The Ultimate Guide to Mortgage Types for Homebuyers in 2025

Fun Fact: 💡 A bi-weekly mortgage payment plan can shave years off your loan! Instead of paying once a month, you split your monthly payment in half and pay that amount every two weeks. That adds up to 13 full payments per year instead of 12—which means a 30-year mortgage can be paid off in about 22 years, saving you thousands in interest.

Navigating the mortgage landscape can be overwhelming—especially with so many options tailored to different buyers, budgets, and property types. Whether you're buying your first home, investing, or building new, there’s likely a mortgage product designed with your situation in mind. Here's a breakdown of the most common types of home loans available today:

🏠 Conventional Loans

Conventional loans are not insured or guaranteed by the federal government, and they typically offer the best terms for buyers with solid credit and stable income:

• Minimum down payment as low as 3% (but 20% avoids PMI)

• Competitive fixed or adjustable interest rates

• Ideal for borrowers with good credit (typically 620+)

These loans follow the lending standards of Fannie Mae and Freddie Mac, and they come in two main types:

• Conforming Loans – Meet the dollar limit set by FHFA

• Non-Conforming Loans – Exceed the limit and include Jumbo loans

✨ VA Mortgages

For eligible veterans and active-duty service members, VA loans offer unbeatable benefits:

• 0% down payment required

• No private mortgage insurance (PMI)

• Relaxed qualification standards

• Competitive interest rates

While the VA doesn’t lend money directly, it guarantees a portion of the loan—usually around 25%—offering lenders security and veterans flexibility. Loan amounts must stay within GNMA limits if they’re to be sold on the secondary market.

🏡 Soft Second Mortgages

To avoid PMI with a low down payment (typically 3.5%), some states offer soft second mortgage programs. These programs (like the one in Massachusetts) help low- and moderate-income families by providing a second mortgage—often up to 20% of the purchase price—to bridge the affordability gap.

🔹 Assumable Mortgages

An assumable mortgage allows a qualified buyer to take over the seller’s existing loan:

• No interest rate increase

• Fewer closing costs

• Potential savings when rates are high

FHA loans before December 1, 1986, and VA loans before March 1, 1988, are fully assumable. These can become powerful selling points in a high-rate market.

⚡ Balloon Mortgages

Balloon loans feature low interest rates and smaller payments for a set term (typically 5–7 years), followed by a large lump-sum "balloon" payment:

• Low monthly payments upfront

• Ideal for short-term owners or those planning to refinance

But beware—the balloon payment can be steep, so this loan suits those with a solid exit strategy.

🏨 Jumbo & Conforming Loans

• Conforming loans fall within the loan limits set by Fannie Mae/Freddie Mac.

• Jumbo loans exceed those limits and come with:

  • Higher interest rates

  • Larger required down payments

  • More stringent qualification criteria

Jumbo loans are designed for luxury homes or high-priced markets like Charleston and Mount Pleasant.

🗓️ HELOCs (Home Equity Line of Credit)

A HELOC is a revolving credit line based on your home's equity:

• Works like a credit card

• Draw period (5–25 years) allows flexible borrowing

• Interest is often tax-deductible

Perfect for home improvements, emergencies, or consolidating higher-interest debt.

↺ Adjustable-Rate Mortgages (ARMs)

ARM Terms to know:

• Adjustment period: The interval between rate changes, typically annually

• Margin: A fixed percentage added to the index to calculate the full rate

• Fully Indexed Accrual Rate (FIAR) = Index + Margin

• Initial rate: Typically lower than a fixed loan, calculated from FIAR minus discount

• Discount: Difference between FIAR and the starting rate

• Adjustment period cap: Limits rate increases per period (usually 1–2%)

• Lifetime cap: Limits total rate increase over the life of the loan (usually 5–6%)

• Payment cap: Limits how much monthly payments can increase from one period to the next

ARMs can help buyers qualify for more house initially, but they carry the risk of rising rates after the introductory period.

⚠️ Special Loan Types

For First-Time Home Buyers:

• FHA Loans – Low down payment, relaxed credit standards

• USDA Loans – 0% down for eligible rural properties

• Fannie Mae’s HomePath – Special programs for qualified properties

For Unique Needs:

• Bridge Loans – Temporary financing when buying before selling

• Construction Loans – Short-term loans paid in phases to builders

• Green Mortgages – Incentives for energy-efficient upgrades or homes

• Blanket Loans – One loan covering multiple properties

• Package Loans – Include personal property like furniture

• Wraparound Loans – Refinance with a new loan that "wraps around" an existing one

• Purchase Money Mortgages – Seller-financed loans

⚠️ Negative Amortization Loans

These allow smaller monthly payments by adding unpaid interest to the principal. While helpful short-term, they can increase the loan balance over time and should be approached with caution.

Final Thoughts

There’s no one-size-fits-all mortgage. The right loan depends on your:

• Income and credit history

• Cash on hand for down payment

• Location and property type

• Long- and short-term financial goals

Before assuming you can’t qualify, speak to a mortgage advisor or real estate professional who understands all the available options—especially if you're buying in a unique market like Charleston or Mount Pleasant.

Need help navigating your mortgage options? I’m here to connect you with trusted local lenders and help you make the smartest move possible.

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