11 Types of Mortgage Loans

Conventional Home Loan

A conventional loan is one of the most common mortgage types. 
It’s not backed by the government, so lenders set their own requirements. 
Typically, you'll need a good credit score and a solid down payment (often at least 3-5%). 
Conventional loans come with fixed or adjustable interest rates and are a great choice for buyers with stable finances.

✔  Benefits:
   •    Lower interest rates compared to government-backed loans (for qualified borrowers)
   •    Flexible loan terms (15, 20, or 30-year mortgages)
   •    No mortgage insurance required if you put 20% down

✘  Drawbacks: 
    •    Requires a higher credit score and solid financial history
   •    Private mortgage insurance (PMI) is required if down payment is under 20%
   •    Stricter income and debt-to-income ratio requirements

Jumbo Mortgage Loan

If you're buying a high-priced home in the Greater Boston area, you might need a jumbo loan. 
This type of mortgage exceeds the loan amount limits set by government-backed agencies. 
Because you're borrowing a larger amount, jumbo loans usually have stricter credit score and income requirements. 
They’re perfect for luxury homes or properties in expensive neighborhoods.

✔  Benefits:
   •    Allows for high-value home purchases
   •    Competitive interest rates for qualified borrowers
   •    Can finance luxury properties in expensive markets

✘  Drawbacks: 
   •    Requires excellent credit and a large down payment (usually 10-20%)
   •    Stricter income verification and reserve (savings) requirements
   •    Higher interest rates in some cases

Fixed-Rate Mortgage Loan

A fixed-rate mortgage keeps things simple. 
Your interest rate stays the same throughout the life of the loan (usually 15 or 30 years), so your monthly payment amount won’t change. 
If you like predictability and long-term budgeting, a fixed-rate loan is a great choice.

✔  Benefits:
   •    Predictable monthly payments
   •    Protection from interest rate increases
   •    Great for long-term homeowners

✘  Drawbacks: 
   •    Higher initial interest rates compared to adjustable-rate mortgages
   •    Less flexibility if market interest rates drop unless you refinance
   •    May not be ideal for short-term homeowners

Adjustable-Rate Mortgage Loan (ARM)

With an adjustable-rate mortgage (ARM), your interest rate begins low for a set time (5, 7, or 10 years). 
After that, it changes based on market rates. 
ARMs can be appealing if you plan to sell or refinance before the rate adjusts, but they do come with some risk if rates go up.

✔  Benefits:
   •    Lower initial interest rates
   •    Can save money if you sell or refinance before the rate adjusts
   •    Good option for short-term homeowners

✘  Drawbacks: 
   •    Unpredictable future payments
   •    Will have higher monthly payments if interest rates rise significantly
   •    May not be ideal for long-term stability

Note: Variable rate mortgages differ from adjustable-rate mortgage. With variable rate mortgages your monthly payment doesn’t change with market interest rates. But the amount of payment that goes toward principal changes.

Government-Backed Mortgage Loan

For buyers who may not qualify for conventional loans, the government offers several mortgage programs:
   •    FHA Loan – Backed by the Federal Housing Administration, this loan is great for first-time buyers or those with lower credit scores. It requires a lower down payment (as little as 3.5%).
   •    VA Loan – Available to veterans and active military members, VA loans require no down payment and offer favorable terms.
   •    USDA Loan – Designed for rural and suburban homebuyers. USDA loans offer low interest rates and no down payment for eligible properties.

✔  Benefits:
    •    Easier to qualify for with lower credit scores
   •    Lower down payment options
   •    Competitive interest rates

✘  Drawbacks: 
   •    Mortgage insurance required for FHA loans
   •    VA and USDA loans have specific eligibility requirements
   •    Limited to certain types of properties

First-Time Home Buyer Mortgage

Many first-time buyers qualify for mortgage programs with:
   •    lower interest rates
   •    reduced down payment requirements
   •    and assistance with closing costs
Some programs are state sponsored, while others are backed by federal agencies like the FHA. 
If you're a first-time homebuyer in Massachusetts, there may be local programs to help you get started.

✔  Benefits:
   •    Lower down payment and closing cost assistance
   •    Easier approval process
   •    Special grants and incentives may be available

✘  Drawbacks: 
    •    Some programs have income limits
   •    Limited to first-time buyers
   •    May come with restrictions on the type of home purchased

Equity Home Loan

If your home is worth more than what you owe on your mortgage, you can borrow against that value with an equity home loan. 
This is great for funding home improvements, consolidating debt, or covering major expenses.

✔  Benefits:
   •    Access to cash for renovations or large expenses
   •    Fixed interest rates for predictable payments
   •    Lower interest rates compared to personal loans or credit cards

✘  Drawbacks: 
    •    Uses your home as collateral (risk of foreclosure if not repaid)
   •    Reduces the equity in your home
   •    Additional monthly debt payment

Reverse Mortgage

A reverse mortgage is available to homeowners aged 62 and older. 
Instead of making monthly payments, the loan allows you to turn your home equity into cash. 
You can receive payments in a lump sum, monthly installments, or a line of credit. 
The loan is repaid when you sell the home or pass away. 
It’s a useful tool for seniors looking to supplement retirement income.

✔  Benefits:
   •    No monthly mortgage payments required
   •    Helps supplement retirement income
   •    Can receive payments in a lump sum, monthly installments, or as needed

✘  Drawbacks:
    •    Loan must be repaid when you sell or pass away
   •    Reduces home equity for heirs
   •    Closing costs and fees can be high

Refinancing Home Loan

Thinking about lowering your interest rate or changing your loan term? 
Refinancing allows you to replace your current mortgage with a new one, potentially saving you money over time.

Homeowners often refinance to take advantage of: 
   •    lower interest rates
   •    shorten their loan term
   •    or tap into home equity for big expenses

✔  Benefits:
   •    Can lower monthly payments
   •    Opportunity to switch from an ARM to a fixed-rate loan
   •    Access to home equity for major expenses

✘  Drawbacks:
    •    Closing costs and fees apply
   •    May extend the length of your loan
   •    Qualification requirements like a new mortgage

Business Home Loan

If you're a real estate investor or looking to purchase property for rental income, a business home loan is for you. 
These investment property loans typically require a larger down payment and have different qualification criteria than standard home loans.

✔  Benefits:
   •    Can generate rental income
   •    Builds long-term wealth through real estate investments
   •    Interest payments may be tax-deductible

✘  Drawbacks:
    •    Higher interest rates than primary residence loans
   •    Larger down payments required
   •    More complex loan approval process

Physician Mortgage Loan

Doctors and medical professionals can use special mortgage programs. 
These programs help them buy homes with little or no down payment. They also do not require private mortgage insurance (PMI). 
These physician loans are for new doctors who have high student loan debt but good earning potential.

✔  Benefits:
    •    No PMI, even with a low down payment
   •    Higher loan limits to accommodate higher earning potential
   •    Flexible underwriting for physicians with student debt

✘  Drawbacks:
    •    Only available to medical professionals
   •    Higher interest rates in some cases
   •    Some lenders require employment contracts for new doctors