Six lenders will give you six different answers about what type of mortgage you should get, and each one will sound equally certain. That’s not because the loan officers are lying. It’s because they earn different amounts on different products, and because most buyers walk in without enough detail for anyone to give a useful answer.
The question behind the question is this: which mortgage fits this property, this down payment, and this timeline? Four variables do most of the work. Once you answer them, a list of fifteen loan options usually drops to two or three.
Start with what the property is for
Lenders price loans by risk, and nothing changes the risk profile faster than the purpose of the property. Get this wrong and the rest of the decision is built on sand.
Primary residence
You get the widest menu and the best pricing here. FHA, VA, USDA, conventional and jumbo are all on the table, and interest rates sit at the bottom of the range. If you’re going to live in the home for at least a year, say so clearly, because it unlocks programs that investors can’t touch.
Second home or vacation property
Expect roughly 0.375% to 0.75% above primary-residence pricing, with most lenders wanting 10% down and a couple of months of reserves. The catches are usually about the property itself. A condo building with a high investor-owner ratio can fail second-home guidelines even if your finances are spotless. If this is your situation, it’s worth reading up on the mortgage types that actually work for vacation homes before you fall in love with a specific unit.
Rental property
Investment loans run 0.5% to 0.875% higher than owner-occupied rates, typically require 15% to 25% down, and often want six months of property-tax-and-insurance reserves in the bank. Rental income is usually counted at 75% of the gross rent, which surprises people who assumed 100%. Structure matters more than rate here, so it’s worth understanding how to set up a rental mortgage before making an offer.
Fixed or adjustable? Answer with a date, not a feeling
Fixed-rate mortgages
A 30-year fixed is the default for good reason: the payment never changes, and you can prepay without penalty. The trade-off is that you pay a premium for that certainty, often half a percentage point or more versus a short-term adjustable. A 15-year fixed cuts the rate further and kills the balance in half the time, but the payment jumps hard. On a $400,000 loan, a 30-year at 7% runs about $2,661 a month; a 15-year at 6.5% runs about $3,484. That extra $823 buys a lot of interest savings, but only if your budget genuinely absorbs it. There’s a step-by-step approach to choosing a fixed-rate mortgage with real numbers if you want to run that comparison properly.
Adjustable-rate mortgages
ARMs start cheaper, commonly 0.5% to 1% below the 30-year fixed, and they make sense when you have a concrete exit date. A 5/1 ARM fixes the rate for five years, then adjusts annually. Typical caps are 2/2/5, meaning the first adjustment can’t exceed two points, later ones can’t exceed two points each, and the lifetime ceiling is five points above the start rate. A 6.25% ARM with those caps can theoretically reach 8.25% at year six and 11.25% at worst. If you’re moving in four years, that’s irrelevant. If you’re not sure, take the fixed.
Government-backed or conventional?
This is where credit score does the deciding.
- FHA loans allow 3.5% down with a 580 score. They carry an upfront mortgage insurance premium of 1.75% of the loan plus annual MIP around 0.55%. MIP stays for the life of the loan if you put less than 10% down, which is the detail most people miss.
- VA loans offer 0% down and no monthly mortgage insurance, funded by a one-time fee of 2.15% for first use (3.3% if you put nothing down on a later use). This is the strongest loan product available to anyone who qualifies.
- USDA loans also allow 0% down, but only in eligible rural areas and under household income limits, generally 115% of the area median.
- Conventional loans start at 3% down, work with scores from 620, and the private mortgage insurance drops off automatically at 78% loan-to-value. That single feature can save $150 to $250 a month after a few years of appreciation.
If cash is the constraint, it’s worth comparing low down payment mortgage options side by side rather than defaulting to FHA, which is often the more expensive choice for anyone with a 700+ score.
When you need a jumbo loan
For 2025, the conforming loan limit is $806,500 in most of the country, rising to $1,209,750 in high-cost counties. Cross that line and you’re in jumbo territory: stricter credit standards, bigger reserve requirements, and often two appraisals on higher balances. Jumbo rates aren’t automatically worse than conforming these days, which surprises buyers who assume otherwise. If your loan amount is anywhere near the threshold, it’s worth walking through the jumbo approval process step by step before you assume you’ll be pushed into it.
Ask these questions before you pick
Every lender quotes a rate. Far fewer volunteer the details that change what you actually pay.
- What is the APR, not just the note rate?
- Does this rate assume discount points, and how many? What’s the rate without them?
- Give me the full Loan Estimate with itemized closing costs on page two.
- Is there a prepayment penalty, particularly on an investment loan?
- Is the mortgage insurance lender-paid or borrower-paid, and what triggers removal?
- If I pay the loan off in three years, what did this loan actually cost me?
Run two options with your own numbers
Take a $350,000 purchase with 5% down and a 640 credit score. FHA will approve you at 6.5% with MIP baked in. A conventional loan will also approve you, but the credit-score adjustment adds roughly 1.5 points to the pricing, and private mortgage insurance at that score costs more per month than FHA’s MIP. On paper FHA looks cheaper in year one. By year five, after appreciation pushes your balance under 80% of the home’s value, the conventional loan’s insurance disappears while the FHA borrower is still paying it. If you plan to stay, conventional usually wins by thousands of dollars. If you plan to sell in three years, FHA’s lower entry cost wins.
That’s the shape of nearly every mortgage decision: it isn’t about which loan is objectively best, it’s about which cost structure matches how long you’ll hold the property and how much certainty you need. Build the comparison in a spreadsheet with total cost over your expected holding period, not just the monthly payment. Then get two Loan Estimates on the same day, because rates move and a quote from Tuesday isn’t comparable to one from Friday.