The pros and cons of different types of mortgage loans

Think about your perfect home. It might have a beautiful view from the back patio, or a room dedicated to your favorite collection. It’s probably near all your favorite places, and maybe even your job. Most of all, it’s likely filled with the people you love, all knowing they have a place they can call home.

But unless you plan on paying for your home entirely out of pocket, you’ll need to secure the right mortgage loan to bring your dream to life. Let’s go over some of the different types of mortgage loans, as well as their pros and cons, to help you determine which one fits you, your family and your journey!

Conventional loans

Conventional home loans are the most common type of mortgage, which is great if you like to shop around. Most lenders offer conventional loans, so you can easily compare interest rates knowing they will be the main differentiator among lenders.

They can also be good for homebuyers who have higher credit scores and enough savings for a down payment. Plus, they give you some flexibility when it comes to your terms. The two types of conventional loans are fixed-rate and adjustable-rate mortgages.

Fixed-rate

Fixed-rate mortgages are the more popular conventional loan. Just as you might have guessed, they lock in your interest rate and your monthly payment for the duration of your term. Here are some of the pros and cons:

Pros

• They are widely available to borrowers.
• They can require a down payment as low as 3%.
• Terms are usually consistent making it easier to compare rates from lender to lender.
• You will always know what your interest rate and monthly payment are.
• If you get a rate you like, you’ll keep it for the life of your loan.

Cons

• Conventional loans usually require a credit score of 620 or higher and a debt-to-income ratio (DTI) under 36%.
• If your down payment is less than 20% of the home’s value, private mortgage insurance (PMI) may be tacked on, which would increase your monthly payment.
• You’re locked into your rate, so you’ll have to refinance to change it.

Adjustable-rate

Adjustable-rate mortgages (ARMs) typically set a rate for what’s called the “introductory period.” Then, the rate changes at predetermined intervals. Before you sign on the dotted line, it’s important to know that introductory period and those intervals.

For example, at Desert Financial, we offer “5/6” and “7/6” ARMs. That means your introductory period is either five or seven years, then it can change every six months. You usually trade some level of future uncertainty for a lower rate in the introductory period.

Pros

• They are widely available to borrowers.
• They can require a down payment as low as 3%.
• Terms are usually consistent making it easier to compare rates from lender to lender.
• You may get a lower introductory rate, or your rate can drop during the life of your loan.

Cons

• Conventional loans usually require a credit score of 620 or higher and a debt-to-income ratio (DTI) under 36%.
• If your down payment is less than 20% of the home’s value, private mortgage insurance (PMI) may be tacked on, which would increase your monthly payment.
• After the introductory period, your rate is no longer in your hands. If rates go up, your payments may go up, and if rates go down, they may not fall as quickly as the market does.

Tip: Understanding the market could potentially be helpful when shopping around for a loan. For example, if you’re buying when rates are high, an ARM can bring your rate down at each adjustment interval.

Jumbo loans

Just like conventional loans, there are fixed- and adjustable-rate jumbo loans. The difference is in how much you borrow. While conventional loans top out somewhere between $806,500 and $1,209,750 depending on your location, jumbo loans can exceed those limits.

Of course, higher totals usually come with higher risk, which is why the bar for borrowing is usually higher. But this can be a good option if you’re buying a more expensive home or a home in a higher-cost area.

Pros

• Jumbo loans aren’t subject to the borrowing limits of conventional loans, meaning you may be able to finance a more expensive home.
• You can still get a rate that competes with conventional loans.
• You can get both fixed- and adjustable-rate jumbo mortgages.

Cons

• Jumbo loans aren’t as widely available.
• They often require a down payment of up to 20%. (Desert Financial offers multiple options with less than 20% down.)
• Lenders may require a credit score of 700 or higher. (Desert Financial requires a minimum credit score of 660.)
• Lenders may ask to see detailed proof of income and require up to 18 months of cash reserves. (Desert Financial’s cash reserves requirement ranges from two months to 12 months depending on the loan size.)

Tip: Oftentimes with jumbo home loans, the more documentation you prepare, the better. If you can show a lengthy history of strong income and assets, you may have a better chance of proving you can handle a large mortgage loan long term.

Government-backed loans

While the government doesn’t directly lend to consumers, they do insure and guarantee loans that make it easier for some Americans to become homeowners. Some of those include FHA loans, VHA loans and USDA loans. Each of these different loans offers unique benefits, potentially helping you make your dream of owning a house a reality. Let’s go over what they are and how they can help.

VA loans

Guaranteed by the U.S. Department of Veterans Affairs, VA loans are available to qualified U.S. military service members, veterans, and eligible surviving spouses.

Pros

• No down payment is required.
• There are no credit score or debt-to-income (DTI) requirements from the VA, but individual lenders may have their own criteria.
• There is no PMI.
• You can still find competitive rates.

Cons

• You will have to pay a VA funding fee of between 5% and 3.3%, but it helps fund the program.
• These loans are only available to eligible S. military service members, veterans, as well as their spouses.¹

FHA loans^2,3

FHA loans are insured by the Federal Housing Administration and aim to make it a little easier for those with lower credit and savings to get into a home.

Pros

• With a credit score of 580 or higher you may qualify to only put 3.5% down.
• You could still qualify with a credit score as low as 500, but you may have to put down 10%.
• Your debt-to-income ratio can typically be higher when compared with conventional loan products.
• You may still find competitive rates.

Cons

• You will be required to pay mortgage insurance premiums for the life of the loan.
• The borrowing limit is less than the conforming loan limit. In 2025, the FHA loan limit is $528,850 compared to the 2025 conforming loan limit of $806,500.

USDA Loans⁴

USDA loans can be an option depending on your income level and where you’re looking to buy. They’re guaranteed by the U.S. Department of Agriculture and offer benefits to future homeowners in rural areas.

Pros

• No down payment is typically
• USDA loans do not have a minimum credit score requirement set by the USDA, but lenders may have their own credit score requirements. (Additionally, there is a debt-to-income (DTI) limit, but exceptions may be made for strong applicants.)
• Loans offer competitive interest rates.

Cons

• Income limits apply to borrowers.
• You must buy a home in a qualifying rural area.
• There is an upfront guarantee fee is typically around 1% of the loan amount and can be paid upfront or rolled into the loan balance.
• The annual fee is 0.35% of the remaining principal balance and is usually paid monthly as part of your mortgage payment.

Tip: Be aware of what you qualify for! That includes researching not just general benefits but YOUR benefits. Those in specific fields, like the military, may have unique perks to help them buy a home.

Help for first-time homebuyers

The first time for anything can be stressful, but having a team of professionals to walk you through every step can alleviate some of that pressure.

There are also special loan programs that offer perks to first timers, like our First-Time Homebuyer Program.  If you haven’t owned a residential property in the last three years and you have a credit score of 680 or higher, you can get great perks like no down payment, closing cost credit when you participate in the Home Plus program and more! Plus, you’ll get local loan servicing from a partner who’s just as committed as you are to making your dreams of owning a home a reality.

Tip: Qualifying community heroes who are buying their first residential property in the last three years can get all the perks of the First-Time Homebuyer Program, plus no PMI! That can be a great way to save hundreds or more every month.

Now on to step 2!

You’re already past the first step of the homebuying journey, which is learning about the different types of loans and starting to figure out which one fits your goals. Now, it’s time to take the next step, and we’re here to help!

Our mortgage team offers hands-on assistance through every checkpoint, from meeting with a loan officer to crossing the threshold of your brand-new home. To get started, book an appointment today!