Types of Home Loans + 2025 Interest Rate Projections: What You Need to Know

Buying a home is one of the biggest financial decisions most people make in their lifetime. Whether you’re a first-time buyer or looking to upgrade, understanding the types of loans available, and what interest rates might look like this year. Can help you make smarter choices and avoid surprises. Here’s everything you need to know…

Types of Loans

1. Conventional Loans

“The Classic Option”

If you’ve heard of a “regular mortgage,” this is probably it. Conventional loans are not backed by the government, and they’re the most common type of home loan.

There are two kinds:

Conforming loans follow rules set by Fannie Mae and Freddie Mac (mainly about loan size and borrower qualifications).
Non-conforming loans go outside those rules. Usually because they’re for larger amounts or for borrowers with unique financial situations.

Why people like them:

You can put down as little as 3%, but if you can do 20%, you avoid paying for mortgage insurance (PMI).
You’ll need a credit score of 620 or higher, but the better your score, the better your interest rate.
You can choose loan terms like 15, 20, or 30 years depending on what fits your budget.

Who this works best for:

People with steady income, good credit, and some money saved up for a down payment.
If your finances are in good shape, a conventional loan could be a great choice to keep your costs lower in the long run.

2. FHA Loans

For First-Time or Credit Challenged Buyers

FHA loans are backed by the government and made to help people who might not qualify for a conventional loan. They’re especially popular with first-time buyers.

Why people like them:

You can buy a home with just 3.5% down if your credit score is 580 or higher.
Even if your score is as low as 500, you may still qualify with a 10% down payment.
FHA loans require mortgage insurance (paid upfront and yearly), which protects the lender.

Who this works best for:

First-time homebuyers
People with lower credit scores or limited savings
Buyers who need more flexible requirements to qualify

3. USDA Loans

0% Down for Rural Buyers

USDA loans are designed to help people buy homes in rural or suburban areas. They’re backed by the U.S. Department of Agriculture and offer 100% financing.

Why people like them:

You can buy a home with no down payment at all
You’ll need a credit score around 640 or higher
You must meet income limits and the home has to be in an eligible area

Who this works best for:

Buyers with low-to-moderate income
People looking to live in rural or smaller towns
Those who don’t have money saved for a down payment

4. VA Loans

Made for Veterans and Military Families

VA loans are an amazing benefit available to veterans, active-duty military, and some surviving spouses. They’re backed by the Department of Veterans Affairs.

Why people like them:

No down payment required
No mortgage insurance (PMI)
Competitive interest rates
Lower closing costs in many cases

Who this works best for:

Military members, veterans, or qualifying spouses
Buyers who want to purchase a home with little or no money down
Those who qualify for a VA Certificate of Eligibility (COE)

5. Adjustable-Rate Mortgages (ARMs)

Start Low, Then Change

ARMs start with a lower interest rate than fixed loans but adjust after a few years. They’re great for short-term planning.

Why people like them:

You lock in a low rate for the first 5, 7, or 10 years
After that, the rate adjusts once a year based on the market
Lower initial payments help with short-term savings

Who this works best for:

People who plan to move or refinance within a few years
Buyers with rising income or a short-term housing plan
Those who want a lower rate upfront

6. Fixed-Rate Mortgages

Simple and Predictable

Fixed-rate loans are the most straightforward. Your rate and payment stay the same for the life of the loan.

Why people like them:

No surprises your monthly payment never changes
Great for long-term stability
Available in 15, 20, or 30-year terms

Who this works best for:

Buyers who want to settle down long-term
Anyone who wants to budget confidently
People who like the idea of a consistent payment

7. Construction Loans

For Building Your Dream Home

Planning to build your own home? A construction loan can help you fund the building process from the ground up.

Why people like them:

Money is given in phases as your house is built
Often a higher interest rate during construction
Converts into a regular mortgage after the home is finished

Who this works best for:

People building a custom home
Buyers with strong credit and savings
Those working with a reputable builder and a clear timeline

8. Jumbo Loans

For Big-Time Buyers

Buying a luxury home or a property in a pricey market? A jumbo loan covers amounts above the standard loan limit (which is $766,550 in most areas for 2024).

Why people like them:

Lets you borrow more than regular limits
Usually requires a 10-20% down payment
You’ll need a credit score of 700 or higher

Who this works best for:

Buyers purchasing high-end or luxury homes
Those with high incomes and excellent credit
People who can afford a large down payment

2025 Mortgage Rate Outlook

Mortgage rates are expected to gradually decline through 2025, but remain above pre-pandemic levels. Here’s a chart summarizing expert predictions

Use a Mortgage Calculator to Estimate Your Home Costs

One of the most important steps before buying a home is understanding how much your monthly mortgage payment will be. This is where a mortgage calculator becomes a powerful tool.

By entering details like:

Home price
Down payment amount
Loan term (e.g. 15 or 30 years)
Interest rate
Property taxes, homeowners insurance, and PMI (if applicable)

…a mortgage calculator gives you an estimated monthly payment that includes both principal and interest, and often the full picture of what you’ll be expected to pay each month.

Click on the calculator below to get a free estimate of your monthly mortgage payment. It’s quick, easy to use, and can help you understand what’s within your budget before you start shopping for homes.