Understanding the Different Types of Mortgages

Mortgages aren’t one-size-fits-all, especially in a place like Los Gatos, where real estate decisions come with high stakes and even higher price tags. Whether you're buying your first home or upgrading to your dream property, the loan you choose can shape your financial future just as much as the home itself. That’s why it’s so important to understand how different mortgage options work before you start your home search.

In Los Gatos, where median home prices often exceed $2 million, choosing the right mortgage isn’t just about securing a loan—it’s about creating a financing strategy that supports your purchase from offer to closing. Whether you're a first-time buyer eyeing a condo near North Santa Cruz Avenue or moving up to a custom home in the hills, your mortgage needs to reflect your financial picture as well as your long-term plans.

The structure of your loan can affect your buying power, monthly budget, and how your offer is received in a competitive market. When you're backed by a loan that matches your goals, you're better equipped to move quickly, negotiate effectively, and avoid costly surprises down the line.

A fixed-rate mortgage is exactly what it sounds like: the interest rate stays the same for the entire term of the loan, usually 15, 20, or 30 years. This is the most straightforward and stable mortgage option, making it a popular choice for buyers in Los Gatos who plan to put down roots.

Why It Works Locally: Given the high home values in Los Gatos, a 30-year fixed-rate mortgage helps many buyers manage larger loan amounts with consistent monthly costs. It offers peace of mind when budgeting for the long term, which is especially important in an area where property taxes and living costs can add up.

An adjustable-rate mortgage starts with a lower fixed interest rate—typically for 5, 7, or 10 years—then adjusts annually based on the market. The initial lower rate can help buyers afford more home upfront, but there's some risk if interest rates climb later.

Why It Works Locally: For professionals relocating to Silicon Valley or buyers planning to sell before the rate adjusts, ARMs can be a smart short-term strategy. In a market like Los Gatos, where home values historically appreciate well, the flexibility of an ARM might make sense for those not staying long-term.

In Santa Clara County, any loan over $1,209,750 is considered a jumbo loan. These loans aren’t backed by Fannie Mae or Freddie Mac, so lenders take on more risk, and often set stricter qualification standards.

Why It Works Locally: Let’s be honest—most Los Gatos homes require a jumbo loan. Whether you’re eyeing a $3M home near Los Gatos High School or a custom-built estate in Glen Una, jumbo loans are the norm here. Expect higher credit score requirements, lower debt-to-income ratios, and larger down payments—often 20% or more.

FHA loans are insured by the Federal Housing Administration and designed to help more people become homeowners. They allow down payments as low as 3.5% and accept lower credit scores, but come with mortgage insurance premiums (MIP).

Why It’s Less Common Locally: Given the high home prices in Los Gatos, many properties exceed the FHA loan limits, which cap at $1,209,750 in 2025 for Santa Clara County. Still, FHA loans can occasionally work for condos or smaller homes on the lower end of the price spectrum—or in surrounding areas like Campbell or Saratoga.

VA loans are backed by the Department of Veterans Affairs and offer incredible benefits: zero down payment, no mortgage insurance, and competitive interest rates. Borrowers do pay a funding fee, but it can often be rolled into the loan.

Why It Works Locally: For veterans looking to settle in Los Gatos, the VA loan is a powerful tool, especially when paired with a strong local agent who knows how to structure competitive offers in a fast-moving market. With no down payment required, it's one of the few ways to enter the Los Gatos market with limited upfront costs.

Interest-only mortgages allow borrowers to pay just the interest for a set period (usually 5–10 years), after which the loan converts to a fully amortizing structure. Payments are lower at first, but rise significantly later on.

Why It Works Locally: Some affluent Los Gatos buyers use this strategy to free up capital for other investments, particularly in tech or real estate. It’s a more advanced loan product and works best when paired with a long-term financial plan.

When comparing the types of mortgages, think about your timeline, financial stability, and how long you plan to stay in the home. A young tech professional might benefit from a 7/1 ARM with a low intro rate, while a family settling in for 20+ years may opt for a 30-year fixed.

Always consider:

• Your monthly comfort zone: Not just what the bank says you can afford, but what fits your lifestyle.
• Your long-term goals: Are you building equity, renting part of the home, or planning to move again soon?
• The total loan cost: Look beyond the rate. Closing costs, points, insurance, and future rate changes all matter.

Working with a mortgage broker or lender who understands the unique dynamics of the Los Gatos market can help you match the right product to your goals.

There’s no universal answer when it comes to the best loan—only what fits you best. From fixed-rate stability to flexible jumbo options, understanding mortgage options helps Los Gatos buyers make smarter, more confident decisions in a competitive real estate environment.

Navigating the many types of mortgages doesn’t have to be overwhelming. The experienced team at Vantress Real Estate works hand-in-hand with local lenders and financial experts to guide clients through every financing decision. Whether you’re buying your first Los Gatos home or upgrading to your forever property, they’ll help you find the mortgage path that supports your vision—and gets you to the closing table with confidence.