You Might Be Paying Almost a Full Point More on Your Mortgage, Just Because of Which Loan Type You Picked

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Most mortgage rate headlines report a single number, “the 30-year fixed is at 6.5%,” as if there’s one rate everyone qualifies for. There isn’t. As of today, the type of loan you use to buy a house moves your rate by nearly a full percentage point, and a lot of buyers never find out they had a cheaper option available.

Here’s where things actually stand today. The average conventional 30-year fixed is running around 6.52% to 6.62% depending on the data source. VA loans, available to eligible service members, veterans, and surviving spouses, are averaging closer to 5.90%. FHA loans are sitting around 5.95%. Jumbo loans, for amounts above the conforming limit of $832,750 in most of the country, are running considerably higher, around 6.80%.

That’s a spread of nearly 90 basis points between the cheapest and most expensive options, on the exact same house, in the exact same market, on the exact same day.

Why loan type moves the rate this much

Each of these loan types shifts risk in a different way, and lenders price that risk directly into the rate.

VA loans carry a federal guarantee, the government backs a portion of the loan if the borrower defaults, which lets lenders offer lower rates without taking on the full downside themselves. FHA loans work similarly, backed by the Federal Housing Administration, which is part of why they tend to run below conventional rates even though FHA loans are often used by borrowers with lower credit scores or smaller down payments, exactly the profile that would normally get a worse rate on a conventional loan.

Jumbo loans go the other direction. Because they exceed the conforming loan limit, they can’t be sold to Fannie Mae or Freddie Mac, which means the lender is holding more risk on their own books, or securitizing it through a less standardized process. That extra risk and reduced liquidity is why jumbo rates run higher even though jumbo borrowers often have excellent credit and substantial down payments.

Who actually qualifies for what

This isn’t just about picking the cheapest option off a menu. Each loan type has real eligibility requirements:

VA loans are limited to eligible veterans, active-duty service members, and certain surviving spouses. It’s arguably the best deal in the mortgage market for anyone who qualifies, no down payment requirement in most cases, and a rate meaningfully below conventional.

FHA loans are open to a much broader range of borrowers and are particularly useful for buyers with credit scores in the 580 to 660 range who might not qualify for a conventional loan at a competitive rate, or at all. The tradeoff is mortgage insurance premiums that apply for the life of the loan in many cases, which can offset some of the rate advantage over time.

Conventional loans remain the most common path for buyers with solid credit and a reasonable down payment, and they avoid FHA’s permanent mortgage insurance if you put down 20% or more.

Jumbo loans are simply a function of the purchase price. If you’re financing above $832,750 in most parts of the country (higher in designated high-cost areas), you’re in jumbo territory whether or not you’d prefer to avoid it.

The mistake worth avoiding

The most common misstep isn’t picking the wrong loan type outright, it’s not asking. A lot of eligible veterans end up in conventional loans simply because the lender they walked into doesn’t specialize in VA lending, or because they didn’t realize the benefit was still available on a second or third home purchase, which it often is. Buyers with moderate credit sometimes default into a conventional loan at a worse rate than the FHA option would have offered, simply because nobody ran the comparison for them.

Before locking in a rate, it’s worth explicitly asking a loan officer to run the numbers across every loan type you might qualify for, not just the one they defaulted to quoting. The few minutes that takes can be worth more than weeks spent waiting for the overall rate environment to improve.