A Guide to the 5 Types of Real Estate Loans
November 7th, 2025
Buying property usually means borrowing money, and that’s where people turn to real estate loans. But not all loans are the same. Knowing your options makes a big difference in what you’ll pay - and how smooth the process itself will be.
Let’s break down the most common types of real estate loans and help you figure out which one might work best for your situation.
Understanding Real Estate Loans
Before diving into specific loan types, it helps to know what real estate loans actually do. They help people and businesses buy property - a first home, a rental, or a commercial property. These loans vary in their structure, how much you can borrow, how long you’ll pay them back (loan term), and who qualifies.
Some are easier to get with lower credit, some are made for certain groups like military members, and others are designed for high-end homes. Some offer fixed-rate loans, while others use adjustable-rate mortgages (ARMs) that can change over time.
The goal is to match the right loan to your financial situation, property plans, and how long you’ll stay in the home.
1. Conventional Loans: Popular, Flexible, and Widely Used
Let’s start with the most familiar option - conventional loans. These are the standard loans offered by banks and private lenders and aren’t insured by the government. They’re commonly used for buying homes and refinancing.
This type of loan is mostly used for residential property purchases, but it's also a go-to for refinancing.
These loans are ideal for buyers with:
- A strong credit score (typically 620 or higher)
- A steady income and employment history
- Savings for a down payment (anywhere from 3% to 20%)
They’re especially good if you want flexibility in loan terms, whether that’s a shorter payoff period or options for fixed-rate loans and adjustable-rate mortgages.
Why Choose This One
Conventional loans come with a range of benefits that make them appealing to many buyers:
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PROS |
CONS |
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Competitive interest rates |
Higher credit score and financial requirements |
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Wide range of mortgage options and lenders |
PMI is required with less than 20% down |
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You can cancel PMI once you hit 20% equity |
Larger down payments often needed compared to FHA loans |
FHA loans make it easier for people to enter the housing market, even if they’re not bringing perfect financials to the table.
Why Choose This One
FHA loans are great if you’re looking for a way to get into a home with less cash upfront or a lower credit score. These loans allow more people to qualify and also give you the option to receive help with the down payment through gifts or grants.
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PROS |
CONS |
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Low credit score requirement |
Mortgage insurance premiums (MIP) are required and may last the life of the loan |
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Smaller down payments |
Stricter property condition requirements |
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Flexible debt-to-income rules |
Lower loan limits compared to conventional loans |
- Competitive interest rates that reward borrowers with strong credit.
- Variety of mortgage options, including different loan terms and rate types.
- PMI (Private Mortgage Insurance) can be removed once you reach 20% equity, lowering your monthly payment over time.
In short, conventional loans are a solid choice if your finances are in good shape. They give you plenty of options and the chance to avoid extra fees if you can make a solid down payment.
2. FHA Loans: A Friendly Start for First-Time Buyers
FHA loans are designed to help buyers who need more flexibility with credit and down payment. Backed by the Federal Housing Administration, these loans lower the entry barrier to homeownership.
They’re intended for primary residences, so you won’t use them to buy a vacation home or investment property.These loans are made for:
- First-time buyers
- Buyers with credit scores between 500 and 620
- Those who can only afford a small down payment (as low as 3.5%)
- Easier qualification standards for credit and income.
- Lower down payment requirements help you buy sooner.
- Flexible debt-to-income rules make budgeting more realistic.
FHA loans remove many of the traditional barriers to buying a home and make it easier to get started without putting too much strain on monthly cash flow. Just be aware that the added insurance costs can stick around longer than most people prefer.
3. VA Loans: A Big Thank You for Military Service
VA loans are a top-tier benefit for those who have served in the military. Backed by the Department of Veterans Affairs, these loans help active duty service members, veterans, and qualifying spouses buy a home with big savings.
The VA doesn’t lend the money itself. Instead, it guarantees part of the loan, making lenders more willing to offer favorable terms.These are for:
- Veterans and active-duty military members
- Eligible National Guard or Reserve members
- Certain surviving spouses
If you meet the criteria, this is one of the most powerful mortgage options available.
Why Choose This One
If you qualify, VA loans are one of the most cost-effective ways to buy a home. The savings on down payments and monthly insurance can make a big difference:
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PROS |
CONS |
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No down payment |
Only available to eligible military borrowers |
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No PMI |
VA funding fee applies (though it can be financed and some are exempt) |
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Flexible credit and income requirements |
Limited to primary residences |
For those eligible, VA loans offer unmatched affordability and access. They're a well-earned advantage with fewer long-term costs than most loan options.
4. USDA Loans: For Rural Living and Budget-Friendly Payments
USDA loans, supported by the United States Department of Agriculture, make buying in rural and some suburban areas possible with no money down. These loans help moderate-income households get into homes outside big cities.
They’re specifically for homes located in USDA-approved areas, which are often just outside city limits. These loans are designed for:
If you’re okay living away from a dense city center, this could be a smart route into affordable homeownership.
Why Choose This One
USDA loans are a hidden gem for those who meet the location and income requirements:
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PROS |
CONS |
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No down payment |
Property must be in a USDA-eligible area |
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Lower monthly insurance fees than FHA |
Income limits apply |
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Solid interest rates |
Primary residences only |
USDA loans are perfect if you want to own a home without a down payment and live in a less urban setting. Just make sure your income qualifies and the area fits the map.
5. Jumbo Loans: For Big Budgets and Luxury Properties
Jumbo loans come into play when your home loan goes beyond the usual limits. These loans are offered by private lenders for properties that cost more than what conforming loans will cover, based on the limits set by Fannie Mae.
They’re common in places with high home prices or for buyers purchasing luxury or unique homes.
Jumbo loans are best suited for:
They’re not for beginners. You’ll need a solid financial profile to qualify.
Why Choose This One
If you're aiming for a high-end or uniquely priced home, jumbo loans give you the financing to match:
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PROS |
CONS |
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Allows borrowing beyond conforming limits |
Higher credit score and income required |
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Interest rates can be competitive |
Larger down payments (typically 20% or more) |
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Often no PMI, even with less than 20% down |
Tougher approval process and documentation |
If you’re buying in a high-cost area or looking at luxury real estate, jumbo loans make those big purchases possible. Just expect more paperwork and higher financial expectations.
Fixed vs Adjustable Rates: Choose How Your Interest Moves
You’ll also need to choose how your interest rate behaves - no matter if it stays the same or can change over time.
A fixed-rate loan means your interest rate won’t change. Your monthly payments stay the same, which is great for long-term budgeting and stability. It’s predictable, but it usually starts higher than other options.
An adjustable-rate mortgage (ARM) starts with a lower interest rate. That rate stays fixed for a few years, then adjusts based on the market. If interest rates rise, your payments go up. If they fall, you could save. It’s a good option if you don’t plan to stay in the home for long.
Fixed rates offer stability. ARMs offer short-term savings. Choose based on how long you’ll stay in the home and how much risk you're comfortable taking.
What to Know Before You Apply
Getting a real estate loan isn’t just about choosing the loan type, but about being prepared.
Make sure your credit score is in shape, gather your financial statements, and calculate how much you can afford - including property taxes, insurance, and any potential fees. Lenders will look at your debt-to-income ratio, job history, and assets.
It’s also smart to:
And don’t forget to ask questions. Every lender has different requirements, and not all mortgage options are equal.
Key Loan Terms to Know
Loan offers can be confusing, full of terms that aren’t always explained clearly. Here are a few important ones to understand before you sign anything:
Knowing these terms can help you ask the right questions and avoid surprises later. Loan documents can be dense, so if you want to explore more definitions or clarify unfamiliar terms, the Consumer Financial Protection Bureau provides clear explanations backed by the U.S. government.
Ready to Make a Move?
If you’re learning about the types of real estate loans because you’re planning to buy a home, the next step is securing the right support to close the deal smoothly.
At Lightspeed Escrow, we specialize in making home closings fast, accurate, and stress-free. Founded by real estate experts, our team understands how to streamline your escrow process so you can move in sooner without getting stuck in paperwork or delays.
Once you've picked your property and secured your financing, we’ll be there to make sure the final steps go off without a hitch. Whether you're a first-time buyer or an experienced investor, our escrow services are designed to support you from contract to keys.
Get in touch today to learn how we can help make your next real estate transaction faster and easier.
- Zero down payment lets you buy without draining savings.
- No monthly mortgage insurance keeps payments lower.
- Competitive interest rates help reduce total loan cost.
- Buyers in rural or suburban locations
- Moderate- to low-income households
- People who need 100% financing
- No down payment needed, which makes getting started easier.
- Lower insurance fees help keep monthly payments affordable and protect your monthly cash flow
- Solid fixed rates mean predictable budgeting over time.
- High-income earners
- Buyers of luxury properties
- People with strong credit and assets
- Higher loan limits let you borrow more than standard loan caps.
- Competitive rates can still be found with strong financials.
- No PMI in some cases, even with lower down payments.
- Understand zoning laws if buying a commercial property
- Consider using a property management company if investing in rentals
- Compare interest rates and closing costs across lenders
- Decide between term loans and a line of credit if you need flexibility
- Loan term - This is how long you’ll take to repay the loan. Common terms are 15, 20, or 30 years. Shorter terms mean higher payments but less interest paid overall.
- Interest-only mortgage - You only pay interest for the first few years. It keeps payments low at first, but you won’t reduce your balance until later.
- Balloon payment - A large lump-sum payment due at the end of some loans. These can be risky if you’re not prepared.
- Origination fees and closing costs - One-time charges from your lender and third parties for setting up the loan. These can add thousands to what you need at closing.
- Points - You can “buy down” your interest rate by paying extra up front. One point typically equals 1% of your loan amount.
