A $400,000 house does not cost $400,000. Put 10% down, finance the rest, and your monthly principal-and-interest payment can land anywhere from roughly $2,275 to $3,200 depending on which loan product you choose. Same property, same buyer, same afternoon at the kitchen table. Over 30 years, the difference runs into six figures.
Mortgage loan types are not interchangeable packaging for the same deal. They carry different down payment requirements, different credit score floors, different insurance costs, and very different risk if your life changes. Here is how the main categories work, what they cost in real dollars, and who tends to fit each one.
Fixed-Rate Mortgages: The Baseline
A fixed-rate mortgage locks your interest rate for the life of the loan. Your principal and interest payment never moves. Taxes and insurance can change, but the mortgage itself does not.
The 30-year fixed is the default choice in America for a reason: the payment is low and predictable. On a $360,000 loan at 6.5%, you are looking at about $2,276 a month and roughly $459,000 in interest over the full term.
The 15-year fixed charges a lower rate, often half a point to three-quarters of a point less, because the lender takes on less risk. That same $360,000 at 5.9% runs about $3,019 a month, but total interest drops to roughly $183,000. You save around $276,000 and own the house 15 years sooner. The catch is the $743 monthly difference, and it has to come out of cash flow you actually have.
Adjustable-Rate Mortgages: Cheap Now, Unknown Later
An ARM starts with a fixed period, then adjusts on a schedule. A 5/1 ARM holds steady for five years and resets every 12 months after that. A 7/6 ARM holds for seven years, then adjusts every six months.
That first-period rate is usually well below the 30-year fixed. On a $360,000 loan, an ARM at 5.9% versus a fixed at 6.5% saves about $140 a month, or $8,400 across a five-year window.
The risk lives in the caps. A typical 2/2/6 structure means the rate can jump 2 percentage points at the first adjustment, another 2 at each later one, and no more than 6 points above the start over the life of the loan. Begin at 5.9% and your worst case is 11.9%. On $360,000, that is a payment north of $3,600.
ARMs suit borrowers who are near-certain to sell, refinance, or pay the loan off inside the fixed window. They are a poor fit for anyone stretching to afford today’s payment. A side-by-side look at what each mortgage type really costs you over its full life is where the comparison gets uncomfortable.
Government-Backed Loans: FHA, VA, and USDA
Three federal programs insure or guarantee loans so lenders can accept lower down payments and weaker credit.
FHA Loans
Down payments start at 3.5% with a credit score of 580 or better, or 10% down below that. The trade-off is mortgage insurance: an upfront premium of 1.75% of the loan amount, plus an annual premium around 0.55% of the balance. On a $360,000 loan, that annual piece alone is roughly $165 a month, and for most borrowers it lasts the life of the loan unless you refinance out. A real scenario from offer to closing makes the math clearer: how to get an FHA mortgage, step by step.
VA Loans
For eligible service members, veterans, and surviving spouses. Zero down, no monthly mortgage insurance, and rates that often run a quarter point below conventional. There is a one-time funding fee, typically 1.25% to 3.3% of the loan depending on your down payment and whether it is your first use of the benefit. For anyone who qualifies, it is the strongest product on the market.
USDA Loans
Zero down for properties in eligible rural areas, with household income limits that vary by county. A guarantee fee applies, cheaper than FHA insurance. Plenty of suburbs sit inside USDA-eligible boundaries, so check the map before assuming you are excluded.
Conventional Loans: Conforming and Jumbo
Conventional loans are not backed by a federal agency, but they follow Fannie Mae and Freddie Mac guidelines, which is why the conforming loan limit matters. For 2026, that limit is $832,750 for a single-family home in most of the country, higher in expensive counties.
Put less than 20% down and you pay private mortgage insurance, usually 0.3% to 1.5% of the loan annually. Unlike FHA insurance, PMI drops off automatically once you reach 20% equity. Your payment falls and your effective cost drops with it.
Go above the conforming limit and you are in jumbo territory: bigger loans, tighter underwriting, larger cash reserves required, and sometimes a second appraisal. Rates are not always higher, which surprises people. The approval playbook looks different from a standard loan, so it helps to see how to get a jumbo mortgage with the reserve and documentation requirements spelled out.
Specialty Structures Worth Knowing About
Not every loan fits the four main buckets. A few others show up regularly.
- Interest-only loans: You pay interest for a set period, often 5 to 10 years, with no principal reduction. Payments are low, you build zero equity, and the payment jumps hard when the period ends.
- Balloon mortgages: Small payments for 5 to 7 years, then the entire remaining balance comes due at once. Rare today, and dangerous if you cannot refinance or sell on schedule.
- Bridge loans: Short-term money that lets you buy before your current home sells. Higher rates, fast approval, usually repaid within a year.
Matching the Loan to Your Situation
The right answer depends less on the market and more on how long you will stay, how steady your income looks on paper, and how much cash you have.
- Low savings, decent credit: FHA, or a conventional loan paired with a down payment assistance program.
- Military service: VA, nearly every time.
- Strong credit, 20% down: Conventional, and skip the insurance entirely.
- Planning to move in 4 to 6 years: A 7/6 or 5/1 ARM can cut your rate meaningfully.
- Buying in a rural or semi-rural county: Check USDA eligibility first.
First-time buyers get hit hardest by fees they did not expect, from origination charges to title insurance and prepaid escrow. The real differences between mortgage types for first-time buyers come down to which costs you can avoid and which follow you for years. Self-employed borrowers face a different problem: proving income that your tax returns deliberately minimize. That shifts the recommendation more than most people expect, which is why the best mortgage for self-employed borrowers usually hinges on your last two filed returns rather than your bank deposits.
Comparing Offers Without Getting Fooled by the Rate
Two lenders can advertise the same 6.5% and cost you different amounts. The annual percentage rate includes fees, so it is a better headline number, though still imperfect.
Ask each lender for a Loan Estimate on the same day for the same loan amount. Then line up three figures: total closing costs, the monthly payment including escrow, and whether the quoted rate includes discount points. One point equals 1% of the loan amount, so on $360,000, buying the rate down by a quarter point might cost $3,600 up front. Divide that by the monthly savings and you get a break-even month. If you plan to move before then, the points are a losing bet.
Ask what happens to your payment at the first rate adjustment, at the PMI drop-off date, and at recast. Ask whether the escrow account holds a cushion and how much your payment rises if taxes do. Lenders who answer those questions quickly, and in writing, are usually the ones worth working with.