How to choose the best mortgage for you

Choosing a mortgage is one of the most important financial decisions you’ll make when buying a house, and there’s no one solution that works for everyone. The right mortgage for you depends on your overall financial picture, personal priorities, and loan eligibility. Both first-time buyers and experienced owners can benefit from understanding the different mortgage types so they can pick the option that works with their goals and budget.

Key takeaways

• If you have good credit and can afford to make a down payment, a conventional loan is the most popular option.
• Government-backed loans can make it possible to buy a home even if you don’t have good credit.
• A fixed-rate mortgage offers predictable monthly payments, while an adjustable-rate mortgage can save you money in the short term.

What should you consider when choosing a mortgage?

When shopping for a mortgage, here are the common factors you should consider when narrowing down your choices:

• Loan type (conventional vs. government-backed). While conventional loans can be less expensive than government-backed ones (such as those guaranteed by Fannie Mae or Freddie Mac), they can be harder to get. These two major types of mortgages will have varying eligibility requirements.
• Home type and price range. The kind of home and price range are major determining factors in what mortgage you choose, as well as the loan amount and the loan term.
• Interest rate vs. APR. The interest rate on a mortgage is the cost of borrowing money each year and is expressed as a percentage. The APR is the interest rate along with any fees. The APR is a more complete picture of the total costs of taking out a home loan.
• Down payment. Different mortgage types have different down payment requirements. To qualify for a certain mortgage type, you'll want to make sure you can meet the requirements.
• Credit score requirements. While some loans don't technically have a minimum credit score requirement, others do. As of November 2025, both Fannie Mae and Freddie Mac no longer have a minimum credit score threshold in their conventional loan eligibility guidelines. Loan approval will instead be based on an evaluation of overall credit risk factors. Also keep in mind that the higher your score, the more favorable terms you'll likely qualify for.
• Lender fees. Depending on the loan type and type of lender, you'll have different fees. Lender fees impact whether a loan works for you by altering the amount of cash you will need upfront, the true APR, and the total cost of borrowing money to buy a home. A lender may offer you a lower interest rate but have high origination costs or other fees, which make the loan more expensive overall. So carefully examine the details of any loan that you’re offered.
• Closing costs. Closing costs tend to be anywhere from 2% to 5% of the home's purchase price. If you choose to finance your closing costs versus paying out of pocket, you'll be tacking more onto your principal. In turn, you can expect to pay more in interest over the life of your loan.
• Mortgage points. When you pay for mortgage points, you'll pay more on the front end but you'll end up with a lower interest rate and may pay less over time, depending on how long you have that mortgage. If you only own your home for a few years and then decide to move, it may not make sense to buy points. It’s a good idea to do the math to calculate how long you’d have to stay in a house for the investment to pay off.  (include when they make sense)
• Temporary buydowns. \ With a temporary buydown, a one-time lump sum is used to reduce the buyer’s interest rate and monthly payment. This fee is sometimes paid by the lender, builder, or seller and helps the borrower afford homeownership for a period. This strategy can make sense if you expect your income to increase or plan to make sense.

What is the best mortgage program for you?

To land on the best mortgage program for you, it's key to know what's out there. Here are some types of home loans and their eligibility requirements:

If you have good credit and a down payment: Conventional loan

A conventional loan is a mortgage offered by a private lender without government backing. Conventional loans typically have stricter requirements than government-backed mortgages but can be cheaper overall in the long run.

To qualify for a conventional loan, you’ll typically need the following:

• Credit score of at least 620
• Down payment of at least 3% of the purchase price
• Debt-to-income ratio lower than 50%

If your down payment is less than 20%, you’ll need to pay for private mortgage insurance (PMI), which protects the lender if you default on your loan. Your PMI premium will be added to your monthly payment. The good news is that you can get rid of PMI once you reach 20% home equity.

Conventional loans can be a good option for buyers who can meet the financial requirements. They can offer lower mortgage interest rates than other popular options, such as FHA loans. If you qualify, that lower interest rate can help you reduce both your monthly payment and the overall cost of the loan.

If your loan is both conventional and a conforming loan, meaning it adheres to the standards set by the Federal Housing Finance Agency (FHFA), it may be eligible to be purchased by Fannie Mae or Freddie Mac. If this is the case, you may be subject to different loan eligibility standards since these two government-sponsored enterprises (GSEs) no longer have a strict requirement of a 620 credit score and have opted for a more holistic review of a borrower’s credit history and risk. You can talk to a Home Loan Expert at Rocket Mortgage to find out more.

If your credit score is low: FHA loan

A Federal Housing Administration (FHA) loan allows borrowers to qualify with a lower credit score and a low down payment. Because the loan is backed by the government, it’s less risky for the lender.

FHA loan eligibility requirements are as follows:

• Minimum credit score of 580
• Minimum down payment of 3.5%
  

FHA loans are the most widely available government-backed loans. Mortgage insurance premiums (MIP) are required for all FHA loans. If you make a down payment of at least 10%, you’ll pay MIP on your loan for 11 years.

 If you make a smaller down payment, you’ll pay MIP for the life of the loan. This is why many homeowners refinance from an FHA loan to a conventional mortgage once they reach 20% equity in their property.

FHA loans can help borrowers with past financial missteps and low or previous bad credit achieve homeownership. If you’re looking to buy a home but don’t meet the requirements of a conventional loan, an FHA loan could be a good choice for you.

Technically, it is possible to get an FHA loan with a credit score of 500 and a 10% down payment. However, lenders (including Rocket Mortgage) often require a minimum credit score of 580.

If you get military benefits: VA loan

Besides your debt-to-income ratio (DTI), lenders also look at your residual income. This is what's left over after your expenses are paid, which includes debt, obligations, and monthly housing costs. VA loans are unique in that lenders will weigh residual income more heavily than DTI.

VA loans typically offer lower interest rates than comparable government-backed loans, making them even more affordable. A VA loan can also allow you to buy a home with no money down and avoid mortgage insurance payments. You may need to pay a VA funding fee when you get your loan.

Any qualified military member, veteran, or surviving spouse should consider this type of mortgage. You won’t need to make a down payment and can score a low interest rate to save you money.

The eligibility requirements for a VA loan are usually as follows:

• Credit score of at least 580 (This is not an official VA requirement, but many lenders set this score)
• No down payment
• VA funding fee and closing costs

However, you'll need to provide a VA funding fee. This is a one-time fee that you may need to pay at the time of the closing. It depends on the type of loan, the loan amount, the down payment amount, and whether it's your first time getting a VA-backed loan.

For example, a regular military member would pay a 2.15% VA funding fee or first use fee if the down payment is less than 5% and 3.3% for subsequent use if they put down less than 5%. If your down payment is 10% or more, your VA funding fee is 1.25%. If it's 5% or more, you can expect to pay a first-use fee of 1.5%.

If you want a rural home: USDA loan

U.S. Department of Agriculture (USDA) loans are available to low- and moderate-income borrowers buying a home in a specific rural area. While Rocket Mortgage does not offer USDA loans at this time, they can be a helpful option for borrowers who don’t have much saved to make a down payment.

To be eligible for a USDA loan, the property needs to fall within an eligible area. You can use the USDA property eligibility map to gauge whether the property qualifies for a USDA loan.

You'll also need to meet the income requirements. The USDA has a chart of the income limits for each county in the U.S. You can also figure out if you're eligible based on criteria such as your household income and number of people in your household. 

USDA loans are available with no down payment and tend to have lower borrowing costs than FHA loans. However, you’ll need to pay both an upfront guarantee fee of 1% and a 0.35% annual fee.

If you can afford a more expensive home: Jumbo loan

A jumbo loan exceeds the limit on conforming conventional loans. Each year, the Federal Housing Finance Agency sets a limit on conforming conventional loans that lenders can sell to Fannie Mae and Freddie Mac. Jumbo loans are nonconforming loans, which means they cannot be sold to Fannie Mae or Freddie Mac, and the terms and requirements for the loan are entirely up to the lender.

Because these loans are for larger amounts, jumbo loans tend to come with stricter eligibility requirements and higher interest rates.

The eligibility requirements for a jumbo loan are generally as follows:

• Credit score of at least 700
• Down payment of at least 10%

If the home you’re looking to purchase exceeds the conforming loan limits in your area, a jumbo loan might be your best option.

Which mortgage rate structure is better for you?

Knowing the difference between the two most popular mortgage rate structures, the fixed-rate mortgage and the adjustable rate mortgage (ARM), along with their pluses and minuses can help you land on the best option for you.

If you want predictability: Fixed-rate mortgage

Fixed-rate mortgages are the most common mortgage rate structure and are preferred by roughly 90% of buyers. With a fixed-rate mortgage, your interest rate is set when you close on your loan and never changes. As a result, your loan payment will never change.

One of the biggest perks of a fixed-rate mortgage is predictable monthly payments, which can help you budget for the long term. It also protects you against interest rate increases.

Please note that if you pay property taxes and homeowners insurance premiums through an escrow account, these factors can change and potentially increase your overall monthly payment.

If you want a consistent and predictable monthly payment and plan to stay in your forever home, you should consider a fixed-rate loan.

If you want a low payment to start: ARM

Unlike a fixed-rate mortgage, an adjustable-rate mortgage (ARM) typically has an introductory period and an adjustment period.

During the introductory period, you have a fixed interest rate that’s usually lower than you can get for a fixed-rate loan. In turn, you benefit from a lower monthly payment. Once the introductory period is over, your interest rate will adjust at regular intervals based on market rates.

At some point, it likely will increase, and your monthly payment will follow. ARMs usually have interest rate caps that limit how much your rate can increase with each adjustment and over the life of your loan.

Buyers who purchase a starter home that they plan to move out of within a few years or who plan to pay off their loan early can benefit from the lower early payments and save money. However, if they stay in the home past the introductory period, their interest rate may increase, and they’ll pay a higher mortgage payment.

Which mortgage term option is right for you?

Your loan term refers to the time you have to repay your loan, and it has a significant impact on both your monthly payment and the total interest you pay on your loan.

The two most common loan terms are 15 and 30 years, though Rocket Mortgage also offers custom loan terms through its YOURgage^® program¹.

If you want a lower payment: 30-year loan

A 30-year term is likely a better option if you want a lower monthly payment. It can also make buying a bigger house more accessible.

Just remember you'll be paying more interest over time and making mortgage payments over a longer time frame. Early payoff is still possible. And if you think you may pay off your loan early, check the terms of your loan to make sure they don’t include a prepayment penalty.

If you want to pay less interest: 15-year loan

With a 15-year term, your monthly payments will be considerably higher, but you’ll pay off the loan more quickly and pay a lot less interest.

Not every borrower can afford the high monthly mortgage payments that come with a 15-year loan term. However, if you can budget for it, a 15-year term can save you money on interest and help you build equity faster.

These loans usually also come with lower interest rates than 30-year loans, though they may be harder to qualify for due to the larger monthly payments.

Compare your mortgage options: A recap

Beyond mortgage interest rates and terms, if you're eligible, some mortgage loan types can feature more flexible credit and financial requirements. Here are the most common mortgage types and their respective criteria:

Mortgage programs and requirements

Fixed-rate mortgage vs. ARM

30-year vs. 15-year term

Tips for choosing the best home mortgage

So which type of mortgage is best for you? Here are some questions to help you decide:

• Know how much home you can afford
• Assess your financial readiness and loan eligibility
• Check your credit score
• Do a side-by-side comparison of different options
• Explore first-time home buyer and down payment assistance programs as alternatives when conventional loans aren’t an option
• Consider your long-term financial goals and the costs
• Get personalized quotes and guidance from lenders
• Prepare questions for your mortgage lender
• Gather the required documents and information for mortgage preapproval

FAQ

Curious to learn more about how to narrow down your mortgage options and figure out which type is the best one for you? Here are some frequently asked questions on the topic:

What is the best mortgage if I want to refinance?

If you'd like to refinance, you'll need to have at least 20% equity built in your home. You'll also want to figure out whether you should do a cash-out refinance or a no-cash-out refinance. If you're doing a cash-out refinance, know how you want to use the funds. If you want to spend the money on repairs or updates for your home, it’s good to have estimates for your project in hand so you know how much you’ll likely spend. You can use a refinance calculator to see how much you can save when you refinance.

What if I’m not eligible for a conventional loan?

If you're set on a conventional loan but can’t qualify for some reason, look into improving your credit score, lowering your debt-to-income (DTI) ratio, shoring up more savings, or finding ways to boost your income. You can also consider other loan options. such as working on the financial factors that are affecting approval or carefully considering other loan options. You could consider One+ by Rocket Mortgage⁴, which allows borrowers to buy a home with as little as 1% down.

Is the mortgage with the lowest rate always the best?

The mortgage with the lowest interest rate might end up costing you more if it's a longer term or has higher closing costs and fees. You'll want to look at the down payment and loan amount as well to see how much the home loan will end up costing. Carefully read through all your loan documents before signing, and ask your lender or a mortgage professional to review any terms or fees.

The bottom line: Take time to choose the best home mortgage

Choosing a mortgage is a significant decision. When you understand the variables such as loan type, interest rate structure, and loan term, you'll be equipped to navigate the options and make the best choice for your unique financial situation. There’s no one solution that works for everyone. When you consider the overall picture of a loan, you can determine if it’s one that works with your goals, budget, and lifestyle.

You can speak with a Rocket Mortgage⁵ Home Loan Expert to discuss your options or apply for a mortgage to see which loans⁶ may be available to you.

¹ Not available on FHA, VA or adjustable rate mortgages. Available for fixed rate conventional products only.

² The 3% down payment option is only available on certain conventional loan products and is not available in all states. Additional terms and conditions may apply.

³ To qualify for this offer, you must meet all standard FHA eligibility requirements. In addition, your total mortgage payment, including taxes and insurance, cannot exceed 38% of your income, your debt-to-income (DTI) ratio cannot exceed 45%, and you must have 12 months of verifiable housing history immediately prior to your application, no late payments 30 days or greater in the last 12-months, and no derogatory marks on your credit report. Not available on jumbo loans. Asset statements may be needed, no more than 1 day of non-sufficient fund fees are allowed in the most recent 2 months prior to application. Additional restrictions/conditions may apply.

⁴ To qualify for this offer, you must meet all standard FHA eligibility requirements. In addition, your total mortgage payment, including taxes and insurance, cannot exceed 38% of your income, your debt-to-income (DTI) ratio cannot exceed 45%, and you must have 12 months of verifiable housing history immediately prior to your application, no late payments 30 days or greater in the last 12-months, and no derogatory marks on your credit report. Not available on jumbo loans. Asset statements may be needed, no more than 1 day of non-sufficient fund fees are allowed in the most recent 2 months prior to application. Additional restrictions/conditions may apply.

⁵ Rocket Mortgage is a trademark of Rocket Mortgage, LLC or its affiliates.

⁶ Refinancing may increase finance charges over the life of the loan.