Top 5 Most Common Mortgage Types Explained
If you’re preparing to buy a home in Texas, one of the first things you’ll encounter is a lineup of mortgage options that can feel overwhelming. Conventional? FHA? VA? Jumbo? USDA? What’s the difference, and which one is right for you?
At Mortgage Austin, we believe the best mortgage is the one you actually understand. So let’s break down the five most common loan types in plain English — no jargon, no confusion, just the information you need to make a confident decision.
1. Conventional Loans
Conventional loans are the most popular mortgage type in the country, and for good reason. They’re not backed by any government agency — instead, they follow guidelines set by Fannie Mae and Freddie Mac. Because of this, lenders typically require stronger credit and a larger down payment, but they also offer more flexibility in terms of loan amounts and property types.
Who It’s Best For
Conventional loans are a great fit if you have a credit score of 620 or higher (and ideally 740+), can put down 5–20%, and are buying a primary residence, second home, or investment property. If you put down 20%, you avoid private mortgage insurance (PMI) altogether.
Key Facts
- Down payment: as low as 3% (with programs like HomeReady or Home Possible)
- PMI required if less than 20% down — but it cancels when you reach 20% equity
- Loan limits: up to $806,500 in most Texas counties (2025)
- Works for primary residences, second homes, and investment properties
2. FHA Loans
FHA loans are backed by the Federal Housing Administration and designed to make homeownership more accessible. They’re especially popular with first-time buyers because the credit and down payment requirements are more forgiving than conventional loans.
Who It’s Best For
If your credit score is between 580 and 679, you’re self-employed with varied income history, or you only have 3.5% to put down, an FHA loan might be your best path to homeownership. They’re also a great option if you’ve had past credit challenges but have rebuilt your profile.
Key Facts
- Down payment: as low as 3.5% with a 580+ credit score
- Mortgage insurance is required for the life of the loan (with less than 10% down)
- More flexible on debt-to-income ratios
- Property must meet FHA minimum standards
Want to dig deeper? We have a full guide on FHA home loans available on our site.
3. VA Loans
If you’re an active-duty service member, veteran, or surviving spouse, the VA loan is one of the most powerful financial benefits you’ve earned. Backed by the Department of Veterans Affairs, VA loans offer terms that simply can’t be matched by any other program.
Who It’s Best For
Anyone who qualifies for VA benefits should at least explore this option. The zero-down requirement and competitive rates make it an incredible tool for building wealth through homeownership — especially in a market like Austin where home prices have climbed significantly.
Key Facts
- Zero down payment required
- No private mortgage insurance (PMI)
- Competitive interest rates
- Can be used multiple times
- Texas has a strong veteran community, and we know this program inside and out
Learn more on our VA home loan page.
4. Jumbo Loans
Jumbo loans are for home purchases that exceed the conventional loan limits — in most Texas counties, that means anything above $806,500 (2025 limit). Because these loans can’t be sold to Fannie Mae or Freddie Mac, lenders take on more risk, which means the qualification requirements are stricter.
Who It’s Best For
If you’re buying a higher-end home in a competitive Austin neighborhood — think Westlake, Tarrytown, or the Hill Country — you may need a jumbo loan. These programs work best for buyers with excellent credit, strong income, and meaningful reserves in the bank.
Key Facts
- Loan amounts above conforming limits (typically $806,500+)
- Usually requires a credit score of 700 or higher
- Down payments typically range from 10–20%
- Reserves of 6–12 months of mortgage payments often required
5. USDA Loans
USDA loans are backed by the U.S. Department of Agriculture and designed to encourage homeownership in rural and suburban areas. What surprises most people is how many parts of Texas qualify — including areas outside Austin’s immediate metro that are still very desirable places to live.
Who It’s Best For
If you’re open to living outside the city core, earn a moderate income, and want a zero-down loan option, USDA is worth exploring. Income limits apply, so it’s not for high earners — but for buyers who qualify, it’s a fantastic program.
Key Facts
- Zero down payment required
- Income limits apply (typically 115% of area median income)
- Property must be in an eligible rural/suburban area
- Upfront and annual guarantee fees apply (but no traditional PMI)
So Which Loan Is Right for You?
The honest answer is: it depends on your financial profile, the property you’re buying, and your short- and long-term goals. That’s exactly why we start every conversation with a real conversation — not a form, not a chatbot, not a call center rep who rotates off your file next week.
When you work with us, you work directly with a licensed mortgage professional who will walk through your specific situation and give you an honest recommendation. We’re here to teach first and lend second.
Ready to find out which loan is the right fit? Get pre-qualified here or reach out to us directly. We’ll make it easy.
Frequently Asked Questions
What’s the difference between a conventional loan and a government-backed loan?
Conventional loans follow Fannie Mae and Freddie Mac guidelines and are not insured by the government. FHA, VA, and USDA loans are backed by federal agencies, which allows lenders to offer more flexible terms because the government absorbs some of the risk if a borrower defaults.
Can I qualify for a VA loan if I’ve used one before?
Yes. VA entitlement can be restored after a previous VA loan is paid off, or in some cases you can have two VA loans simultaneously. Contact us to review your specific entitlement situation.
Do I need 20% down to buy a home?
No. Many buyers put down far less. FHA and USDA loans allow 3.5% and 0% respectively. Conventional loans allow as little as 3% for qualified buyers. The tradeoff is often mortgage insurance, but that doesn’t mean waiting to save 20% is always the right move.
What is PMI and when do I have to pay it?
Private mortgage insurance (PMI) is typically required on conventional loans when you put down less than 20%. It protects the lender, not you. The good news is that PMI on a conventional loan can be removed once you reach 20% equity in your home.
Are there income limits for conventional loans?
Standard conventional loans don’t have income limits. However, certain low-down-payment programs like HomeReady and Home Possible do have income limits (typically 80% of area median income) because they’re designed for moderate-income buyers.
Ferrando Financial LLC | Mortgage Austin | NMLS# 2403080 | Licensed in Texas. This content is for educational purposes only and does not constitute a commitment to lend. Loan approval is subject to creditworthiness and program guidelines.
