a newly constructed home from a builder, this type of loan can provide the funding you need throughout the process.

Jumbo Mortgages

Jumbo loans are designed for home purchases that exceed the limits set by conventional lenders. Because these loans involve higher amounts, they come with stricter requirements, including higher credit score minimums, larger down payments and detailed income verification.

Jumbo mortgages are best for buyers purchasing luxury properties or homes in high-cost areas where standard loan limits aren’t sufficient. If you’re in the market for a high-value home, expect to provide extensive financial documentation to qualify.

FHA Loans

FHA loans, backed by the Federal Housing Administration, are an excellent option for buyers with lower credit scores or smaller down payments. These loans have more flexible requirements, making homeownership accessible to a broader range of buyers.

With down payment options as low as 3.5%, FHA loans are especially popular among first-time homebuyers. However, they do require mortgage insurance, which adds to the monthly cost. If your credit score needs improvement or saving for a sizeable down payment is challenging, an FHA loan might be the right fit.

VA Loans

For military service members, veterans and eligible spouses, VA loans offer a path to homeownership with incredible benefits. These government-backed loans require no down payment and don’t charge private mortgage insurance, making them one of the most affordable options available.

VA loans also have competitive interest rates and flexible credit requirements. If you’ve served in the military and meet eligibility criteria, this loan can help you buy a home with minimal upfront costs and long-term savings.

USDA Loans

A USDA loan might be a great option if you’re considering buying in a rural or suburban area. These government-backed loans offer zero down payment and reduced mortgage insurance costs, making homeownership more affordable.

USDA loans are designed for low-to-moderate-income borrowers in eligible areas. If you’re open to living outside major metropolitan regions, this loan can provide an affordable way to purchase a home with little to no upfront costs.

Second Mortgages: Home Equity Loans & HELOCs

Homeowners looking to tap into their home’s equity for extra funds have two main options: home equity loans and home equity lines of credit (HELOCs).

• Home equity loans provide a lump sum with a fixed interest rate, making them ideal for large expenses like renovations or debt consolidation.
• HELOCs function like a credit card, offering a revolving line of credit with a variable interest rate. These are useful for ongoing expenses like tuition or home improvement projects.

Both options allow you to borrow against your home’s value, but it’s important to borrow responsibly to avoid financial strain.

Reverse Mortgages

A reverse mortgage is a way for homeowners 62 and older to convert home equity into cash. Instead of making monthly payments, the loan balance grows over time and is repaid when the homeowner sells the property or moves out permanently.

While this can provide financial relief for retirees, reverse mortgages come with risks. Since the loan balance increases, heirs may inherit less equity. If you’re considering this option, it’s essential to understand the long-term implications fully.

Making the Right Choice

With so many different types of mortgage loans available, finding the right one that aligns with your financial goals is crucial. Whether you’re buying your first home, refinancing or looking for a specialized loan, understanding your options can help you make the best decision.

At Garman Builders, we believe in helping homebuyers navigate every step of the process—from selecting a mortgage to moving into a beautifully crafted home. If you’re ready to explore your options and take the next step toward homeownership, our team is here to guide you. Let’s build something great together.