What are the best mortgage types for home buying? Expert's tips!
September 19, 2025
7 minutes
Thinking about buying your first home? One of the toughest decisions you’ll face is picking the right mortgage. The lender you choose and the loan type you lock into will shape your monthly budget for years. The wrong move can cost you thousands. The right one can set you up for long-term stability.
Let’s break this down step by step.
Choosing a Mortgage Lender
Your lender is more than the person who hands you the keys to financing. They influence the speed, cost, and stress level of the entire process. Here are seven things to weigh before committing:
1. Reputation
- Read reviews.
- Ask friends, family, or coworkers who recently bought homes.
- Use negative feedback as a filter.
2. Expert Recommendations
- Your real estate agent usually has trusted lender contacts.
- They know which lenders close on time.
3. Loan Products
- Do they offer the loan you need (FHA, VA, USDA, Conventional, ARM, Fixed Rate)?
4. Interest Rates
- Even a 0.25% difference adds up to thousands over time.
- Get a real quote after the lender pulls your credit.
5. Fees
- Expect mortgage fees to reach 5% or more of the home’s price.
- Ask for an itemized list of costs.
- Ask if you can buy discount points to lower your rate.
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6. Timeline
- Ask how long their average loan process takes.
- If it’s over 8 weeks, that’s a red flag.
7. Customer Service
- You want someone who answers questions promptly.
- Good communication lowers stress.
Tip: The CFPB recommends comparing at least three lenders. Applications within 45 days usually count as a single credit inquiry, so don’t be afraid to shop around.
Picking the Right Loan Type
The best loan for you depends on your credit score, down payment, income, and debt load. Here’s a quick breakdown:
Loan Type | Min Credit Score | Min Down Payment | Insurance | Best For |
|---|---|---|---|---|
Conventional | 620+ | 3% | PMI if <20% down, removable | Buyers with strong credit |
| FHA | 580 (3.5% down) | 3.5% or 10% | MIP for life (unless refinanced) | Buyers with low credit or savings |
| VA | 580–670+ (varies) | 0% | No PMI, one-time funding fee | Veterans, service members, spouses |
Key Differences
- Credit: Below 620? FHA might be your option.
- Mortgage Insurance: Conventional PMI ends once you reach 20% equity. FHA insurance often stays for the loan’s life.
- Appraisals: FHA appraisals are stricter. Sellers often prefer conventional offers in competitive markets.
- VA Advantage: VA loans win big-0% down and no monthly PMI.
Fixed vs. Adjustable Rates
Interest rates matter more than most first-time buyers expect.
Fixed-Rate Mortgage (FRM):
- Rate and payment never change.
- Best if you plan to stay in the home long-term.
Adjustable-Rate Mortgage (ARM):
- Starts lower for 5, 7, or 10 years.
- Adjusts annually after that.
- Works if you plan to sell or refinance before the reset.
Cost of Stability: Historically, FRMs cost 12%–23% more each month compared to ARMs. If you choose an ARM, save the difference. That way, you’re prepared if your payment goes up.
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Managing Closing Costs
Your down payment isn’t the only expense. Closing costs usually run 3%–6% of the loan amount. First-time buyers often miss this.
Buyer vs. Seller: You’ll cover most of the costs.
Seller Concessions: Sometimes sellers pay part of your costs. FHA allows up to 6%. Conventional caps at 3% with less than 10% down.
What’s Included:
- Appraisal fees
- Title search
- Loan origination fees (about 1%)
- Attorney fees
- Escrow for taxes and insurance
Loan Estimate (LE): You’ll get this within 3 business days of applying. It shows estimated costs and terms.
Closing Disclosure (CD): You’ll get this at least 3 days before closing. Compare it to your LE to confirm no surprises.
Improving Your Profile Before You Apply
The stronger your finances, the better your loan terms.
Credit Score: Aim for 740+ to secure top rates.
DTI Ratio: Keep it under 43%.
Down Payment: 20% avoids PMI and secures better terms.
Refinancing Option:
- FHA to Conventional helps drop lifelong MIP once you hit 20% equity.
- VA borrowers can refinance using IRRRL to lower rates.
Takeaways for First-Time Buyers
- Do your homework on lenders. Don’t pick the first one you meet.
- Match your loan type to your credit score, savings, and long-term plans.
- Think carefully about FRM vs. ARM. Stability costs more upfront.
- Budget beyond the down payment-closing costs add up fast.
- Strengthen your finances before applying.
Buying a home isn’t only about finding the right property. It’s also about setting yourself up with a mortgage you won’t regret later.
So, what’s your next move? Will you compare three lenders this week? Or will you run the numbers on different loan types to see what fits your budget?
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Article by
Rocky Billore is a mortgage industry leader and Chief Sales Officer with over two decades of experience across residential and commercial lending. Since entering the industry in 2004, he has been directly involved in funding more than $1.4 billion in loans. A recognized expert in VA and government lending, Rocky combines deep program knowledge with a data driven, relationship-first leadership style. His work focuses on building scalable sales organizations, developing high performing teams, and aligning technology with real world lending outcomes to improve the homeownership experience.