Your Mortgage Journey: Understanding Different Types of Mortgages

Buying a home in Sacramento is an exciting journey, and for most buyers, it involves securing a mortgage. But with so many options available, understanding the different types of mortgages can feel like learning a new language. Don't worry – you don't need to be a financial expert to grasp the basics! As your local real estate expert, I’m here to simplify the process and help you identify which mortgage type might be the best fit for your unique financial situation here in the Sacramento area.

Let's break down the most common mortgage types you'll encounter:

1. Conventional Loans: The Most Common Choice

Conventional loans are not insured or guaranteed by a government agency (like FHA or VA). They are typically offered by private lenders, banks, and credit unions.

• Who they're for: Buyers with good to excellent credit scores (generally 620+), stable employment, and a solid financial history.

Key Features:

• Flexible Down Payments: While 20% is common to avoid Private Mortgage Insurance (PMI), many conventional loans now allow down payments as low as 3-5%.
• PMI: If your down payment is less than 20%, you'll likely pay PMI, but it can often be canceled once you reach 20% equity.
• Competitive Interest Rates: Borrowers with strong credit usually get the best rates.
• Fixed-Rate Options: Your interest rate and monthly principal and interest payment remain the same for the life of the loan (e.g., 15-year or 30-year fixed).
• Adjustable-Rate Mortgages (ARMs): The interest rate is fixed for an initial period (e.g., 5, 7, or 10 years) and then adjusts periodically based on market indexes.
• Benefits: Versatile, good for borrowers with strong financial profiles, PMI can be canceled.
• Considerations: Stricter credit requirements than government-backed loans.

2. FHA Loans: Great for First-Time Buyers

FHA loans are insured by the Federal Housing Administration (FHA), making them popular, especially for first-time homebuyers or those with less-than-perfect credit.

• Who they're for: Buyers with lower credit scores (down to 580 in some cases), smaller down payments, or higher debt-to-income ratios.

Key Features:

• Low Down Payment: Often as low as 3.5% of the purchase price.
• Mortgage Insurance Premium (MIP): Requires both an upfront MIP and an annual MIP (paid monthly) for the life of the loan, regardless of equity.
• Lenient Credit Requirements: More forgiving than conventional loans regarding credit history.
• Loan Limits: There are limits to how much you can borrow with an FHA loan, which vary by county. In Sacramento County, the 2025 FHA loan limit is typically quite generous, accommodating most standard homes.
• Benefits: Accessible for many borrowers, lower down payment, easier qualification.
• Considerations: Mandatory mortgage insurance for the life of the loan.

3. VA Loans: A Benefit for Veterans

VA loans are guaranteed by the U.S. Department of Veterans Affairs (VA) and are an incredible benefit for eligible service members, veterans, and surviving spouses.

• Who they're for: Qualified current and former military personnel.

Key Features:

• No Down Payment Required: One of the most attractive features, allowing 100% financing.
• No Private Mortgage Insurance (PMI): A huge cost-saving benefit.
• Competitive Interest Rates: Often among the lowest rates available.
• Funding Fee: Most VA borrowers pay a one-time VA funding fee, though some are exempt.
• Benefits: Zero down payment, no PMI, competitive rates – truly one of the best loan options available for those who qualify.
• Considerations: Eligibility requirements (service history), funding fee.

Related: Do Interest Rates Really Matter When Buying or Selling a House?

4. Jumbo Loans: For High-Value Homes

Jumbo loans are simply loans that exceed the conforming loan limits set by the Federal Housing Finance Agency (FHFA). In Sacramento County, these limits are quite high (e.g., typically over $766,550 for 2025 for a single-family home, though this changes annually). If you're looking at a higher-priced property, you'll likely need a jumbo loan.

• Who they're for: Buyers looking to purchase homes that exceed the conforming loan limits, often those with higher incomes and excellent credit.

Key Features:

• Higher Loan Amounts: Designed for luxury homes or properties in high-cost areas.
• Stricter Requirements: Often require higher credit scores, lower debt-to-income ratios, and larger down payments (typically 10-20% or more).
• Can be Fixed or ARM: Available with both fixed and adjustable rates.
• Benefits: Allows for the purchase of more expensive properties.
• Considerations: Higher qualification bar, sometimes slightly higher interest rates than conforming conventional loans.

Finding Your Best Fit in Sacramento

The right mortgage type for you depends on your individual financial profile, credit history, down payment savings, and long-term goals. What works for one buyer might not be ideal for another.

Ready to explore your mortgage options and find the perfect home in Sacramento or Elk Grove? Don't navigate the complexities alone! Contact our experienced real estate team today. We can connect you with trusted local lenders who can guide you through the application process and help you secure the best financing for your dream home.