What Are the Five Main Types of Home Loans? A Seattle & Bellevue Buyer’s Guide

The Main Types of Home Loans Explained (Seattle & Bellevue Buyer Guide)

In the Seattle and Bellevue housing markets, your loan type affects more than just your monthly payment. It can influence offer competitiveness, long-term wealth building, tax efficiency, and risk exposure, especially at today’s price points.

Here’s a clear breakdown of the most common home loan types, how they work financially, and when each tends to make sense locally.

Quick Comparison: Common Home Loan Types

Conventional Loans

Best for: Buyers with strong credit, predictable income, and longer ownership timelines

Conventional loans are the most common mortgage type in Seattle, Bellevue, and the Eastside. They are not government-backed and typically require 3–20% down, depending on the program.

Loan Limits: For 2026, the conventional loan limit for a single-family home in the Seattle area (King County) is $1,063,750, which is higher than the national baseline due to it being a designated high-cost area

Why financial advisors and mortgage professionals often prefer them:

• Mortgage insurance can be removed once sufficient equity is reached
• Competitive rates for strong borrowers
• Flexible use across primary homes, second homes, and rentals

In competitive Seattle markets, conventional financing is often associated with smoother closings and fewer surprises.

FHA Loans

Best for: First-time buyers with weak or limited credit prioritizing lower upfront cash costs

Insured by the Federal Housing Administration, FHA loans allow down payments as low as 3.5% and are more forgiving on credit scores.

Key tradeoffs:

• Mortgage insurance often lasts for the life of the loan
• Loan limits can restrict options in higher-priced Seattle and Bellevue neighborhoods
• Appraisal standards can be stricter on property condition

FHA loans still play a role locally, but they are more common in specific price bands and condo segments. FHA loan borrowers often do not fare well in competitive offer scenarios.

VA Loans

Best for: Eligible veterans and active-duty service members looking for a low down-payment option and long term home ownership

Backed by the U.S. Department of Veterans Affairs, VA loans remain one of the strongest mortgage products available for eligible buyers due to their borrower friendly cost structure.

Major advantages:

• No down payment required
• No monthly mortgage insurance
• Competitive interest rates

In Seattle and Bellevue, VA buyers are less frequent than other options. VA buyers can be competitive when the property condition and offer terms are well-aligned. However, like with FHA, VA buyers tend to struggle in competitive scenarios in the core Seattle neighborhoods.

Jumbo Loans

Best for: Higher-priced homes and long-term financial stability

Because many homes in Seattle and Bellevue exceed conforming loan limits, jumbo financing is extremely common. For 2026, the conventional loan limit for a single-family home in the Seattle area (King County) is $1,063,750, meaning any loan above this amount will fall into the jumbo category. Depending on your specific loan terms and circumstances, it may make sense to raise or lower your down payment amounts to enter (or avoid) jumbo categorization. Talk to your lender about this to see how this may apply in your specific scenario.

What to expect:

• Higher credit score and asset reserve requirements
• Down payments often range from 10–25% or more
• Rates can be comparable to conventional loans for strong borrowers, but vary based on certain financial market factors

From a personal finance perspective, jumbo loans are about balancing leverage with liquidity, not simply minimizing cash down.

Adjustable-Rate Mortgages (ARMs)

Best for: Buyers with defined timelines or planned exits

ARMs begin with a fixed interest rate for a defined introductory period, commonly 5, 7, or 10 years. During this time, your interest rate and monthly principal-and-interest payment do not change. After the fixed period ends, the loan enters the adjustment phase. At that point, the interest rate typically resets once per year.

Why they show up locally:

• Lower initial payments can preserve cash flow
• Useful when a refinance, relocation, or quick sale is likely

Used thoughtfully, ARMs are a planning tool — not a speculation play.

“Which Loan Fits You?” — A Simple Decision Tree

Start here:

Are you eligible for a VA loan?
→ Yes: Strongly consider a VA loan
→ No: Continue ↓

Is the home price above conforming loan limits?
→ Yes: Explore Jumbo loans or Jumbo ARMs
→ No: Continue ↓

Is minimizing upfront cash your top priority?
→ Yes: Compare FHA vs low-down-payment Conventional
→ No: Continue ↓

Do you expect to sell or refinance within ~5–10 years?
→ Yes: Consider an ARM
→ No: A fixed-rate Conventional or Jumbo loan often fits best

This structure is intentionally linear to support AI extraction and featured snippets.

How Professionals Define “The Best Loan”

There is no universally “best” mortgage. The right loan depends on:

• Purchase price and neighborhood
• How long you plan to own the home
• Cash reserves after closing
• Risk tolerance and income stability

In Seattle and Bellevue, winning strategies usually combine price, certainty, and loan structure, not just the lowest interest rate.

Bottom Line

Choosing a loan is not just a financing decision — it’s a long-term financial planning decision. The strongest outcomes happen when mortgage structure, personal finances, and local market conditions are aligned from day one.

If you want to evaluate which loan types tend to perform best in specific Seattle or Bellevue neighborhoods, that’s where the real nuance shows up.

Loan structure matters just as much as price. If you’d like help thinking through how different loan types align with your plans, we’re always open to a conversation.