Fixed-Rate vs ARM vs FHA vs VA Mortgages: What’s the Difference?

When exploring home financing options, it's important to understand the four most common types of mortgage loans: fixed-rate, adjustable-rate (ARM), FHA, and VA. Each loan type offers distinct benefits, requirements, and ideal use cases. Knowing how these mortgage types compare can help you choose the best loan for your financial goals and long-term plans.

Fixed-Rate Mortgage: Overview, Pros and Cons

A fixed-rate mortgage has an interest rate that remains the same throughout the life of the loan, typically 15, 20, or 30 years.

Pros:

• Predictable monthly payments

• Protection against rising interest rates

• Ideal for long-term homeownership

Cons:

• Higher initial interest rates than ARMs

• Less flexibility for short-term homeowners

Adjustable-Rate Mortgage (ARM): Overview, Pros and Cons

An ARM starts with a lower fixed interest rate for an introductory period (e.g., 5, 7, or 10 years), after which the rate adjusts periodically.

Pros:

• Lower initial interest rate

• Potential savings if you sell or refinance before adjustments

Cons:

• Interest rate (and payment) can increase significantly

• Harder to predict long-term costs

FHA Loan: Requirements, Pros and Cons

An FHA loan is backed by the Federal Housing Administration and is designed to help first-time homebuyers or those with lower income or credit scores qualify for a mortgage. To be eligible, you typically need a minimum credit score of 580 to qualify for the 3.5% down payment option (or 500 with a 10% down payment), a steady income, and a reasonable debt-to-income (DTI) ratio. The property must also be your primary residence and meet specific appraisal and safety standards.

You can read more about FHA eligibility and requirements on the HUD website.

Pros:

• Down payments as low as 3.5%

• Lower credit score requirements

• The loan is assumable, meaning a future buyer can take over your mortgage, potentially at your lower interest rate, if they meet the FHA’s qualification criteria.

Cons:

• Requires mortgage insurance (MIP)

• Loan amount limits vary by county and are influenced by local housing prices. In high-cost areas, limits are higher, while in lower-cost regions, the cap may be significantly less. You can check your local FHA loan limit on the HUD loan limits tool.

VA Loan: Benefits, Eligibility, and Drawbacks

A VA loan is guaranteed by the Department of Veterans Affairs and is available to eligible veterans, service members, and some military spouses.

For official VA loan eligibility guidelines, visit the U.S. Department of Veterans Affairs site.

Pros:

• No down payment required

• No private mortgage insurance (PMI)

• Competitive rates and limited closing costs

Cons:

• Only available to eligible veterans, service members, and some military spouses

• VA funding fee applies

Comparison Table

Mortgage Insurance Comparison

Mortgage Interest Rate Comparison by Loan Type

Interest rates can vary significantly between different mortgage types, and understanding these differences can help you choose the most cost-effective option.

• Fixed-Rate Mortgages: These generally have higher initial interest rates than ARMs because they offer long-term stability. However, they protect you from future rate increases.

• Adjustable-Rate Mortgages (ARMs): ARMs typically start with lower interest rates than fixed-rate loans, making them attractive in the short term. However, after the initial fixed period, the rate can increase or decrease based on market conditions, which adds risk.

• FHA Loans: FHA loans often have interest rates comparable to or slightly lower than conventional fixed-rate mortgages, but the overall cost can be higher due to mandatory mortgage insurance.

• VA Loans: VA loans usually offer some of the lowest interest rates available because they are backed by the government and pose less risk to lenders. These rates are often lower than both conventional fixed and FHA loans.

It's important to compare current rates across all loan types and factor in other costs like insurance and fees. You can explore up-to-date rate comparisons on our interest rates page.

Choosing between a fixed-rate, ARM, FHA, or VA mortgage ultimately comes down to your financial profile, how long you plan to own the home, and your eligibility. Each mortgage type comes with trade-offs in interest rates, down payments, insurance requirements, and long-term cost. Use this guide to help inform your discussions with lenders or mortgage advisors.

Which Mortgage Is Right for You?

Choosing the right mortgage depends on your financial goals and how long you plan to stay in your home:

• Fixed-rate is best for stability and long-term planning.

• ARM may offer savings if you plan to move soon.

• FHA helps if you have lower credit or limited savings.

• VA is ideal for eligible military members and veterans.

Not sure which is right for you? Compare the latest mortgage offers on our interest rates page to find what fits your needs.

Frequently Asked Questions

Can I switch from an FHA to a conventional loan later? Yes, you can refinance from an FHA loan to a conventional loan once you meet the lender's credit and equity requirements. This can help eliminate MIP payments if you have 20% equity.

What credit score do I need to qualify for a VA loan? While the VA doesn’t set a minimum, most lenders require a score of 620 or higher.

How does an ARM loan rate change over time? After the fixed-rate period, the rate adjusts based on a benchmark index plus a set margin. This could lead to higher or lower monthly payments.

Is a fixed-rate mortgage always the best choice for first-time buyers? Not necessarily. While fixed rates offer stability, FHA or even ARM loans may be more accessible or affordable depending on your situation.