Types of Mortgage (Loan) Products

A mortgage is either conventional or government-backed.

A mortgage is either conforming or nonconforming.

A mortgage is either fixed or variable/adjustable.

Conventional Vs. Government-Backed Loans

Conventional loans are issued by private banks and other financial institutions. They also are not insured by the federal government. Government-backed loans (usually referred to as Federal Housing Association “FHA loans”) are issued by private banks and other financial institutions but approved by the federal government. They are insured by the federal government.

Conforming Vs. Nonconforming Loans

Confirming loans are loans that comply with (or conform to) the financing limits and underwriting guidelines set forth by the Federal Housing Finance Agency (FHFA) and Fannie Mae and Freddie Mac. Nonconforming loans are loans that don’t comply with (or conform to) the financing limits and underwriting guidelines set forth by the Federal Housing Finance Agency (FHFA) and Fannie Mae and Freddie Mac. Nonconforming loans aren’t necessarily “bad loans” but typically have less advantageous terms for the mortgage holder, often with higher interest rates. Usually, applicants have a lower credit rating, higher debt-to-income ratio, or a down payment of less than 20%.

Fixed Vs. Adjustable Rate Loans

Fixed-rate loans have the same interest throughout the life of the loan. The most popular loan is 30 years fixed rate loan. If you have an adjustable-rate loan, the interest rate changes, or varies, over the course of the loan. There is an initial period at beginning of the loan when it is fixed but it will change at a predetermined time. For example, a 3/1 ARM (Adjustable Rate Mortgage) starts with a low initial fixed rate for 3 years; then will readjust every year thereafter through the life of the remaining loan.